Market research agencies are losing out to larger information vendors and their ‘own the client’ strategies, warns Research Ratings founder Stuart Butler-Smith.
The first quarter of the year is typically the lightest for new business and renewals, so Q1 financial results have typically been the weakest set of numbers from which to draw new inferences for how the full year might pan out. And because the chief executive officers of listed companies would already have given us – and more importantly their staff – a view on the next 12 months during the annual reporting season, there really shouldn’t be anything new to comment on.
But this year, Q1 results are more telling – and that’s because they reinforce the pattern shown in both the third and fourth quarters last year.
The pattern is this: the traditional full service market grew at 1.6% in 2012, and we forecast continued low growth of 0-2% for 2013. Media measurement is the bright spot, forecast to lead growth at 4-6%, with ad hoc spending dragging at a forecast that is flat or slightly negative. Anything involving digital media, analytics, emerging markets, or the technology, energy or healthcare verticals, is a good place to be. Look at the results from the companies in the table (below right), and each will confirm this pattern.
Do the larger listed companies represent the fortunes of the whole industry? In a nutshell, yes. They are more diversified geographically and by discipline, and they tend to perform better than the industry as a whole. But what about outside the industry?
Spending indicators have been fairly directionless over the last three months, as they have been for the last six months, following a period of downgrades. Despite a pervasive sense of gloom, advertising, GDP and purchasing (general and vertical-specific) are actually telling us that 2013 should, at least, be no worse than 2012. Stock market indices for the highest-spending market research verticals of fast- moving consumer goods (FMCG), media and healthcare are most definitely on the up, indicating a shareholder mandate to invest.
So what information are they investing in? It may come as a surprise to readers that market research, which accounts for 18% of the $187bn that companies and public sector clients spend on data or content, was one of the slowest-growing information categories in 2012 (compared to the average increase of 4.6%). In other words, the same clients that research agencies sell to actually increased their spending on other data, such as financial, credit, risk, legal, geolocation and HR information, as well as event and conference attendance, and so on.
As we know, information purchasing is increasingly centralised and functional roles are converging. The information-purchasing ecosystem is becoming a boundaryless free-for-all confronting vendors and internal customers. Is this a one-off? We don’t think so. We believe market research spending will continue to lag over the medium term – it’s not just cyclical.
Own the client
So why isn’t someone making the case for market research? A clue to the answer lies in the supply side. A factor characterising many of the largest information vendors is a strategy to ‘own the client’ – something that many market research companies used to talk about four or five years ago. Starting with one product, these vendors have defined their clients’ needs, built platforms to deliver their data and licensed-in information from other vendors. But they have always owned the customer relationship, thus making the mutual dependency and loyalty so much greater. Market research agencies don’t enjoy that same degree of advocacy as they are usually one of a number of firms serving a client’s market research needs.
But there’s a strong financial case to be made for market research agencies to try to own the client. Spending on ‘marketing insight’ information grew to $49.4m in 2012. By 2017 it will have grown to more than $60bn, with non-traditional disciplines accounting for nearly half of it. These disciplines – of which fast-growing digital media measurement, online qualitative and social analytics account for $3.3bn – include elements of services provided by research and advisory companies; credit firms; magazine, conference and event organisations; vendors of solutions for survey software; access panels; neuromarketing; and predictive analytics. They will grow more than eight times faster than the traditional full-service market. If market research firms are to grow, the easiest thing to do is to build, buy or set up a joint venture with a vendor to provide their clients with what they want.
Or they could innovate – but it isn’t obvious that this necessary innovation is in the market research gene. It is the ‘new market research’ companies that are beating the innovation drum. Even though they represent only 12% of the total insight market, they account for 65% of new product launches; 48% of mergers and acquisitions; and 72% of distribution agreements. Of the 1,004 market research firms that we engage with, fewer than 20% launched a new product, service, office or joint venture in the year to May 2013. This is the lowest rate of innovation in the information industry.
Stuart Butler-Smith is the founder and CEO of Research Ratings