Measuring the value of insight: Closer to the holy grail - Part II

A few weeks ago I wrote a post on the topic of 'measuring' the value of insight and proposed a conceptual framework demonstrating this concept. One of the key points that I was trying to make through the article was the differentiation between measuring the value of insight versus gauging the effectiveness of marketing research programs. As mentioned earlier, gauging the effectiveness of a program is relatively simple i.e. ascertaining if the research delivered insights that then enabled the company to make certain decisions towards meeting its marketing objectives. Measuring the value of the research is potentially more complex. By definition, it means linking the outcomes of the research program to financial metrics such as ROI, profitability or even shareholder value.

This post is the second of my articles that hope to get one step further towards finding the holy grail !

I have illustrated my framework by using the example of a new product concept testing program.

From the 'insight funnel' above, it is evident that the new product testing program was effective. It enabled the company to successfully launch the new concept and boost sales, which then led to improvement in profits and ultimately shareholder value. But what was the 'value' of this research program?

What makes this topic fascinating is that just as beauty lies in the eyes of the beholder, the value of insight lies in the eyes of the decision maker.. What I mean by this is that the value of a research program is subjective

Let's assume that the company invested $100,000 in the program, and the ultimate net profit impact as a result of the new product was $1 million. Can we attribute this $1 million to the research program? Does this mean that the research delivered a ROI of 10x? The answer is YES, only if research alone led to the new product launch. More often than not, this will not be the case.

There are situations when managers would probably take the same decisions in the absence of research, as they would with the support of research. In the example illustrated above, what if the managers (based on intuition and judgement) would have launched the concept anyway and created communications that resonated with the target? Does this mean that the research program was not valuable?

Absolutely not. In fact, any insight delivered plays the role of mitigating risk or increasing confidence. Given that businesses face multiple decision choices and need to make trade-offs based on the risk-reward potential of decisions,  an increase in confidence leads to an increase in probability of making that decision. If the managers were only 60% confident of success (before the research), the insights from research can said to have increased confidence ( or probability of making decision) by 40%. Hence, if the net profit impact was $1 million, $400 (40%) can be attributed to to research program.

This throws up another potentially complex variable into the mix, negotiation. Negotiating the value of the insights we deliver, in terms of risk reduction and increased confidence, is key in resonating with our clients' business needs. The more robust our programs and insights, the better will be our ability to negotiate, and the higher will be the value of the insights we deliver.