Consolidation in the market research business

According to PaidContent UK, iSuppli, a well-known U.S.-based technology research company, has acquired Screen Digest, a UK-based market research company that tracks media markets. Three years ago, Screen Digest acquired Adams Media Research, one of the top researchers following the home video market in the U.S. Now, all three companies will be under one roof. The acquisition is intended to raise iSuppli into the ranks of companies like Forrester, which acquired Jupiter Research two years ago.

The multiyear recession has taken its toll on market research and industry analysis companies. Budget cuts by large clients have made them much more selective as to which research they buy. Some clients have gone out of business, and others have gone away through mergers and acquisitions. For example, the market research firm I worked for a few years ago had Nortel, Tandberg and Ericsson as clients, among others. Nortel has since gone bankrupt, and Ericsson acquired Tandberg. This same scenario is playing out for research firms in a variety of industries. It's hard to replace customers of that size, especially in a recession.

Small market research and market analysis firms are in a particularly bad spot, in that their values lie in the heads of their researchers and analysts. Unless they're highly specialized, their customer accounts are usually of little value to an acquirer that often serves the same customers and has superior sales capabilities.

The acquisition trend is likely to continue, with the following outcomes:

• Individual researchers and analysts (one-person firms) will hold on, because they tend to be more cost-effective and more flexible than the big firms.
• The small (2 to 10-person) research firms will have the biggest problems, because they're too small to be of interest to the big acquirers and most likely to be cut when customers whittle down their market research contracts.
• The medium- and large-size research firms will merge to get into new areas of practice and penetrate new customer bases. These mergers will result in consolidation of back office operations, with resulting layoffs.

You're (probably) not your target market

Many years ago, my Advertising professor said something that's stuck with me ever since: "Never forget that you're not your target audience." He meant that we weren't representative of the consumers to whom we were advertising, and that something that we really liked might not work at all with our target audience, while something we hated might actually work perfectly.

The lesson applies not only to advertising, but to product and market development as well. We're rarely representative of the customers that we're trying to serve. Product features that we think are essential may be far less so to customers. On the other hand, customers may want or need something whose importance we discount.

There are, of course, counterexamples. For years, HP used a technique called "next-bench marketing": Go talk to the engineer at the next bench, and ask them what instrument, device or feature would make their job easier or more successful. Then, go build what they asked for. The engineer at the next bench was representative of a whole class of engineers at a whole lot of benches, so solving a problem for one of them solved a problem for all of them.

If you're truly representative of the customers you're targeting, then by all means use next-bench marketing to figure out what products or services to make. But be sure that you're not making assumptions about customers that you don't fully understand. The best way is to actually go out and talk to them. Find out their pain points. Let them not only tell you, but show you, how they live and work. You're likely to find out that some of your hypotheses are dead on, and others are way off base. By talking to customers, you can spend more time developing products and services that have a real market, and less time pivoting away from products that "seemed like a good idea at the time."

The 2010 Census: Are we missing something?

Regular readers of this blog (both of you) know that I've spent a lot of my career doing market research. In the United States, the decennial (every ten years) Census is the single most important source of governmental and consumer research. Every household in the U.S. is required to participate in the Census, and it represents the "ground truth" dataset used to calibrate governmental, commercial and academic market research databases. Every ten years, the Census allows us to reset, recalibrate and build a strong base for forecasts.

I received the Census form yesterday and filled it out as instructed. In previous years, there were two forms: A short form, roughly equivalent to the 10-question form I filled out, and a long form which asked far more questions and got far more detailed responses. Most people received the short form, while the long form was sent to a statistically-selected sample of the population. In 2000, I received and filled out the long form.

For 2010, the long form is gone, and everyone fills out the short form. The 2010 form asks questions about age, race, ethnicity and housing. There are no questions about employment, income, or the more detailed ethnic, relational and housing questions that we've come to expect from the Census. Instead, a small sample of households, college residence halls, nursing homes, etc. will get the American Community Survey (ACS), which the Census Bureau sends every three years (2007 was the first year). Households who receive both the 2010 Census form and the ACS will have to complete and return both forms.

The information collected in the 2010 Census, while important, will no longer be as useful or insightful for governmental and commercial purposes as previous surveys. A lot of extremely useful information on employment, income, housing and more will be lost, and the ACS will only provide a statistical approximation. The whole reason for doing the Census is to completely measure the population, not a sample of the population. We may be losing too much for the little bit of money that we're saving.

The inside scoop on buying market research reports

Whether you're a marketer, product manager or investor, you can't help but see articles about newly-released market research reports in the trade press, on websites and in blogs. These reports could be a gold mine of information about your customers, vendors, competition or the market in general. However, there are lots of reports and publishers to choose from. Should you consider them at all, and if you do, how do you choose?

I earned my living for a few years writing these market research reports (sometimes called "syndicated" reports, because they're not sponsored by or paid for by a single company.) In that time, I learned a lot about how the business works, what to look for and what to avoid.

The first rule is that syndicated research will never replace talking to your current and potential customers directly. You can often learn more from your customers, for less money, by talking to them yourself. However, if you need research that would be too expensive or too impractical to gather yourself, or if you're starting a new business and you don't have a customer base to talk to, syndicated research may make sense.

You may be able to find the information you need for free. If you're looking for demographic and economic data and forecasts, national and state governments publish a wealth of information that's almost always available for free, online or at a local library. For U.S. statistics, USA.gov is a great place to start.

Just about every research company sends out press releases with valuable statistics and findings when they release a new report. A table of contents is also usually available from the company's website, which will give you a good idea of what the report actually covers.

If the report is newsworthy enough that the researcher who wrote it is interviewed or quoted in an article, they usually reveal additional facts not included in the press release. By starting with the press release (which you can get from the research company's website, PR Newswire, Business Wire, Google, Bing and many other sources,) and then searching for other mentions of the researcher/analyst or research company, you can start fitting together a picture of the report like pieces of a puzzle. Even if you can't get all the answers you need this way, this technique is a great way to narrow down the list of reports that might give you what you're looking for.

Let's assume that you've now got a list of two or three potential reports that might serve your needs. How do you choose? Here are a few guidelines:

• It's common to look at the size and price of the report, and go for the "best value": A 300-page report priced at $1,500 costs $5 per page, while a 60-page report priced at $600 costs $10 per page. What matters is the quality of the information and how applicable it is to your needs, not the page count or the cost per page. Many reports are padded out with duplicate information, boilerplate tables and data that you could find by yourself with a few hours of work.
  
  
• Most research publishers list biographies of their analysts and managers on their website. Some research firms hire freelancers to write reports, and their information may not be as readily available. Try to find out who actually wrote the report you're interested in. Search for them on Google, Bing, LinkedIn and other sites, and see how much experience they actually have in the area they're researching. It's not uncommon for reports to be written by researchers fresh out of college, or who came from a completely different market area. That doesn't necessarily disqualify either the researcher or the report, but it should definitely be a question mark.
  
  
• The age of a report is very important. Research reports generally have short shelf lives, especially in industries and markets that are changing rapidly. Even in markets where change historically has happened much more slowly, it only takes one major disruption to invalidate a shelf of reports. A  report written in 2007 forecasting the U.S.automobile market for the next five years would look like a description of an alternate universe today. I'd be skeptical of the accuracy and relevance of any market research report that's more than two years old.
  
  
• If the report that you're interested in is part of a series, see if the publisher will send you a back copy for evaluation before you buy. A report that's a few years old shouldn't be used for planning, but it will tell you a lot about the kinds of information that you can expect from the current edition. Ask the publisher if the researcher/analyst, methodology or organization of the current report has changed since the old version was released. High turnover of researchers and analysts can be a red flag.
  
  
• Ask the research company for a current list of clients. Most companies pad their lists with clients they had a few years ago, but have since left. Compare the current client list with the list on their website. If there are a lot of names that are on the website list but not on the current client list, that's another question mark--why did those clients stop buying reports or services?
  
  
• Are the research company's clients mainly product/service vendors or end users? Research publishers target their reports to their primary customer base. End users generally demand greater accuracy and impartiality, while vendors are interested in making their products look better, and both their sales and the overall market opportunity look larger, than they may actually be.
  
  
• If the report you're interested in includes forecasts, it's important to get previous years' forecasts from the publisher and compare them with what actually happened. If a research company primarily sells to vendors, their forecasts are likely to be higher than what actually happened. Optimistic research reports sell; pessimistic ones (generally) don't.
  
  
• The market research company should be willing to share its methodology with you. How many end users or vendors did they interview, how did they conduct the interviews and gather the data, and how did they compile the data? They may not be willing to share everything with you for proprietary reasons, but they should be able to answer the questions above.
  
  
• The size of the research firm is not a good indicator of the quality of the report. Bigger firms don't necessarily do better work. One major firm recently released a study that purported to tell end users which "white box" video content management services vendor would be right for their needs, but they cherry-picked six vendors for comparison, then were forced to issue clarifications and explanations as to why they limited their report to those six vendors. A few weeks later, the vendor who was picked as number one in the report did a webinar with the research company to sell its services. Whether or not there was a business relationship between the winning vendor and the research company before the report was released is immaterial; by partnering up to promote the findings of a clearly flawed study, both the research company and the vendor were tainted. (By the way, the report is still on sale for $1,750. Caveat emptor.)
  

In an economy where every dollar counts, don't waste your money on outdated or inaccurate syndicated research. Do your homework, and you might find what you need for free. When you need to purchase a report, spend your money wisely.