McGraw-Hill © 2000 The McGraw-Hill Companies 1 S M Custom Research, Inc.

McGraw-Hill © 2000 The McGraw-Hill Companies 2 S M Custom Research: Case 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 S M Custom Research - Industry Trends 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 S M How Does a Company like Custom Research Make 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 S M Why Not Serve All Customers Who Make a Contribution to 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 S M Why Not Serve Just the Most 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 S M Organizational 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 8 S M Do We Know Profitability 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 9 S M Average Sales Costs on Classified Projects

McGraw-Hill © 2000 The McGraw-Hill Companies 10 S M Alternatives Available to Custom 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 11 S M 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 12 S M Organization of Client-focused Teams 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 S M The Results