Big companies deal with many sectors and have the constant need to improve and try new things to keep their consumer engaged. Not only large tech companies but developing ones also spend on market research. They spent on research because of two reasons:
- Businesses have to be innovation-focused. Working in a constantly changing marketplace, they use research to test new technologies and try to satisfy the customers.
- Companies have resources, which simply is the reason to research more.
All organizations would benefit from having a solid market research practice, but startups don't have the money or staffing resources to dedicate to intense market research, and companies with mature products often don't feel a market pressure to spend money on changing/staying ahead of the curve.
How much do companies spend on Market Research?
It depends on multiple things. Some of the insights are Qualitative Research and Quantitative Research.
The total amount spent by companies on market research in 2015 was $68 billion worldwide. The biggest market research spenders by industry are as follows.
- Consumer Non-Durables, 23% of the total
- Media and Entertainment, 15% of the total
- Pharmaceutical, 13% of the total
Others like Government or Non-Profit Organizations (8%), Financial Services/Bank (7%), Telecoms and Wholesale/Retail (5%), Consumer Durables (4%), Research Institutes (3%), Automotive (6%), Advertising Agencies (2%), Utilities (1%), Other (8%).
Marketing-driven companies spend much more than product-driven companies. Companies like Unilever, Coca Cola, PepsiCo, etc. spend a few hundred million dollars per year on Research. These companies have a massive number of consumer brands, and the product does not change or update very often. Marketing and sales are key aspects of success, and insights can make a large difference in the business.
Similarly, success for media and advertising companies depends on reaching a particular number of consumers, so insights into their habits can make a huge difference for their effectiveness (e.g. message, channels used, time spent). However, even if you look at the biggest spenders, it is still significantly less than 1% of their annual spending.
Most big companies (1000 employees+) drive 80%+ of the spending.
Market research tends to be expensive if one does it with agencies, and low-cost / DIY alternatives (e.g. Google Surveys) tend to require trained people that few smaller companies have, otherwise they lack the quality to inform decision-making.
|Spending on Research and Development
|Johnson & Johnson
Why is Market Research important?
R&D is the necessary and initial phase of any process leading to technological innovation or market expansion. Research embodies a company's long-term vision and its strategy when innovation operates more in a short-term economic model of the company.
Research and development consist of investing money/resources to find innovative products, services, or processes that will enable the company to earn some goodwill and new technologies.
The experience and the knowledge accumulated by the companies due to R&D activities enhance innovation for any given company. At the end of the day, market research investment will allow the companies to gain in technology and future capabilities that would be eventually convertible into new products, processes, and services. Some of the gains of Research and Development are -
If the companies are conducting their R&D activities to reduce manufacturing costs and improve the system, it provides them with the solutions with less costly processes to manufacture the product and therefore provide more competing prices to the customers or increase their profit margin.
When the companies are looking to raise funds, R&D activities provide good opportunities to prove the company’s vision to their potential investors. By showing the investors that the company has the right structure to innovate constantly will make them understand that the company has everything it needs to meet sustainable growth. Investors are looking to invest in companies having a proactive approach of finance to manage their business, the constant investment in R&D will prove them the company has quite potential.
Through Research and Development activities, your company can acquire patents for new products you have previously developed. It can help gain a set of sustainable competitive advantages and position the company in an extremely comfortable situation within your market and therefore benefit from long-term profits.
Talented and skilled ones are also attracted via recruitment to innovative companies doing exciting things and providing exciting opportunities. With R&D activities, the companies will attract several qualified candidates to join.
Research and development have no guarantee of profits, companies spend a lot of time and sacks of money that sometimes turns into nothing. R&D is vital for many companies as they use it to expand their market share and increase sales. The top Research and Development spenders on this list have made a difference on the market, providing new technologies and products that have changed lives and the way the market worked.
What is market research in business?
Market research is an effective tool to assist your business planning. It is about collecting information that provides an insight into your customers' thinking, buying patterns, and location.
Why is market research important for a business?
It is important because it can identify how customers and potential customers might view your business and identify gaps in customer expectations. This is powerful information to have when completing your marketing strategy.
How much do companies spend on innovation?
On average, firms tend to spend 1-2% of turnover on various innovation-related activities, but this share exceeds 5% for large firms in some countries. R&D usually accounts for around one-half to two-thirds of all innovation expenditure, but the share varies widely by sector and firm size.
How much does Market Research cost?
The price for quantitative research can range widely, from $15000 to over $100,000, with most studies in the $30000-$55000 range.
What percent do companies spend on R&D?
Mostly, companies spend between 5-20 % of their annual revenue.
How much does the average company spend on research and development?
A company on average spends merely 2%-3% of their revenue on research and development.
Why R&D is important?
It is important in many senses like analyzing your target audience, competitors, recent trends, the reaction of consumers towards changing technology, etc. It minimizes the investment risk.
How is the R&D ratio calculated?
The price-to-research ratio is calculated by dividing a company's market value by its last 12 months of expenditures on research and development.