Why Is The Market Research Budget The First To Be Cut?

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Is The Market Research Budget Under Pressure?

A few years ago I was working for a UK commercial bank and the Marketing department had been called to meet the new Head of Marketing. As our new colleague was introduced to each area of marketing she acknowledged the value that they offer to the organisation. However, when she was introduced to the Market Research Team we heard the fatal words “Oh, yes, Market Research, the first area to be cut when there is a downturn.”

Ironically within a matter of months we were hit by the financial crisis of 2008 and almost immediately my budget was drastically cut back. So, why is there a perception that the market research budget is fair game when times are difficult? There are of course a number of inter-related reasons. From my experience here are the main factors behind this attitude to the market research budget.

Return on investment:

Senior managers understand numbers as they deal with them every day. To speak their language and gain trust it is important to provide figures on the value of research. Key here is stakeholder management to uncover all the potential benefits of decisions informed by research. But also follow-up on research by owning the action planning process, and agreeing how to calculate the value of research in monetary terms. This will put you in a stronger position to defend the market research budget.

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This will also help in trying to prioritise research budget from a ROI perspective. But more importantly if we are seen to estimate the benefit of research in monetary terms the budget is less likely to be perceived as a cost centre. Instead it may be a source of revenue and cost savings.

As managers are just as loss averse as the rest of us they don’t like to have to justify expenditure unless there is a benefit. Building trust by talking their language allows us to re-frame research in a more commercial sense. It opens up opportunities to discuss more strategic projects to address longer-term business goals.

Loss aversion can also be used to our benefit as research can help protect a brand by uncovering poor sales practices and training needs of customer facing staff though covert observational techniques. For digital communications research use A/B testing to measure any uplift in conversion. Then calculate the loss of revenue if the old content has been retained.

Herd mentality:

When other companies are reducing costs by cutting back on research and development. It is easy for a senior manager to use this as evidence to support their own plans to save money. This copycat or herd instinct is difficult to prevent as in times of uncertainty we like to follow what other people are doing.

Managers demonstrate a herd instinct by cutting the market research budget first

This of course is not always wise and when people copy behaviour blindly without assessing the risks it can end in disaster. The important strategy here is to identify and highlight those successful organisations that are not following the herd. Investigate their approach to research and their successes in the field of insights to demonstrate the value in having a longer time horizon. The market research budget should be an investment not a drain on resources.

Confirmation Bias:

Managers often suffer from confirmation bias as they look for information that will confirm their attitudes and opinions. The danger here is that managers often try to use insights from research to justify a decision they have already made. Rory Sutherland suggests that over 50% of market research may be commissioned as a kind of insurance against a decision going wrong. The manager can then blame the research if it proves a disaster. I suspect this is probably not far off.

If the research is for “arse covering” as Rory puts it I try to steer the research towards a more useful area of insight. Review the problem from a wider frame of reference and identify other questions that might be more valuable. Make a subtle suggestion to the manager by asking them if they had thought about asking this question instead. Explain how this new question would help their problem, but also how it might be more beneficial.

Also make sure you ask the commissioning manager what they think the research will discover to counter hindsight bias. You can add this to the brief and create a research hypothesis. The market research budget will be easier to defend if you can show you deliver findings that were not predictable.

Emotional attachment:

As human beings we are emotional rather than rational creatures. Our decisions are heavily influenced by implicit or psychological goals, such as power and autonomy. We respond most positively to people who take a genuine interest in our lives and make us feel important.

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Make an effort to get to know your senior managers, find out what motivates them, from both a personal and business perspective. This will also help you identify their achievements so that you can give sincere complements to build a stronger relationship.

This should also allow you to find out about their perception of research so that you can consider how to counter common misconceptions about market research. But the important behaviour is to listen and get them to tell you what their priorities are. You can then go back later with plans to target these needs. As is often the case it’s not what we know, but who we know that matters. Having a senior stakeholder as a champion of the market research budget will help protect your funding.

Targets & Short-Termism: 

Understandingly there is a tendency among public companies to focus on hitting the next quarterly targets. This tends to result in an obsession with setting goals to help meet these targets. However, research from the Harvard Business School – “Goals gone wild” indicates that goals imposed on people by others (e.g. sales, quarterly returns, customer satisfaction scores etc), narrow our focus and limit our thinking. This reduces our ability to come up with innovative solutions.

There is also plenty of evidence to suggest that goal setting can result in unethical behaviour. Tesco and Halifax (now part of Lloyds Banking Group) in the UK and Enron in the US are prime examples of where lofty revenue and growth targets encouraged a race to meet them at any cost.

Image of Enron E logo

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Short-term thinking almost inevitably leads to less research and development. Research can help counteract the negative side-effects of goal setting and inform decision making. You can employ loss aversion here to focus attention on the dangers of missing out on new emerging trends or disruptive technology.

You can also ensure that your focus reflects the needs of the business to achieve efficiency’s and cost savings by proposing projects that assist this process. Behavioural economics for instance can be used to used in many areas, from call centres to production lines, to create new habits and improve customer decision making.