Understanding the ROI of Market Research for Advertising

One of the most common questions about market research is about the value and return on investment (ROI). At the end of the day, what am I going to get? What value does it bring? Is it worth the cost? Is it worth the investment? Do I need it?

These are all asked (or at least thought about) by prospective users or buyers of market research. So how can one prove the ROI of market research? It is possible, to a degree, through careful measurement and before/after tracking.

Understanding the ROI of Market Research for Advertising


A Real Example of ROI

As in the case with a project Drive Research completed with an e-commerce client in 2017. The client utilized Drive Research for User Experience (UX) market research to make tactical improvements to its website to improve conversions and sales. Our team worked with the client to understand the before and after data. Direct comparisons could be made to understand before and after sales with the only changes to the site being improvements from the UX.

Read more about the ROI of market research case study example here.

This project produced a 665% ROI for the market research. The uptick is sales was nearly 7x the cost of the market research to the e-commerce client.


A Theoretical Market Research Case Study in Advertising

The ROI of market research in advertising is a bit more challenging to assess. In a perfect world where budget was not a concern, an advertising agency or marketing company would create a full A/B test with a team of clones.

One team would be assigned to run a full $100,000 advertising campaign without market research. A second team would be assigned to run a $100,000 campaign using market research.

Each team member would be cloned to replicate the group size, identical personalities, backgrounds, roles, and resources. In order for this theoretical case study to work, the only variable that would be different is one team would use market research while the other would not. Obviously, this is impossible.

But let's continue anyway. We can show you this theoretical example.

Questioning the ROI of market research in advertising? Here is a theoretical case study example which points to the return and value of market research.

 


Team 1: No Market Research is Used

First, let's walk through an example of the launching of an advertising campaign without market research. ABC advertising agency decides to launch a yearly campaign for a retail client which may involve television, radio, billboards, web design, SEO, paid search, eBlasts, and social media. The retail client is looking for the best recommendation to fit their $100,000 budget.

The advertising agency team of 5 brainstorms ideas on what channels are the best fits to reach potential customers, what segments of customers are perceived to be most valuable, what messages would motivate general consumers to buy, and what design and graphics are the best fits for the campaign.

This is all developed from internal conversations with the retail client and the ad team. The client bases their knowledge of the market and customers from subjective feedback and experience. The ad agency used hunches and educated guesses to assist with next steps.

Therefore, the team decides to run a campaign using television, a new website, paid search, SEO, and eBlasts. The campaign runs for 12 months and fulfills the entire $100,000 budget allotted by the retail client.

After 12 months the ad agency and client reassess sales growth since the campaign began over 12 months ago. They review online sales, in-store sales, conversions, and other channels which resulted in direct sales to compare to the total spend of $100,000.

Overall the advertising campaign was deemed a success. The $100,000 campaign resulted in a lift in sales of $250,000. Therefore the return on the advertising was 2.5x. There was no additional expense in market research.

By all means, this was a resoundingly positive outcome. No market research was needed to get there. However, we suggest you review the outcome of Team 2 below.

Campaign Highlights From Team 1: No Market Research

Campaign Budget: $100,000

Channels Used: Television, Website, Paid Search, SEO, eBlasts

Cost of Market Research: $0

Direct Sales from Campaign: $250,000

ROI of the Advertising: 2.5x

ROI of the Market Research: N/A


Team 2: With Market Research Being Used

Now, let's walk through an example of the launching of an advertising campaign with market research. The same ABC advertising agency launches its annual campaign for a retail client in which the same channels of advertising are considered. Similarly, the retail client is looking for the best recommendation to fit their $100,000 budget.

The advertising agency team of 5 clones decides to set aside $10,000 (10% of the overall budget) for market research at the beginning of the process. This market research results profile key segments of customers, reasons they chose the retail location, what types of media they use, and tests visuals to be used in the advertising. This is all accomplished through a cost-effective online survey.

Rather than rely on client perceptions and guess work, the market research definitively answers all of the questions surrounding the campaign. It quantifies the gut feelings and provides facts and evidence to help the client and advertising agency with next steps.

It tells the advertising agency to target these 3 customer profiles that spend the most and the top 2 reasons they choose the retail location. The research shows that the majority of the potential growth to reach new customers lies in the website design, SEO, paid search, and social media. Not television or eBlasts as Team 1 had thought. The design feedback also teaches the advertising agency that Visual B among the 5 tested resonates most with the customers.

As opposed to what was done with Team 1, this team decides to run a campaign using the channels the research guided towards. Now, the campaign of $90,000 plus the initial investment of $10,000 in market research runs for 12 months and fulfills the entire $100,000 budget allotted by the retail client.

After 1 year, the ad agency again reviews the sales return.

The campaign was a major success. The $90,000 campaign resulted in a lift in sales of $450,000. Therefore the return on the advertising was 5x.

The cost of the market research was $10,000 which resulted in an uplift of sales of $200,000 when compared to the campaign without market research. The ROI of the market research is 20x. A $10,000 investment resulting in an increase in sales of $200,000 compared to the outcome with Team 1 where no market research was used ($450,000 minus $250,000).

Highlights With Market Research

Campaign Budget: $90,000

Channels Used: Website, SEO, Paid Search, Social Media

Cost of Market Research: $10,000

Direct Sales from Campaign: $450,000

ROI of the Advertising: 5x

ROI of the Market Research: 20x


Market Research Increases Advertising ROI

Based on this example above, not only did the market research offer a high ROI (20x) but it also increased the ROI and success of the advertising campaign (from 2.5x to 5x). At the end of the day, the investment of $100,000 did not change but the money was spent smartly and the impact resulted in increased sales. Far beyond the cost of the market research.

No one would say Team 1 was unsuccessful right? Even without market research the advertising agency of Team 1 was still able to run a successful campaign and the client was happy. However, with Path 2, the market research proved to offer an even higher level of success and ROI.

Without conducting market research, the advertising agency nor the retail client would know how well the campaign could have performed. Market research increases you chance of success and lays a foundation for sound marketing and strategy.

Here is the recap:


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Interested in learning more or receiving a quote? Contact us at info@driveresearch.com or call us at 315-303-2040.

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