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Research Riddle

Posted on 2011/04/05 by admin2011/04/05

The client was slightly stunned to see our proposal for conducting a market research survey.  He blinked twice, signed the contract, and asked if the terms included surrendering his first born male child.

The good news is that we had no use for his offspring, and thus Junior was not part of the transaction.

sticker-shockCEOs from start-ups and billion dollar enterprises alike balk at market research.  There is always a cost, and unless the price is three digits or less, they often hesitate to commit … until I ask them what the cost of failure is, and the contract gets signed instantly.

The cost of failure fits nicely with our formula concerning market success.  The formal is beautiful in its simplicity, and reads:

P(s) = 1-P(f)

Or stated in English for those of your who forgot your college statistics class work, the probability of success equals one minus the probability of failure.  The elegant extension of this principle is that when you work toward reducing failure, the odds of succeeding automatically rise.  Likewise, the probable cost of failure can be easily estimated by taking the cost of an action (anything from a new promotional campaign to a start-up launch) and multiplying by the current state of ignorance, which is roughly analogous to the probability of failure.

The problem with committing to market research is that few people are certain about the need for it in one or another circumstance.  After all, in the realm of marketing, there are hundreds of variables.  The cost of achieving certainty among them all takes more money than Gawd has.  Likewise, perfect clarity is unnecessary — knowing any situation to a 65% level of knowledge is sufficient, because most competitors will likely have a 30% or less view into one or another market metric.

One process through which I drag clients is a marketing readiness review, whereby on a table of 51 strategic marketing elements we jointly identify how complete their knowledge and readiness are.  Any cell where they are less than 50% knowledgeable is an area where market research might be appropriate.

For start-ups, most of the cells score zero.

Interestingly, the more basic the knowledge, the more it affects other points of knowledge.  One’s estimate on segment sizes are hindered by a lack of knowledge about the total and addressable markets. Buyer expected outcomes from using a product are defined by market segmentation models.  The more primitive the information, the more items of refined clarity it affects.

The corollary is that if you don’t get the most fundamental marketing research right, everything else will be faulty and your probability of failure grows exponentially.

The marketing lesson is that market research is essential, but you don’t need to spend your entire budget to achieve perfect clarity on all aspects.  List what you know and don’t know, estimate the cost of failure for what you currently don’t know, then prioritize which bits of research are the most likely points of failure.  This will tip the success equation rapidly and help you make more money than Gawd.

Posted in Management, Market Research, Marketing permalink

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