Editor’s note: Deborah S. Colby is chief financial officer at Rockbridge Associates, Inc., a Great Falls, Va., research firm.

Market research professionals have all encountered a certain business type: the decision-maker who doesn’t see the value of research. We need to give these folks more credit, and focus on the valid question they raise about value.

As CFO of a company, the most important question in my mind when someone comes to me wanting to spend corporate funds is the likelihood that the proposed expenditure will ultimately return more revenue than we pay out (the return on investment). It is harder to measure the return on investment for market research than it is for some other types of intangibles. Unlike advertising, it may be impossible to measure sales before and after the research project is undertaken. Rather, market research is often part of a larger project such as new product development, customer service program management, brand management, etc.

The following guidelines will help research buyers get the most out of their market research budgets.

  • Use carefully designed research to get the facts needed to make good business decisions.

Cost-effective research is carefully designed to meet the specific decision-making needs of the client. Generalized customer information may be nice to have, but targeted research that seeks answers to specific questions is more likely to yield results that are actionable. A researcher who does exactly what you ask and no more may not be providing the best value. Even when dealing with well-prepared internal market research professionals, a “value added” research consultant will work with clients to understand the context of the research and suggest ways of getting useful information for decision-makers.

Avoid the temptation to load too many objectives onto a single research project. In an effort to stretch research dollars, there is a temptation to try and accomplish more than one objective in a single study. This can reduce the overall effectiveness of the research. Multiple goals can result in survey instruments that are too long and complex, raising the cost of completing each survey, since it takes longer for a respondent to answer all the questions. It also lowers the percentage of completed interviews, since at a certain point a respondent will bail out rather than give up more of their precious time. Aside from cost, analysis will be lengthier and may not be as narrowly focused if the study is looking at too many disparate questions.

One way to address the need to get multiple objectives accomplished is to conduct some initial research to identify issues and topics where more research could provide the most potent answers. Smaller, carefully crafted studies could be used to zero in on specific questions. A talented market research consultant will have suggestions for using advanced statistical techniques to get good information out of focused, smaller studies, as opposed to loading everything into one large project.

  • Use market research to avoid costly mistakes.

One useful way to evaluate a market research expenditure is to ask whether it helps avoid costly mistakes. Market research carried out before serious money is dropped on a product or service roll-out can certainly cut down on problems. For example, obtaining feedback from customers or potential customers regarding Web site design allows inclusion of the most desired features and exclusion of content that is extraneous or distracting. Similarly, conducting customer satisfaction research before, during and after instituting major changes in tech support or customer service departments allows them to be tailored to fix the most important problems, and also provides a way to measure the impact of the changes to help make adjustments going forward.

  • Use research to keep existing customers.

For companies with a solid customer base, retention is critical. It is generally far less costly to keep existing customers than to attract new ones. You don’t have to convince existing customers to take a chance on you, to break off existing relationships, or to learn a new way of transacting business. Survey research is a cost-effective way to listen to customer concerns. It enables companies to spot problems before they result in massive attrition, to explore new incentives to encourage customer loyalty, and to segment the customer base to help tailor products and services to a variety of customer tastes or needs.

Retention research may cover a broad range of customers and products or services, or it can be focused on specific high-impact customer groups or profit centers. For companies with a limited research budget, this focus can yield the greatest bang for the buck. Customer satisfaction measurement can be designed to be directly related to retention, or it may be conducted with a more long-range goal of succeeding through a focus on quality.

  • Don’t forget the time dimension in planning research.

Useful research can be made even better by including a benchmark component - some sort of before-and-after that helps identify the impact of a marketing decision on sales, customer satisfaction, revenues or profits. Where there is volatility in the marketplace, the time dimension is even more important. Tracking studies are often used as a scorecard to track changes in customer concerns or satisfaction or interest over time. Another, often overlooked, use of tracking studies is to continually monitor the marketplace to look for trend changes, catch them early, and to adjust company plans accordingly.

The ability to spot changes in the customer base and attitudes can help craft a response to the marketplace. In the early ’90s we conducted research where we were able to spot an early change in a trend that helped a client re-focus its marketing strategy. The first cellular telephone users were primarily male, primarily in construction and trades. We noticed that a disproportionate number of new subscribers were female. We were then able to conduct further research that explored women’s needs and reasons for subscribing to cellular service, thus helping the client tailor its advertising and service plans to their needs.

  • Use research to identify and develop strategies for attracting new customers.

Bankers and investors cringe when a company comes to them with a product in search of a market. They want to know who will buy it, how large the potential market is, and how the company intends to reach that market.

One way to use market research is to explore which customer needs the product is going to fill. Of course a company should first explore customer needs on the most basic level, and then think about what types of products or services it might offer that would meet those needs. The reality is that companies often already have a product or service in mind when they conduct research, and are looking for the best way to refine and market it.

Focus groups or in-depth interviews with potential customers can be used to uncover issues, explore what customers think of the product or service and how they think they might use it. This type of research is called qualitative because it is not intended to yield projectable results. That is, it can be used to get a flavor of the market and to find out what people think of the product, but it should not be used to predict potential sales volumes. Qualitative research may serve as an early warning system telling the company that it needs to go back to the drawing board to adapt its product or service to real customer requirements.

It is important to note that amateurishly planned and conducted focus groups can yield some useful results, but with greater care more can be accomplished. Since a high proportion of the cost of a focus group is field facility rental plus incentives for participants, regardless of who is conducting the group, choosing the low bidder is not the best choice if actionable findings and insights are sacrificed.

Assuming product development is complete, quantitative research can be used to explore the size of the potential market, and to identify different customer groups or segments within the market. Quantitative research differs from qualitative in that it tries to use statistical sampling methods to achieve projectable results. For example, in an effort to estimate the size of the market for a new type of loan, a market research study might interview a fairly large group of potential borrowers. Market size research is somewhat like trying to look into a crystal ball to foresee the future - impossible to do with certainty. Yet this type of information is exactly what bankers, investors and corporate decision-makers need.

A good market research firm will work hard on questionnaire design, sample design, sample size, statistical analysis and reporting to provide an estimate of market size that can be used for corporate decision-making. Good research will also point out areas of uncertainty and risk, and a careful researcher will make it clear that the ultimate market decisions are up to the user of the research.

Quantitative research may also be used to segment the market - to identify different customer groups based on a variety of factors from income to annual expenditures on the product or service to comfort level with new technologies. Sophisticated market research will look at whether several factors combine or cluster in a way that describes a market segment. The research can explore these segments in depth - their buying behavior, their attitudes, their reactions to advertising, etc. These are exactly the types of questions that need to be answered in planning how to reach a potential market.

The bottom line is that a company rolling out a new product or service may find that quantitative research is a necessary cost of doing business - necessary to obtain financing in some cases and to obtain internal support for the product in others. Because of the need to survey relatively large numbers of individuals to produce projectable numbers, and because of the professional skill level required for sophisticated studies, quantitative research is generally far more costly than qualitative.

  • Advanced use of market research — building on knowledge previously acquired.

Some quantitative research can be seen as investing in a map of a new territory - the potential customer base. Once a segmentation study is completed, for example, it can be used as the basis for future exploration of the best ways to serve the needs of each segment, the best way to communicate with each segment, how to maximize revenues through pricing strategies for each segment, etc.

Another dimension that can be explored using market research is change over time. A variety of tracking studies can look at issues from customer awareness of advertising, products, brand names, etc., to customer satisfaction with prices, products, services. The temporal dimension can also be added to segmentation studies, serving as a way to keep the map up to date and useful.

For a company that has enjoyed success using market research, building on that research is a cost-effective way to keep providing useful information for management. At its best, qualitative and quantitative research are tools that can be used to quickly and deftly react to changes, opportunities and risks in the marketplace.

Focus on fundamentals

The key is to focus on the fundamentals. For marketing professionals, this means returning to the basics of pleasing the customer and meeting marketplace needs. For market research professionals, this means getting and giving the most value for each research dollar. Research is an important tool for business. The type of research should be carefully chosen, designed and conducted with the goal of obtaining useful and insightful results.