Outsourcing your market research needs

Many years ago, Philip Kotler observed that "companies tend to spend half of one per cent on research and 99.5% on promotion, when they would be better off spending 1.5 to 2% on research." Too many companies continue to minimize market research costs, even while gambling everything on a particular advertising or promotions program based on "gut feel." And it's true that many have gotten away with this strategy for years. Some have even succeeded fabulously.

Today's world, however, is more complex and fast-moving than it used to be. All firms must use their marketing information more efficiently as a result of such factors as:

• The shortened time span available for executive decision-making
• The fact that marketing activities are more complex and broader in scope than in the past
• The knowledge explosion and IT revolution

Given the need for marketing intelligence and research, the question that 21st century corporations must wrestle with is: Is the organization better served by outsourcing such work to experienced vendors, or should it build that expertise in-house, and rely on vendors mostly for fieldwork? Some organizations, especially larger corporations, do nearly all their research in-house, including project design, multivariate analysis, and focus groups. Others choose to outsource, while others do both on a situational basis. Let's talk about some of the advantages and disadvantages of outsourcing research work.

Advantages of Outsourcing Research

Following are some of the advantages of using an outside firm:

• Market research firms specialize in gathering, analyzing and reporting information. They have a comparative advantage and can probably do this type of job more efficiently than the average corporation.
• Market research companies have access to diverse professional talent that few firms have (statisticians, psychologists, etc.). For full-scale consumer surveys, it's unlikely that you have the personnel in-house or that you could divert sufficient staff to do the job properly. Even if you could, you might not want to spend the necessary time and money to train them for a one-shot project. That's what market research firms' field staff are for.
• Market research outfits have specialized facilities and software, including focus group rooms with two-way mirrors and state-of-the-art taping capability, electronic interviewing and data processing capability, and product test centers.
• Anonymity and security. Reputable market research companies never divulge the name of their client, which protects you while simultaneously increasing the validity of study findings by minimizing bias.
• Objectivity, especially if emotions are running high, the marketing issues have become politicized, or there is internal disagreement among different factions.
• Market research companies have access to a wide range of information and do business with clients in many different industries. They know where to find data, something that can be particularly helpful in the Philippines (a difficult place to obtain accurate data, especially for business-to-business market research). Good market research suppliers can apply their knowledge and accumulated experience to make a project run more efficiently and more effectively.

Trade-Offs

...But there are trade-offs. It is unlikely that a vendor will ever understand a client's situation as well as that client's own employees do. There is no perfect world. With outsourcing you get a broad range of experiences that usually aren't available internally. With internal work, you get a deeper knowledge of your organization and its needs.

Outsourcing means that you have somewhat less control over the work than you would have with your own internal staff doing the research. In managing your own research staff, you have daily input in such areas as project flow and sequencing, delegation of tasks, and scheduling. If you do a lot of in-house research, you'll probably strive to develop uniform methods and improve the overall capability of your "research team."

In contrast, vendors usually have their own way of doing things. As a result, they may be slow to adjust to your needs or preferences, especially if they have ten other projects going on at the same time. The market research company has its own standard operating procedures, and they are likely to do things differently than you would if you were doing the study yourself. Some vendors also see themselves as experts who are there to guide the client, which means you may face a battle getting things done just the way you want. While having internal research staff doesn't entirely solve this problem, it does give management greater daily control over these issues.

Things to Do Before Hiring a Market Research Supplier

Although situations vary widely, following are some pointers to bear in mind as you prepare for outsource a market research project.

• Think through your needs as precisely as possible, looking at the key marketing problems from as many angles as possible.
• Know what your research objectives are. What do you want to find out? What decisions must be made based on the results of study findings?
• Prioritize your objectives ahead of time. Understand which objectives are essential and which are merely desirable. The parameters of market research studies have been known to change midstream, so make contingency plans.
• Define your research needs in writing, specifying the requirements and parameters of the study to the best of your ability. This should include (a) a general statement of the problem, and (b) some description of the type of research needed to solve it. Don't worry if your formulation seems awkward or incomplete - that's expected, given that you need research to provide you with information about the unknown! A good research partner can later help you clarify and refine those objectives.
• Systematically review the firms available, ask your colleagues for referrals, consider previous experience, and check references.
• Hold preliminary discussions with more than one supplier. Such initial meetings can be invaluable in assessing the caliber of the company's research personnel and in preliminary assessment of chemistry. Remember that you will be working closely with the research supplier and must have good rapport and trust.

After you have done your homework, invite and compare proposals. Your written brief can serve as a basis; good firms will ask for a preliminary meeting or follow up with phone calls clarifying details as they finalize their proposals. A solid proposal shows a clear understanding of the problem and its marketing implications. It should address the issues you outlined in your brief, but may go far beyond that. Evaluation criteria include:

• Nature and qualification of the organization.
• Is the total price acceptable? There should not be that much variation among quoted prices. If there is, it's a "red flag" that different firms are operating under different assumptions. Always be aware that the lowest quote is not necessarily the best. The lowest estimated costs may simply reflect poor planning or low quality field work, sloppiness that can jeopardize the validity and usefulness of study findings for management decision-making.
• The fee should always be assessed relative to the quality of the study and the potential benefits of a sound study. The budget expended on research is almost always a small fraction of the total marketing budget, so it is flawed logic to always go for the lowest quote. Look for the best quality research at a reasonable and cost-effective price.
• As soon as you commission the study, establish points of contact with the vendor. As the client, you should appoint a single individual as resource person for the research contractor. The research firm will assign a research director to oversee the study. However, many other contacts may be required and wide accessibility to company personnel may be essential to the success of the research. Set a firm timetable, and schedule periodic meetings and informal status reports. As the data collection draws to a close, review preliminary findings before the final report is submitted.

To Outsource or Not?

Organizations that conduct relatively little research are generally better off to outsource the work, as they usually lack anyone in-house with the necessary expertise to do the job properly. In fact, many large corporations that used to have huge in-house market research shops have now turned to outsourcing for most of their research needs. Why? One reason lies in the dominance of more complex and sophisticated research techniques. Another is that many companies have downsized their middle and top management staffs. Results of cost-effectiveness analysis may well show that the intelligent use of a well-chosen, expert research supplier is far more efficient than continuing the old in-house model.

One useful definition of marketing research is that it involves "thorough and objective gathering and analysis of data that pertain to a given marketing problem." All modern marketers know that information is everything and that "what you don't know can kill you." If you don't have data or hard facts, you make assumptions - and making the wrong assumption can have devastating business consequences.

In putting research to work for your organization, there may not be an obvious decision in the question of whether or not to outsource. The key is to understand the advantages and disadvantages of each approach, so you can capitalize on the advantages and work to overcome the disadvantages, regardless of which approach you choose.

(This article was originally published in the Milennium Market Notes section of the Philippine Marketing Association newsletter.)

Clarence Henderson is president of Henderson Consulting International, Manila, Philippines. He also contributes the monthly Pearl of the Orient Seas column on the Asia Business Strategy & Street Intelligence Ezine.

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