Creating a US Design Index to measure ROI

Market share is a tempting metric, but has its own problems. First, share of what? How are you defining (segmenting) the market? You can buy market share by giving away your product, lose money, and no one really even likes it. High market share often (though not always) implies you are competing on costs. Market share can therefore mean thin margins, offset by higher volumes.

VERY interesting topic!

Did you read this recent article?

No Accounting For Design?
Great design drives profits. We know that. But we can’t prove it–yet.

Thanks for thinking of posting this here.

“The methodology, two years in the making, recently yielded its first data-driven product, the KitchenAid Architect Series II freestanding range. With top scores in customer preferences, the Architect II won a 15% increase in investment over its predecessor.”

I do data-driven stuff all day long, so what’s different?

All I can tell is that Chuck worked out a deal with marketing where his preference numbers are on a sliding scale that determines increased investment (in BOM I presume.) Is that what everyone else gathers?

…once upon a time, i was involved in a product redesign project…the company was spending $7m in tooling to redesign interior components of a product…the first round of market research indicated no strong consumer preference for the product over the competition…i urged the project team to let me redesign the exterior control panel, which was not in the project budget…it only took me a week to develop the concept and a couple more to prototype…the consumer preference score jumped 300% (the research firm indicated that rarely saw preference scores in this range)…we got the extra $120k in tooling for the new panel, plus another $600K for 5 others in the product line…the new products netted $1m+ profit first year and the company gained 1% market share in category sales…this was seven years ago, so i am surprised to hear that everyone doesn’t do it this way.

Do you know what kind of research did they use?

By the way, there is a tracking system in place called the Innovation Index. It was started by BusinessWeek and The Boston Consulting Group. It is being watched and commented on by the following blogger

CG, userinnovation & all,

As member of a ‘Design Club’ in top-tier business school INSEAD, I am very interested in pushing this discussion further. We here actually are thinking of building a model for such an index.
To share some of userinnovation’s points: I agree it is not as straightforward as it seems. However, I do not see any major reason why this cannot be achieved, as many other indexes exist for innovation and other buzzword. Here is a possible lead. What you want is to quantify the value added by design. Value is here taken as the value of the shareholder’s equity. One method to estimate it is to use the present value of the future cashflows you are supposed to gain. This is kind of a more elaborate ROI (as used by CG), and it is widely used by most managers/finance people/management consultants worldwide. Interbrand uses this to valuate brand equity when they do their ranking for Business Week.
Of course, as for any valuation job, this whole valuation thing is not an easy task because of mainly availability of the data, pushing most researchers to either survey executives about their internal figures or use estimates, sometimes from the stock market. But we are a couple at INSEAD -which btw shares campuses with Wharton and collaborates with Art Center in Pasadena- who are interested in pushing this discussion further…anybody still in? -Bruno

Hello Bruno, count me in! Do you have any reading material to share?

Here is the second part of that article:

No Accounting for Design, Part II

I thought that you might be interested in this contest, as it is somehow related to this topic.

I wonder why this isn’t getting more attention…?

Revisiting this old thread because I just discovered that UX Magazine had the same idea, and came to similar results here in the US:

"On November 1, 2006 we invested $50,000 of our company’s money into a fund consisting of 10 companies we felt did a great a job at user experience. We wanted to test a hypothesis that companies who focus on UX will see it reflected in their stock price. The premise was to invest $5,000 in each company and hold the stock for 1 year. We called it the UX Fund.

…In the 365 days we owned our stocks the value of the portfolio increased 39.37%. This outperformed the major indexes (NASDAQ 18.09%, S+P 9.47%, NASDAQ 100 26.81%, NYSE 14.67%)."

Thanks for passing along the link. That’s some very interesting data.

In my experience, positive user experiences do reinforce a connection to the brand and encourage repeat purchases. However, I also know plenty of companies that have spent money on large research initiatives and failed to sell-through. Mainly the failures were due to marketing, positioning and strategic shortfalls that had nothing to do with the product experience at all.

Sometimes products are placed in the wrong channel and can’t reach their target, sometimes they’re marketed so poorly or incorrectly that consumers can’t even understand them, and sometimes all of that research isn’t even applied in the first place b/c companies have no idea how to execute.

I fundamentally believe in the value of front-end development, as appropriate for each project. I encourage everyone, especially young designers, to stick with it even if some of these other roadblocks have derailed your valuable insights. It’s easy for a company to say, “boy we shouldn’t have wasted our money on that research!”, when in truth the value of the research shows up only after a product has sold through.

Marketing and advertising must do their jobs for the research to have a chance to shine. That’s why companies like OXO are heralded now as champions of the user experience. Consumers trust that their products will offer a great experience, but that’s because their early products such as the salad spinner and good grips handle had a chance to sell-through and establish the brand.