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McGraw-Hill © 2000 The McGraw-Hill Companies
1
SM
Custom Research, Inc.Custom Research, Inc.
McGraw-Hill © 2000 The McGraw-Hill Companies
2
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
3
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)
McGraw-Hill © 2000 The McGraw-Hill Companies
4
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
McGraw-Hill © 2000 The McGraw-Hill Companies
5
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
McGraw-Hill © 2000 The McGraw-Hill Companies
6
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
7
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
McGraw-Hill © 2000 The McGraw-Hill Companies
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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
McGraw-Hill © 2000 The McGraw-Hill Companies
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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
McGraw-Hill © 2000 The McGraw-Hill Companies
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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
McGraw-Hill © 2000 The McGraw-Hill Companies
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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
McGraw-Hill © 2000 The McGraw-Hill Companies
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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)
McGraw-Hill © 2000 The McGraw-Hill Companies
13
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%