SOURCE: The Boston Consulting Group

The Boston Consulting Group

November 23, 2009 00:01 ET

Gaps in Knowledge About Their Customers Are Hampering the Efforts of Some of the World's Top Companies to Pull Out of the Recession, Says The Boston Consulting Group

In the Wake of a Survey Showing That Fewer Than Half of Companies Know What Drives Market Share, Who Is Buying, and Why, BCG Urges a Radical Overhaul of the Way Consumer-Facing Companies Do Market Research

BOSTON, MA--(Marketwire - November 23, 2009) - Nearly 90 percent of blue-chip companies are not making the most of their market-research efforts, according to a new report released today by The Boston Consulting Group (BCG).

The report, titled "The Consumer's Voice -- Can Your Company Hear It?" offers stark evidence that even large blue-chip companies lack basic knowledge about their customers. In a survey of more than 800 executives based at 40 global companies with sales of $1.5 billion or more, only 35 percent said that they have good time-series data on how consumer needs and behavior change over time. Just 47 percent said they know what drives market share, who is buying, and why. And less than 45 percent said that their market research -- or "consumer insight," as many companies now call it -- is a source of competitive advantage or provides a high return on investment.

At the same time, many companies are failing to leverage the data they have. Most respondents (72 percent) said they use consumer insight to help with the development of new products and marketing messages, yet only 30 percent use it to help decide channel and distribution strategy. Only 33 percent use it as an input to their financial forecasts, and only 38 percent use it to drive pricing.

"Consumer insight is critically important now, as companies are fighting for their share of a shrinking consumer wallet," said Mary Egan, a partner in BCG's New York office and leader of the benchmarking study. "Only companies with the sharpest focus on understanding consumer value will retain customers in this environment."

The report is based on a 2009 study comprising of a survey of more than 800 executives (about half in the consumer insight function and half in line management), nearly 200 interviews with executives, and benchmarking data collected on the companies' structure, staffing, and spending. The 40 participating companies were all large global corporations (with sales of at least $1.5 billion) in consumer-facing industries such as packaged goods, financial services, retail and apparel, travel, and technology.

Many Frustrations with Consumer Insight

According to BCG, many companies continue to run the consumer insight function with an old-world mindset that asks market researchers simply to take orders rather than to act as strategic partners generating breakthrough insights. The result is a low return on a consumer insight investment that can total hundreds of millions of dollars.

The root causes for consumer insight frustrations lie both within the insight function and among executives in the rest of the company, as shown in strikingly contrasting responses to the survey. For example, 73 percent of consumer insight staff said that they always answer the question "so what?" about the data they provide -- but only 34 percent of their counterparts in the business units agreed with them. Meanwhile, less than half of consumer insight staff believe that senior management would pass "a pop quiz on basic facts about the consumer."

Better insight capabilities will require change on both sides. "Companies must upgrade the insight team's performance, while concurrently improving how line management engages with the insight organization," said Emmanuel Huet, Paris-based leader of BCG's Center for Consumer Insight and a coauthor of the report.

Closing the Gap on Insight Performance

The answer to better insight performance is not just to spend more money. Despite the fact that only 28 percent of executives believe they spend enough on market research today, the study found no connection between spending as a percentage of sales and insight performance. Instead, companies need to maximize the benefits of their current research spending by adjusting the mix of tactical versus strategic work and by investing time in synthesizing the results.

Paradoxically, the best companies actually spend less on consumer insight per full-time insight employee. As a result, the insight team is not forced to hop from study to study and instead has time to effectively draw out strategic implications from the research through structure and analysis.

The best companies also do more to invest in people. "Giving the insight team a seat at the table both requires and enables them to rise to the occasion. This means upgrading the performance of the insight organization by addressing such issues as hiring and talent, career paths, and training," said Kate Manfred, a Chicago-based principal and a coauthor of the report.

Improving Engagement with the Business

The top companies in the study all demonstrated a higher quality of engagement between the insight teams and executives in the rest of the business, driven by four key principles:

1. Ensure an appropriate interface with senior executives. The insight teams have access to senior management and are encouraged to contribute to cross-brand strategic decisions.

2. Move beyond a narrow marketing scope. Consumer insight is used not just for new-product development and marketing communications but also for a range of critical decisions from repositioning brands to exploring international markets.

3. Prioritize strategic work and exercise the ability to say "no" to some projects. Senior executives avoid asking the insight team to test every small packaging color change or line of ad copy. At the same time, a strong central insight leader helps ensure that insight teams spend time on the highest-return activities.

4. Strongly embed the insight team in the business units. Removing the insight staff from an isolated silo greatly increases their ability to remain abreast of key business-unit issues, conduct research that effectively addresses those issues, and provide actionable recommendations.

To request a copy of the report or arrange an interview with one of the authors, please contact Eric Gregoire at +1 617 850 3783 or gregoire.eric@bcg.com.

About The Boston Consulting Group

The Boston Consulting Group (BCG) is a global management consulting firm and the world's leading advisor on business strategy. We partner with clients in all sectors and regions to identify their highest-value opportunities, address their most critical challenges, and transform their businesses. Our customized approach combines deep insight into the dynamics of companies and markets with close collaboration at all levels of the client organization. This ensures that our clients achieve sustainable competitive advantage, build more capable organizations, and secure lasting results. Founded in 1963, BCG is a private company with 66 offices in 38 countries. For more information, please visit www.bcg.com.