FEATURE1 March 2009

States of the union

Andy Morrison, the new Casro chairman, talks to Brian Tarran about how the US research business is faring in the face of the economic storm

?Research: What are you seeing happening to agencies in the US?

Morrison: Well, it’s an uncertain period. We had a Casro board meeting in January and the almost unanimous perspective of the 20 or so companies that were represented there is that the economic impact is going to be significant throughout 2009 and probably into 2010. Most of the people I talk to aren’t completely losing clients, but those clients are being extremely cautious with their normal programmatic research. The tracking programmes, the quarterly research they do on a variety of topics – either they have cut back on those programmes or they are anticipating there is going to be a budget review in 2009.

Research: That seems quite significant. The view tends to be that the kind of stuff you mentioned – the tracking programmes – tend to hold up OK in a recession; it’s the custom projects that fall by the wayside. So the fact that there’s possible budget reviews in continuous research – is that something you have seen in previous economic cycles?

Morrison: History is instructive certainly, but I would start with the premise that it’s a different period – and in my opinion, there has never been a period like this in my 30 years in the business. We can talk about the early 80s or after 9/11 or other periods where there have been problems, but I don’t think I have ever seen it as uncertain or severe as it is right now. Going back to your tracking question, I think the observation is often made with syndicated tracking programmes. Those are usually contracted in such a way that those projects are still probably running and the real question is whether those contracts in the first half of 2009 will be renewed at the same pace as they normally would. On the custom side, when I talk about tracking programmes of the type Market Strategies does, our tracking programmes are customer satisfaction or brand-orientated, and they are fungible in the sense that a client can modify the tracking programme so that they still deliver information to their internal clients, but not at the same sample sizes or the same level of activity that they may have done previously. The programmes still exist – it’s often tied to incentive programmes internally, so they are hard pressed to do away with it – but at the same time, if they were doing 1,000 interviews a month, they may only do 800 or 600. That’s the general phenomenon we’ve seen. We don’t work in the consumer packaged goods industry or the automotive industry and I think selectively, industry by industry, there are really different dynamics at play. The auto industry, for instance: I can’t imagine trying to maintain client relationships under the current circumstances. The same is true with some of the retail and packaged goods clients, who are shutting costs as fast as they can to survive.

Research: What kinds of information does Casro have in terms of the state of the research market in the US? By how much are agencies collectively looking to cut jobs or costs, or how many firms are at risk of going under?

Morrison: I think in all sincerity it’s still too early to tell that, but I’ll give you a leading indicator. We created a webinar for our membership [which was conducted on 9 February] about how to deal with some of the challenges they might face – the alternatives they have in controlling costs; some of the legal issues in reductions of workforce or changes in financial benefits. We announced that on a Thursday at 1pm and by 5pm we had 27 people signed up. Now [on 4 February] we have 62, which is about 20% of our membership and we expect to have 75 or more by the time the webinar runs. That’s a pretty good indicator that there is a lot of anxiety out there. Despite the consolidation over the last decade and the size of the largest companies, the MR industry is still a mom-and-pop industry in large measure with lots of smaller companies. Those companies – those with one or two partners and twenty, thirty or forty employees – those are the ones that really need to scratch their heads and ask ‘What are we going to do to survive this?’ And I suspect that some of them won’t be able to survive it. Whereas the medium-sized companies, the Honomichl 50 companies – usually by the time they get to that point [about $15m in annual revenue] they have created a business structure and are being managed as a business in a very strong way, and if they take the right steps early enough and give themselves enough flexibility, then I would think that we shouldn’t see too many casualties from that group. Let’s say even in the catastrophic circumstance where the $8.5bn of market research done in the US is cut by 20%, that’s still $7bn – and $7bn funds a lot of companies. At $90m, my company still has less than 2% market share.

Research: Just to clarify, that was a worst-case scenario. You don’t think research spend is going to be a 20% cut, do you?

Morrison: I think that’s the worst case. I’m not a good enough econometrician or analyst to know what the actual case is likely to be, but I’m sure it’s going to be down 5 or 10%. I don’t think there is any doubt about that.

Research: What does this mean for innovation in the industry? In the past year, there has been a lot of new ideas coming through, a lot of excitement about Web 2.0 technologies. Do you see that continuing, or do you think the focus on surviving will see a lessening of innovation and excitement in this area?

“One of the things that very much concerns us is the scientific underpinnings of what we do as a profession. I think that has to play out in a much stronger way over the next couple of years”

Morrison: The concept of balance in risk and investment even during difficult times is critical, and I think the good companies will continue to make investments in new methodologies. Even when they have to make tough financial decisions, I think they are going to do that with an eye towards preserving their ability to innovate. Certainly, that’s our philosophy and I don’t consider us a unique company in that regard. Having said that, all the excitement over the various web-based research methodologies… I was talking to Peter Miller yesterday, the incoming chair of the American Association of Public Opinion Research, and one of the things that very much concerns the both of us is the scientific underpinnings of what we do as a profession and as an industry. I think that has to play out in a much stronger way over the next couple of years. There are still huge methodological issues that need to be addressed. If this industry is crippled, it really won’t be the economy so much as the lost trust of clients in the information we deliver, and that trust has to be based on strong science. We are a science, we practise a science. I think innovation is terrific, and I heartily endorse looking at multiple ways of collecting and analysing information. But I think, at least in the last couple of years, what gets lost in the excitement and enthusiasm is the scientific basis for those analyses. A web-based piece of research on a panel is not clearly defined as a scientific piece of research at this point – and I know the panel companies would dispute that – but they are convenience samples; they are volunteer samples.

Research: There has been a move towards applying these scientific principles to online panels. But do you have a concern that the economic situation might force those to take a back-seat again, as certain clients decide they just want the research as cheap as they can get it?

Morrison: I actually believe that there will be a flight to value, rather than cheap. Isn’t it logical that when clients have scarce dollars to apply to a problem they want to be absolutely certain that the information they receive is valid and applicable to the problem? In a freer economic situation they might be willing to experiment and try out new things with less certainty that they are going to get valid information at the other end of the process. In tough economic times, there is a premium on being right and being accurate, and being confident that the information you are applying to the problem is appropriate. If anything it toughens the supplyside of the industry, because we have to be absolutely sure that what we are delivering is going to create value.

Research: You said at the outset that it’s a bit too early to say what the industry might look like coming out of the recession. But would you say we are on course to have an industry that during this period has looked at the issue of quality and done something to resolve it? Or is there an alternative outcome that concerns you?

Morrison: I know that there is a desire and commitment to “quality” in the US, and what that means is really three different things. Preserving the ethical standards of our industry is the first part of that, but the second is that companies are going to be driven to become more efficient and productive and look closely at international standards like the ISO standards, which have been well adopted in the UK and other places like the Netherlands and Australia. Frankly, its time for companies in the US to seriously look at process and service quality issues in order to be more cost- efficient and to improve their own productivity. The third quality issue is to make sure that the scientific quality is just as good as it can possibly be so that we are confident in delivering information to our clients. Times like these make you mentally tough. I would say it’s a lot easier to manage on the upside when the uncertainty is not there. But when you are in this kind of economic circumstance, you have to really think hard about the decisions that will drive your company forward, and I think it does lend focus to the quality issues because you simply cannot afford to fall behind others in terms of what you deliver. Maybe I’m looking at the glass half full, but I’m hoping that through these economic times one of the benefits – if you can call it that – is that it crystalises and focuses the industry on quality issues.

?Andy Morrison is the new chairman of the Council of American Survey Research Organisations (Casro). He is also Market Strategies International’s co-founder, chairman and CEO.