Industry Insight: Market Research/Management Consultants/CDD Industry
Making money is good, but we have to do this the right way. I want to share a story about market research industry which I only recently became aware of. The financial crisis was bad for everyone. Those who graduated after 2008, we don’t know what it is like to work in “normal” environment in the financial services. Some continue to attack the idea of “making money.” Greed was what caused the financial crisis, they say. I maintain that making money is good for you as an individual and good for a country/city/town/community. We just have to do it the right way.
Our day-to-day business is driven by data today. There is big data and small data. Big data – we have no choice but to share with internet search providers, credit card companies or banks. They are working hard to capitalize on those. It’s a fair play. I wish them luck.
What I have a problem with is small data, market research industry as a whole. Kantar (for example) is known for producing data that marketers and business people can use in planning what to do next (and partly how they did last month, quarter or year). We generally don’t ask questions about how these data is produced and the account managers are reluctant to go into that.
I am sure we all have used the Bloomberg terminal (now they have their own intelligence team BI ). With Bloomberg, we kind of know how they collect data. For example, their PORT function can value a mutual fund based on its holdings and last prices. There is mutual benefit between money managers and Bloomberg in sharing the full holding data because investors hate seeing funds with intermittent history. Kudos to the data collection team for reaching out to fund managers for such data.
Marketing data is not collected that way. Typically, a market research company decides that it might be interesting to look into one subject, let’s say electronic car market. They want to know the market size, key players, any opportunities for new entrants, all those Porter 5 forces related information. They can then write up reports and sell those to the players in the market or those thinking about entering. Where do they collect data?
Well, they have to call the players in the market to collect data, right? There is no other way. So you do your Google search, read annual reports (which you can normally get cheaply if not for free), you exhaust information that is publicly available. Now you kind of have ideas as to who major players are and how much market share those players have. Normally an annual report has a management commentary (which is not a proper analysis, but a good place to start). If you want to dig a bit deeper, you have to speak with the key players in the market, yes?
Each industry has conferences and events where industry-insiders are invited and share information. This is one of the events equity/debt/alternatives analysts (from the financial services) would like to attend and hear from/network with specialists. There are not many places where you can speak with 100 emission specialists from car producers and their suppliers at one time! If these market research firms and management consultancies took part in these events and collect the information they need, I wouldn’t have a problem with what they do. There is of course a significant cost involved in doing that.
The problem starts here. What do these market research firms that are running on the ultra-thin budget do to get the information? They don’t have a budget to attend those trade shows to speak with industry-insiders. How can they reach these industry-insiders if they have no budget or patience to attend these industry events (and build contacts gradually).
They have to cold-call. LinkedIn becomes their biggest friend and the clueless corporate receptionist becomes your second best friend. If a corporate receptionist stopped forwarding your calls, you are literally stuck. Some corporations do train receptionists not to forward any calls and the default position is “I am sorry. He is busy at the moment. Can I take a message?” If the caller insists, the receptionist has a quick chat/call with the person to see if he wants to speak with the caller. But some corporations don’t even bother. Their receptionists just forward any calls.
Once a market researcher finds a willing participant who is happy share data, he can ask a series of questions about company strategies, products they currently have, supplier relationship etc. He does the same thing for another company and another and so on until he feels he has enough information to write up a report on the electronic car industry and its dynamics. Now he can sell those reports back to the very people he spoke with, he collected the information from. The researcher’s role here is to bring together information from different sources and make judgment call on issues that are important in the industry. Market researchers or management consultants, however you want to call them, are creating value here, the problem is the way they created the value.
Sharing sensitive corporate data with market researchers isn’t making these industry-insiders richer. So why do we need market research companies that only skim the specialist knowledge and try to sell their partial knowledge back to the very people they collected such information from?
The whole industry works like this. You are not a college student but interested in the French revolution. Most colleges don’t have rigorous checks at the gate, so you just go into a classroom pretending to be one of the students. A professor is describing the French revolution and you take notes, take every word of what the professor said. You now sneak into another college and take a similar course and learn how the French revolution occurred based on another professor’s account. You do this 10 – 15 times across your state. You now know views that the most professors agree on and probably know something about discrepancies between these professors. You write up a report on it (so it’s like literature review). You now call up these professors and colleges and ask if they want to buy your report. Yes there is some value in your report, but the problem is how you obtained the data. You didn’t pay to attend lectures at all these colleges. You were too lazy to attend conferences these history professors attend a couple of times a year. You just “popped in and took notes” because no one questioned your presence. Even if you are questioned at one college, there are so many other colleges offering a similar course. You can just try the next door.
I don’t think this is the right way to make money. I think it’s a bad way to make money.
