FEATURE1 May 2011

Going steady

Buyers wanting their market research agencies to find them a competitive edge should consider an exclusive relationship. Brian Tarran explores the idea of proprietary partnerships.

Insights can be extremely powerful things. The right one applied in the right way can be the difference between success and failure in the marketplace. But what happens when everyone has the same insights? How can you differentiate yourself from your competitors when everyone is working from the same script?

Jeffrey Hunter, the director of iTech consumer insight at General Mills, found himself in this situation. He’d commissioned an agency to do some work for him on new product sustainability, only to realise through talking to his peers that his rivals were doing the same thing.

“Everybody was concerned with the same issues, everybody was working with exactly the same agency, everybody was getting the same insights and everybody was implementing the same recommendations,” says Hunter. “We were in a state competitive equilibrium.”

Clearly this is an undesirable state to be in. Companies are looking for competitive advantage and are interested in any “proprietary capabilities that give us that competitive advantage”, Hunter says. Theoretically, companies could build such capabilities internally but many have limited resources to hand. Instead, Hunter suggests, it might be more effective for companies to buy in these capabilities as exclusive deals – to form what he calls “proprietary partnerships” with agencies that have unique technology or analytical approaches.

These agencies would ideally be in the early stages of development, when financial and intellectual support would be needed to help them refine their approach, but in exchange for this support they would be prevented from working for their benefactor’s main competitiors.

But Hunter says there’s more to gain besides capital. “Through this symbiotic relationship the agency may be able to start to understand how clients process information and how they use that information to arrive at and support decisions, which will be useful for the agency as they go out into the world and start to compete on their own.”

Hunter believes there’s “a lot of merit in this kind of relationship” – though he wonders whether it will ever really take off.

“Everybody was working with the same agency and everybody was getting the same insights… We were in a state of competitive equilibrium”

Jeffrey Hunter

Getting closer
The idea of buyers forging such close links to suppliers – even to the point of owning them – is by no means an entirely new concept. The earliest example of such a relationship dates back to the 1960s when Research International (now merged with TNS as part of the Kantar Group) grew out of Unilever’s worldwide market research and marketing departments to become a stand-alone business. It was owned by the consumer goods firm and restricted in who it could work with – Unilever’s arch rival Procter & Gamble being an obvious no-no – until it was sold to the Ogilvy Group in the 1980s.

Over the years there have been client investments in research agencies: General Mills has backed the online research agency MarketTools and trends researcher Iconoculture, while Unilever has supported the development of BrainJuicer more recently. But none of these examples would fit the “proprietary partnerships” model as defined by Hunter.

Unilever’s involvement in BrainJuicer, for instance, was purely a money-making investment, says John Kearon, CEO of BrainJuicer. There was no exclusivity covenant in the arrangement and recent months have seen Unilever significantly reduce its stake in the business to realise some of its gains. “Had our model been different and Unilever invested in tools capabilities just for themselves they would have given themselves an edge in the marketplace,” Kearon says. “Jeff’s idea is a really good one. I’m surprised that more of the big multinationals haven’t done this.”

“Jeff’s idea is a really good one. I’m surprised that more of the big multinationals haven’t done this”

John Kearon

Or maybe not that surprised. Kearon thinks the absence of these proprietary partnerships has much to do with the way clients buy research. They don’t often view research as delivering a “creative cutting edge”, he says. Qualitative research is treated differently, “but when it comes to most quantitative research, it’s just compliance. Most quant is bought as an insurance policy – there’s no edge to be had, it’s just an arse-covering exercise.”

If clients can’t see any added value in what they are buying, then it’s hardly surprising that they see no reason to buy it on an exclusive basis, Kearon says.

Simon Chadwick, managing partner of the change management consultancy Cambiar and the former CEO of NOP World, makes a different point. He thinks that companies have chosen to accept that their competitors might work with the same research agencies “because that gives the research suppliers industry expertise, which has been viewed as more valuable than exclusivity”.

But as clients wake up to the drawbacks of competitive equilibrium this attitude will surely change. There’s also a sense that the market conditions are right for a proprietary partnership model to emerge now.

“The marketplace was dead ten years ago,” says John Kearon. “It was split between big research agencies and small quallies.” Now there is much more diversity in the market in both the types of agencies and the tools they employ – a by-product of the internet revolution, social media and new thinking about consumer behaviour. “Recent years have seen a Cambrian explosion in different types of agencies,” he says.

Capital is tight at the moment though, meaning “entrepreneurs are looking for resources wherever they can find them,” says Mary Meehan, the co-founder of trends consultancy Panoramix Global and past founder of Iconoculture. Necessity, then, might make start-up agencies more open to proprietary partnerships, but Meehan and business partner Vickie Abrahamson know first hand the value of strong client support early in an agency’s development.

General Mills was one of five companies they approached to get input and backing for their plan to add a syndicated product to Iconoculture’s consultancy offering. Meehan says the idea of creating a syndicated trends database, built around a subscription model, required “quite an investment”, so to win venture capital backing they needed to demonstrate client buy-in.

Although General Mills didn’t come on board as a financial investor until later, Abrahamson said it was still “instrumental in helping a fledgling company get off the ground” by being supportive of the syndicated product and contributing feedback.

“Firms accept that suppliers might work with rivals because It gives them industry expertise, which has been viewed as more valuable than exclusivity”

Simon Chadwick

A profitable partnership
Perhaps the most successful example of a proprietary partnership is that of Tesco and Dunnhumby, the UK retailer and the data analytics firm who have worked together on the Clubcard loyalty scheme since 1995.

Dunnhumby was just a small company of 10 people when Tesco director Dave Clements first worked with them. He says: “In the mid-90s the Tesco board set out its new long-term vision and goals for the company, which were about creating value to earn the lifetime loyalty of customers.” Clubcard was hit on as a way to achieve those goals: by tracking and analysing the purchase habits of individual shoppers the retailer would be able to develop highly targeted promotions.

A few years on, Clements says: “We decided that it would be a good idea to share our anonymised customer data with our manufacturers. Our thinking was that if we offered that insight to those manufacturers they would be able to come into Tesco with better offers for our customers.

“But in sharing this customer data we wanted to make sure we had a certain amount of control over it. We didn’t want Dunnhumby just to sell that data on our behalf: we were looking for a real partnership.”

It was at that point that Tesco bought a 53% stake in the business – it now owns 100%. Clements says Tesco saw in Dunnhumby significant expertise in data analytics and the ability to produce actionable insight. “We thought we could both benefit from each other” – the true aim of any genuine partnership.

Jeffrey Hunter was speaking at Research 2011. Watch the video of his talk here