Is it Really Commodification? Some Thoughts on Market Research

July 16, 2010

Industry News and Trends

We often view the past through rose-coloured glasses, but it does seem like being a market researcher was easier in the past. To put it simply, it is harder to make money. While exacerbated by the global economic downturn in the past several years, the challenge has its roots in the evolution of polling over a longer period.

Importantly, the glory days of polling and market research have come and gone even as the demand for understanding about what is going on in the hearts and minds of consumers, customers, and citizens remains strong.

Consider the constant lament about the commodification of the market research industry. In its simplest form, the lament is a reflection of the frustration with price competition. But it goes deeper.

I lost project x because the client chose a much cheaper option which is so much lower than our bid that they clearly will get less (of something…. substitute, customer service, quality data, attention to detail, experience).

Experience like these are common and are partially based, as my quote suggests, on the frustration that providers have with clients who do not seem to recognize that buying research services is not like buying pencils. The underlying frustration is rooted in the idea that the buyers (from the sellers perspective) must have approached it like buying pencils (my apologies for those who make high quality pencils).

No doubt some of the drive behind the commodification is real. A result of decisions by  procurement departments in major companies and governments who are motivated by price and perhaps unable to evaluate the other aspects of bids.

Nevertheless, on one level the commoditization lament seems like nothing more than the frustration with trying to make money in an environment where both topline revenue and margin are being squeezed.

There are some good reasons to believe that making money is harder now than in the past and we can see various changes in the industry as a reflection of that challenge. Consider the following:

  • The dominance of telephone interviewing has waned and with it some key benefits to market research companies. Telephone interviewing is labour intensive (and became more so over time as cooperation rates declined) and requires capital investment. This served to keep budgets for studies high (maintaining or growing revenue) and provided a high cost of entry for competition (allowing companies to maintain margins).
  • While online research initially provided huge margins for those who conducted those studies, the high margins were on relatively smaller revenue streams. As a consequence, established companies were relatively slow to commit to this direction (fearing the cannibalization of their own revenue among other things) and new entrants could join the industry with relatively little investment.

We now have a market that has more players competing for a pie that is not really growing with each study worth less (on average) in real dollars. The implication is that margins and revenue will be hard to maintain if we continue with business as usual.

Of course, the way forward is for market research professionals to do the one thing that does drive profit and revenue: demonstrate better value for their services. In addition, we must better understand what clients value. There are a lot of potential drivers…. cost, full-service capability, proprietary tools, data quality, customer service, and client service.

By framing our discussion of the challenges in terms of commodification we are simply giving up on the idea that the question of value is multifaceted. Something other professional service industries don’t do.

If at present, cost rather than value is really driving  more market research decisions then in the past we need to look in the mirror and consider why our products are not valued.

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About Richard Jenkins

Market research professional and small business owner

View all posts by Richard Jenkins

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