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.

"Measuring" the value of insight: It can and must be done, but how? (Part I)

I had the privilege of attending the AMSRS State Conference last week and really enjoyed all the presentations and ideas put forth by the speakers. However, the one that resonated with me the most was the one by  Duncan Rintoul on "The real value of market research". This is a fascinating issue and whilst there have been considerable advancements in measuring the value of 'marketing', the same cannot be said for 'marketing research'. 

The concept of measurement is not a new one, and neither is the idea of measuring the value of marketing research. But the presentation essentially crystallized some of my own thoughts on this topic, and provided a framework for thinking critically about the 'net' value of the research we do for our clients, as marketing research consultants. I think Duncan's approach is an excellent one, and I must commend him for this; not to mention that the idea has actually sparked a lot of discussion both within the agency and the client-side on how this could be taken further and implemented. 

The reason why I have inverted commas around the word measuring in the title of this post is because I wanted to differentiate between the notion of 'measuring the value of insight' versus 'evaluating the effectiveness of marketing research'. A research program is deemed to be effective if it enabled the company to make key decisions, which then translated in the achievement of broader marketing and corporate objectives. Measuring the value of marketing research, on the other hand, is quite different, and potentially more complex. It is about ascertaining the net dollar impact that the research had on the bottom-line of the company.

I think Duncan's presentation provides a good framework for evaluating if the research has been effective, but the point of my post is around 'measuring' the dollar impact of the research on key financial metrics. So essentially, it is the same idea taken to the next stage in the measurement chain.

So why is measuring the net dollar impact of research necessary? Why isn't ascertaining whether the research has been effective or not, enough? Well, quite simply put, it is because as a client, you are always contemplating between potential research proposals and programs. To truly extract maximum value, you need to select the research program that will deliver maximum net returns to the company.

Imagine this scenario: You conducted two separate research programs on brand tracking. Both programs provided insights that enabled in making key brand decisions and hence, helped in achieving your marketing objectives. But, which was more valuable? If you had to choose one over the other, from a purely financial point of view, which one would you choose? I think this is essentially the premise of my argument. 

This is an issue which needs detailed explanation, and I am not going to give a magic answer to this, but I will end by presenting my framework:

I will be sharing my insights and ideas on how to interpret this framework and also on how to tackle the last level in the measurement chain i.e. financial impact, in my next post. So stay tuned for more, and let me know your thoughts and comments in the meanwhile.