Return on investment is always hard to determine, but MR clients must take the long view, assess different suppliers and make sure briefs are understood before negotiating costs. By Alicia Clegg
Deciding what to charge for your services can be a nightmare. Aim too high, and you risk pricing yourself out of business; too low, and you sell yourself short. Over time, one might expect such problems would be ironed out as buyers get the measure of different suppliers, and suppliers, in turn, discover what clients are willing to pay to use them rather than a competitor. Such is the theory.
The reality can be very different, says independent market research (MR) consultant Richard Horswell, who runs “&£quotecheck” – an annual survey of the rates charged by market research companies.
&£quotecheck exists purely for the benefit of participating firms, and its findings are not published. It started in 1998 and now attracts 20 to 30 contributors a year. During this period, Horswell says he has found instances of MR professionals charging hugely different rates for supposedly the same service.
“For one project we had three quotes in the range of &£3,500 to &£7,000, and a fourth in excess of &£14,000. In my experience MR agencies don’t have much of a feeling for how their prices compare with those of their competitors.”
The rates charged by MR agencies are a matter of keen interest to clients. Some of the largest users of research have lately been adopting a tough stance on price. An example of this is the use being made of “reverse auctions”, a tactic where suppliers are required to shave their profit margins by bidding down the rates that they would charge to manage a client’s business. Terry Prue, a senior partner in HPI Research, once took part in a reverse auction for a quantitative and qualitative research project tendered by a multinational telecoms firm.
“The first stage required us to fill in a huge matrix detailing what we would charge for our services. Then we logged onto a website where we were told how many companies were offering to do the work for less than us, and asked how much we were prepared to reduce our prices by,” he says.
Reverse auctions are often used by companies that employ procurement managers to purchase MR, instead of making the marketing team responsible for agency selection.
As a cost-cutting device they work well. But do they meet the needs of the user? If MR is a commodity, where one supplier is the same as another, then probably they do. The difficulty, as Prue points out, is that only the most basic data collection and number crunching exercises are that standardised.
The crux of the matter is how research should be viewed – as a cost to be minimised or an investment which, like employing a management consultant, enables companies to make better choices and thus become more profitable. Added Value global chief executive Angus Porter has no doubts about where he stands on this issue, arguing that for brands to cut back on research is as myopic as economising on advertising. “The issue isn’t the size of the outlay, but the size of the return that the investment will bring,” he says.
MR companies would be better able to defend their fees if they were able to measure the “return” to which Porter refers. But estimating how many extra sales a firm made because it undertook a particular piece of research is a huge, many would say impossible, challenge which few agencies can take on.
In the absence of hard numbers, what clients should do is form a value judgement of their own. As Millward Brown UK head of client service Tim Wragg puts it/ “Expressing the financial value of research may be difficult, but marketers do know when research has helped guide a business or marketing decision that has worked well for the company.”
One manager in no doubt about the value that MR can bring to a brand is Crispin Beale, director of insight, intelligence and analysis at Royal Mail Group, and a Market Research Society council member.
Reasoning from the vantage point of someone who uses research to guide strategy, Beale argues that if brands automatically choose the cheapest supplier, they risk making policy decisions based on incorrect assumptions – and thereby jeopardise the success of their business: “An agency may offer you a fantastic price. But if it lacks the expertise to construct the questionnaire or sample, or cuts â¢ corners by interviewing consumers who don’t match your target market, the whole concept of value for money becomes meaningless.”
To which, he says, must be added the hidden costs of employing people whose work you feel obliged to micro-manage just to satisfy yourself that everything is being done correctly.
To achieve genuine value for money, Beale says that clients should develop long-term relationships with agencies whose work they respect. He urges clients to talk to suppliers about what constitutes a fair price for an “average” focus group or “hall test”, and then develop a rate card that bothâ¢supplier and client are happy to abide by.
The one caveat, he adds, is that there has to be scope to revise the agreed rates to reflect unforeseen developments. “If the rate card assumes a nationally representative sample, but a project requires the agency to recruit from a hard-to-reach group, such as an ethnic minority or deep rural community, you have to be prepared to raise fees.”
Rejecting a cost-based approach does not mean that research buyers should overlook opportunities for cost saving, but simply that they should learn to differentiate between value for money and false economy. Rule one, says Gill Aitchison, chiefâ¢executive of marketing and advertising research at Ipsos MORI, is to prioritise areas where the payback from research is greatest. She adds: “A lot of companies spend too much time measuring slow-moving changes. Tracking studies and audit data can eat up a huge proportion of budgets, leaving little resource to support product development or the repositioning of a brand.” Rule two is to exhaust published studies before commissioning new data/ “Existing research can get forgotten. Taking a fresh look at old data often yields valuable nuggets of insight,” she says.
The future is online
New ways of working offer opportunities to strip costs out of data collection, allowing more money to be spent on interpretation and the development of strategies to improve the brand’s performance. One possibility is to run focus groups online, instead of gathering people together in a room.
But can an online discussion, costing a mere fraction of the price of conventional research, match the richness of insights gathered face to face? Paul Dixon, research director at iD Factor, thinks it can. “In our experience the quality of responses is far superior when the discussion takes place online. We think it’s because people feel they have more time to respond and aren’t so influenced by what others are saying,” he says.
However, he acknowledges that research buyers may take some persuading before switching to an online model/ “We’ve shown that the methodology works. The challenge now is to convince people that online discussions are not only cheaper, but also better quality than their offline equivalents.”
Another industry body hoping to persuade clients that cost saving and quality can go hand in hand is the Independent Consultants Group (ICG). Lucie Wernicke, an ICG committee member, and director of the Qualitative Edge, argues that because independents and small agencies operate with lower overheads, they often charge a lot less than their larger competitors.
What is more, claims Horswell, research clients who engage large agencies are often disappointed to discover that it is junior staff who do the work, not the senior people who won their trust at the pitch. In this sense, says Wernicke, when companies engage a big agency, they often do so based on an assumption of value that may not be there.
Marketers who use MR in their jobs corroborate the claim that some large agencies have a habit of parading their top people at the pitch, only to hand over to junior colleagues once the contract is sealed. Caroline Parkes, planning director at communications agency Craik Jones Watson Mitchell Voelkel, has personal experience of this happening, and advises buyers to make sure they know who is going to manage the project on a day-to-day basis.
However, to imply that independent consultants and small agencies offer better value for money stretches the point too far. To begin with, there is the common-sense consideration that agencies of all sizes vary in quality. And while carrying overheads may make a supplier more expensive, it can also benefit clients by offering access to a wider pool of research professionals with a greater range of specialist skills.
Three simple steps
Finding the company that represents best value for your business is a marathon, not a sprint. However, there are a few simple steps that can move you closer to your goal. First, encourage pitches from a wide cross-section of suppliers, both large and small. Second, scrutinise proposals for evidence that the researchers have understood your priorities and have responded to them imaginatively. Third, identify your preferred supplier. Then – and only then – begin negotiating on price.