Marketing Research Value and Cost of Information

01/09/2022 0 By indiafreenotes

Value of information (VOI or VoI) is the amount a decision maker would be willing to pay for information prior to making a decision.

Decisions of this type are made every day in a business. Companies will often pay market research firms to establish the likelihood that a new product will be well received. If the stakes are high, and the cost of product development is counted in the millions of dollars, then a firm may be willing to pay hundreds of thousands of dollars to get the information they need to reduce their uncertainty. Businesses place a value on information every time they buy competitive intelligence, hire a consultant, invest in information systems, and hire a knowledge worker and so on. Most business managers will not talk in terms of information value, but this is essentially the value judgement they are making.

Now in the example given above we assumed that our information source could be trusted 100%. In real life we don’t know for certain that a source of information can be wholly trusted, and so we have to modify our estimations of information value based on this uncertainty it reduces the value of the information.

The art and science of the cost and value of information is to make sure that the costs are less than the value. Some attempt is made to do this when we are talking of investments in information systems, but no such exercise is undertaken when someone undertakes a search for information on a casual basis. Common sense does come into play we wouldn’t sanction a three month project to establish exactly how much stationery a department was using, and how it was being used, if the potential cost savings were $100, and the three month project cost $10,000. However, many activities are not as clear cut, and for sure, the proliferation of information systems (and particularly social technologies) mean people are spending much more time dealing with information, and typically no one is counting the cost or even the value. This will change as firms struggle to become more competitive and efficient, but information productivity is still a missing science in most businesses.


There are four extremely important characteristics of VoI that always hold for any decision situation:

  • The value of information can never be less than zero since the decision-maker can always ignore the additional information and makes decision as if such information is not available.
  • No other information gathering/sharing activities can be more valuable than that quantified by value of clairvoyance.
  • Observing multiple new evidences yields the same gain in maximum expected utility regardless of the order of observation.
  • The VOI of observing two new evidence variables is not additive. Instead it is equivalent to observing one, incorporating it into our current evidence, and then observing the other.

Indirect Human Costs

Indirect human cost is more significant than direct cost and it is very illusive in nature.

Following is the taxonomy of indirect human costs:

  • Management Time
  • Management effort and dedication
  • Employee Training
  • Management Resources
  • Personnel Issues
  • Cost of ownership
  • Employee Time
  • Employee Motivation

Indirect Organizational Costs

  • Losses in productivity
  • Organizational Productivity
  • Strains on Organizational Resources
  • Opportunity Cost and Risk
  • Business Process Reengineering
  • Covert Resistance

Identification of Benefits

The following are the potential benefits of an IT system. In an implementation, some of the benefits may get realized and some may not get realized.

  • Reduced Head Count
  • Reduced manufacturing cost
  • Reduced inventory cost
  • Reduced down time
  • Better quality control
  • Additional new customers
  • Increased sales from existing customers
  • Better image of the Organization
  • Higher employee morale
  • Reduced attrition rate
  • The ability to recruit better employees

Market Share

Similar to earning growth one can also evaluate value of IS in terms of increased market share.

Customer Awareness and Satisfaction

Customer satisfaction is one of the most valued intangible benefits of an information system. For instance, an information system may help customer track status of their orders. Customer may check the stock status before he places an order. The information may be available online or through an operation who has access to information system of the company. There are many companies that conduct survey on behalf of their client company’s to determine the satisfaction level of their customers.