Measuring the return on investment of research spending in product development

How market research proves the very real impact of consumer insights in identifying successful product concepts.

By Nielsen, a leading worldwide market research company.


Exploring the potential of consumer research in optimizing the success of new products

In the Consumer Packaged Goods industry, sales growth is usually sluggish. This makes innovation and the introduction of new products all the more critical for brands. Given this context, Nielsen wanted to define the relationship between research spend and innovation revenue in order to understand the role of consumer insights driving innovation revenue.


Evolutionary optimization research methodology

The researchers decided to look at the technique of evolutionary optimization, which uses an algorithm to test millions of different concept alternatives, or different combinations of the ideas generated in the initial phase by the product development team, with consumers, who select which option they prefer most. The algorithm evolves learning from previous choices.

Across 20 randomly selected new product initiatives, Nielsen compared the average BASES forecasted revenue for concepts, versus those developed using alternate methods. To calculate forecasted revenue, Nielsen assumed a consistent level of marketing support and distribution for each brand, based on category averages.

So what?

Consumer insight remains a very important step in the innovation process

The concepts identified through evolutionary optimization yielded $13 million more in forecasted revenue than concepts that were chosen using other techniques. This represents a 38% improvement by evolutionary optimization over other methods of concept identification. On average, optimization improved an initiative’s probability of success by 65% and was four times more likely to identify an innovation ready for market than alternative research methods.

Instead of reducing insights spending, companies should be identifying areas where spending is having the most direct revenue impact and doubling down. By investing in algorithm-based technologies, marketers can test hundreds, or millions, of concept alternatives at once with consumers, in order to identify the best idea to produce products and services that will be successful on the market.