Changing how we buy research: Ways to shift the status quo

How businesses buy research in the UK impacts our sector’s 47,000 employees, not to mention keeping its £8bn value heading upwards. That means how businesses buy research is worth talking about. Especially as it rarely is.

Businesses buy research in four main ways:

•       Piecework pricing – paying per unit produced
•       Cost plus pricing – the cost to do research with a margin added
•       Time-based pricing – how long it takes people to do things determines prices 
•       Subscription-based pricing – a recurring fee for access to a product.

Looking at how businesses buy research, you could say all’s well. Businesses buy research in established ways. These ways of buying research sound logical, and they seem fair. Or are they?

Something being established doesn’t mean we shouldn’t change it. We used to buy kitchen towels by walking to a shop and handing over small metal circles. Now Amazon Dash means you can hit a button on your fridge door and the next day it’s delivered.

Piecemeal, cost-based pricing et al are logical. But is research about logic? Not always. Research is about creativity. Tacit knowledge. A-ha moments. What Rory Sutherland calls ‘magic’. Magic’s tools can’t be charged by the hour, or by a set of fixed deliverables. To paraphrase Giles Edwards, we’re in a place where we charge for the time it takes to do the magic, rather than the magic itself.

And finally, fairness. Is it fair to have an hourly rate per person, then have a business buy a volume of hours? Absolutely. But is it fair for a business to buy research to inform a decision that helps them launch into a multi-million-pound category, but only expect to spend £50,000 on research based on how many times the little hand moves? Absolutely not.

What’s the solution?
There are two pricing models rarely used to buy research: value-based pricing and outcome-based pricing. 

Value-based pricing is when a price is set based on the buyer’s perceived value of a service. In the context of research we could use this approach in several ways. 

Firstly, the price of inaction. What’s the cost to a business if they make a wrong decision due to doing no research?  

Second is a new audience’s value. Imagine this: Retail Brand A currently gets £0 revenue from UK under-25s. Gen Z account for 25% of UK retail spend. This makes them a £123.92bn opportunity. What’s a study to understand that audience and opportunity worth? Let’s assume it’s worth 1% of 1% of £123.92bn. That’d make said study worth £12.392m. Versus the commercial opportunity, a bargain. Would any business pay that? Unlikely.

Another approach is outcome-based pricing. This is where a business and a partner agree a price based on the partner achieving an agreed outcome. We could use this in instances such as compensating insight communication, as effectively sharing insight outputs is challenging. If researchers were compensated for meeting key performance indicators around insight communication, maybe they’d feel incentivised to invest more in this area.

Finally, there is research that links to business actions. Imagine a small business buys some ad-hoc research, but instead of paying a flat fee, they give the research team they hired a small equity share of their business. This means the research team has ‘skin in the game’ and shares the risk, but can also benefit from it growing.  

How can we change the status quo?

We need to do 3.5 things. The first is offer our buyers more benefits. Research by Diana Britton shows an alternative to a status quo must offer 2.6 times its benefit to trigger change. Research’s benefit is that it can drive well-evidenced business actions. But only 29% of research buyers are satisfied with agency’s ability to recommend business actions.

Simply put, we need to be as good at recommending business actions as we are at doing research to change established buying behaviour.

The second task is learning the vocabulary of value. Research is an investment – it pays a business back in the long term. Language like ‘costs’ and ‘budgets’ frame research as line items, not valuable assets that drive business outcomes.

Thirdly, be ‘bothist’ about traditional and behavioural economics. Mark Ritson uses a phrase called ‘bothism’ for how marketers should approach areas where there’s conflicting viewpoints. Traditional and behavioural economics’ role in pricing our work is one such area. Traditional economics methods are how marketers often measure their work’s effectiveness. Why shouldn’t we use it to measure return on analysis and research? Behavioural economics can help us frame new ways of pricing using context. As William Poundstone says: “Prices are arbitrary. Environmental cues and context matter more in discerning value.” When it comes to pricing, framing is therefore everything

Finally, dare to suggest difference. This is a half reason as we half do it already in terms of new methods. We need to dare to suggest new ways of buying research. Let’s remember – a huge amount of research is about helping clients be innovative and finding a point of difference. So, let’s apply the same thinking to how businesses buy research.  

Jack Miles is senior research executive at Northstar Research