Know-How Exchange : Research/Metrics

Market Research or R&D-type research?

I've spent enough time at large FMCG companies (including P&G) to be able to answer your question, but any answer I give you is bound to be misleading and potentially damaging.

The amount you spend on market research depends entirely on what you're trying to learn, what the information is worth, and what you're going to do with it.

There are brands that spend almost nothing, and there are brands that spend almost 100% (e.g. a new brand or start-up). So if you try to average them all, you'll get a dog's breakfast.

Let's step back and understand what you're really trying to learn and what you're going to do with the information if/when you get it. We're here to be helpful, but if I told you the answer is 4.35%, I'm not sure there's any way that would really help.

In that case, use 4.35%. It's as close as any other figure, and nobody will be able to prove you wrong!

P.S. Because the actual cost of market research is not a function of the size of the marketing budget, the percentage is generally lower for large brands with big marketing budgets, and larger for smaller brands with more limited budgets. it's also higher for companies with an active new product focus, and lower for companies that have mostly cash cows.

Again, the range is enormous ... from less than 1% to more than 50%.

And if anyone asks where you got the figure, please don't use my name! :)

Michael is right; it all depends and a number close to 5% but sounding more exact will probably fit your purpose.

About that purpose, do you want to:
a) tell your company/client it should be spending up to X% of its marketing budget on marketing research
b) assess the total potential for the marketing research industry in eg the US ?

As we are drawing numbers from our hat, you may also want to use the guidelines in Markstrat (a marketing strategy simulation game by StratX): there you typically want to spend 5%-10% of your advertising budget on marketing research, more if it is for a new market (anybody remembers Vodites?). Because the numbers in the game are based on empirical generalization from academic research, they may have some authority :-)

Cheers

One of the problems with this is that some companies include the cost of syndicated data (e.g., Nielsen, IRI, et al.) in the market research budget and some don't. And in many cases, those syndicated data costs are substantial.

Further, some companies have a dedicated market research person (or department), and they may or may not include the cost of that in the market research budget.

Ditto with the cost of smart analytics, to answer key questions using available data (including sales and customer data).

And companies with multiple brands in the same category may be able to split the cost of market research among the brands, so that the percentage of total marketing spending allocated to market research is lower for each brand (and thus lower as a percentage of the total marketing budget).

When you put those altogether, the average is truly a meaningless number ... somewhere between 0.5% and 50%. (I have a start-up client whose 2010 marketing budget was 95% market research. They're in the average too.)