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SM

Custom Research, Inc.Custom Research, Inc.

McGraw-Hill © 2000 The McGraw-Hill Companies

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SM Custom Research: Custom Research: Case ObjectivesCase Objectives

• To expose you to a marketing research organization and its activities

• To examine in a broad way the question of which customers an organization should serve

• To understand the implications of choosing to serve some but not all customers

McGraw-Hill © 2000 The McGraw-Hill Companies

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SMCustom Research - Industry Custom Research - Industry

TrendsTrends

• Concentration occurring among marketing research organizations (Exhibit 1)

• Bookings by large firms growing while those of small firms in decline

• Throughout the 1980s, more prospective clients felt custom research spending would increase (Exhibit 1)

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SMHow Does a Company likeHow Does a Company like

Custom Research Make Custom Research Make Profits?Profits?

• Study design--requires knowledge of client needs, demands of study, internal costs

• Good salesperson can recommend work that may help clients and increase profits

• Price quoted ultimately determines the margin that will be earned (must be done by experts)

• Once contract signed, costs must be controlled

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SMWhy Not Serve All Customers Why Not Serve All Customers Who Make a Contribution to Who Make a Contribution to

Profitability?Profitability?

• Focus can be lost, as is the opportunity to create binding relationships with clients that may lead to greater opportunities in the future

• Opportunity costs associated with serving one client or another

• Cost accounting and profitability measurement systems use arbitrary systems to assign costs

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SMWhy Not Serve Just the Most Why Not Serve Just the Most

Profitable Current Customers?Profitable Current Customers?

• Absence of data about what the future will be if some clients are favored over others

• Custom Research has info about margins earned on past jobs but no idea of what focusing on large clients might do to profitability

• No way to get this information without actually making a decision to change their focus

McGraw-Hill © 2000 The McGraw-Hill Companies

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SM Organizational IssueOrganizational Issue

• How to organize market research, selling and implementation?

• Experts needed in selling phase for development and pricing

• Costs of experts is high

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SMDo We Know Profitability Do We Know Profitability

of Each Project?of Each Project?

• Percentage margin on project (contract price less directly assignable costs divided by price)

• Percent margin after zero (margin after direct selling costs are deducted divided by price)

• Focus on margin % helpful to those pricing projects when they can estimate directs costs

• No way to calculate a return on investment for each job

• Can back into information on selling costs

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SMAverage Sales Costs on Average Sales Costs on

Classified ProjectsClassified Projects

Quadrant % Margin % Marginafter Zero

% SalesCosts

HI/HIVery LargeProjects

29.0 26.3 2.7

HI/LOLarge Projects

18.8 13.7 5.1

LO/HISmaller Projects

39.4 30.7 8.7LO/LOProfitable 85Small

22.0 8.0 14.0

LO/LO>$100K only

11.6 6.7 4.9

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SMAlternatives Available to Alternatives Available to

Custom ResearchCustom Research

• What criteria to use to decide whom to serve? Past? Current? Future? Estimate of demand?

• How to get rid of small projects?

• Attention could be given to raising the price of smaller projects to cover higher sales costs

• Smaller clients could be ignored or neglected

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SM What Happened?What Happened?

• Decided to work only with clients with annual business >$100,000 (now $200,000)

• Business became much more profitable

• CRI’s staff was freed up to focus on building larger accounts

• Reorganized to separate the sales and research functions and create client-focused teams

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SMOrganization of Client-focused Organization of Client-focused

TeamsTeams

Account Manager(client relationship

and sales)

Research Manager(design of projects)

Research Associates

Research Manager(programming and formatting reports)

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SM The ResultsThe Results

FY90 FY95

Number ofClients

157 73

Revenue (‘000) $10,297 $16,009

Operating Profit $948 $3,162

Profit/Revenue 9% 20%