Pay for performance, but whose?

One of the key talking points in marketing research circles recently has been the notion of 'pay for performance'.  Essentially, this means compensating marketing research consultants based on the 'quality' of their services, and/or value to the client's business. But in my opinion, this notion throws up the age-old question: how does one determine the performance of marketing research and insight?

It is true that advertising agencies have been quick to adopt this practice. Well, I believe this has been driven partially due to the transparency in what constitutes a good advertising campaign. The client and agency can generally agree on the parameters and benchmarks for campaign success such as awareness, cut through, memorability, brand associations or even ROI. This can then be measured either through market-based validations (in the case of sales) or even through post-campaign consumer research. Once the parameters have been determined and their assessment is agreed upon, the performance of a campaign no longer lives in a black box!

However, let's now apply the same principle to marketing research consulting. I am sure we all agree that 'performance' is determined by 'outcomes'. Well, the outcomes of a market research engagement are judged on the quality of the insights delivered and the actionability of the recommendations for the client.  Interestingly, the relevance and actionability of these insights is highly subjective. What agencies think is high quality work may be far from great in the eyes of the client. But who really decides this?

The true test of performance is in the value of the insights to the client's business i.e did the research help the business make crucial decisions that resulted in financial value? In all honesty, we don't even get to go that far - sometimes research is not even acted upon, in which case it is hard to truly understand the value of the piece of research work. The more we try to gauge the performance of a research engagement, the more we realise that the outcome lies in the hands of the client.

In my opinion, the performance of research lies more in the hands of the client, than the agency! Think of the below scenarios:

What the client does with the insight goes a long way in determining its perceived performance. A brilliant piece of insight may not even leave the boardroom of the client, in which case did the research engagement fail to deliver? Or a poor piece of research was executed brilliantly by the client - in this case, should the agency get the credit?

Based on the above, I am not really convinced that 'true' performance-based payment can be implemented yet. It's probably a great notion to work towards, however, I think it is fundamentally flawed as an approach, due to the number of extraneous factors involved!

Re-thinking customer satisfaction research

I am a strong believer in the notion that the ultimate goal of any research program is to drive business results. Customer satisfaction research is no different. I came across an interesting perspective on customer satisfaction research in Research Magazine and it got me thinking.

I think, many a times, customer satisfaction is used as a company-wide KPI without truly understanding how it drives business results, i.e. how customer satisfaction links with key business outcomes such as sales, market share, profit or even share price. I think understanding this causality with business measures is the first step in designing an effective program. I think it is crucial for any business to understand the impact that relative levels of customer satisfaction have on the business. For eg. on a 1-5 scale of customer satisfaction, does it make more business sense to convert 'satisfied' customers to 'very satisfied' OR rather to convert 'dissatisfied' customers to 'satisfied'?

One way of identifying the key levers is by understanding the nature of the relationship customer satisfaction has with business measures. This relationship could be one of the following:

Scenario 1 is a classic example of a case where the true focus of research must be on 'dissatisfaction' rather than 'satisfaction', given that higher gains may not be achieved by delivering superior customer experience levels. In such cases, the research must be designed and tailored to focus specifically on the dissatisfied segment, and how to improve their experiences.

Scenario 2 is an example of a business where satisfaction or customer experience is a critical part of the overall offering (for eg. the airline industry). Here, the research program must be more holistic; and designed to not only address poor experience levels but also build and drive superior experiences.

Scenario 3 is an example of a business where customer experience is not part of the overall promise/ offering but where superior customer experience can be leveraged to build competitive advantage. Here, the focus of the business and research programs must be on converting the 'satisfied' into 'very satisfied', and even further into promoters or advocates.

One still needs to track customer satisfaction with all customers as a high-level KPI - however, prioritising further research based on the above will not only help in getting the biggest bang for the buck from these programs, but also help in operationalising the results internally.