OPINION20 February 2020

The squeezed middle

M&A Opinion Trends UK

Savanta’s Roger Perowne has been on an acquisition spree. He explains why he thinks it’s the middle sized agencies that need to rethink their business model to survive the current climate.

A clear business strategy is surprisingly rare in market research businesses. I wonder if that’s because we tend to fixate on our clients’ immediate and longer-term needs, rather than pay attention to our own futures? Or perhaps it’s because we are truly fearful of the future, with its predictions of change and disruption, and would rather turn a blind eye? Either way, it would seem prudent to have a plan.

But where to start? We have been going through this process ourselves at Savanta, and we have decided to start at the middle. This might seem curious, but I believe the middle is where most of the change in the industry is happening.

Growth is always driven by the middle

As context, research is fundamentally like any other industry; it grew rapidly in the 90s and 2000s with companies increasingly focused on intangible assets – brands, networks, relationships – driven by a much greater need to understand people’s thoughts and behaviours. Bingo! But where did it grow? The middle of course. Mainstream firms such as Ipsos, GfK and Nielsen expanded rapidly, snapping up businesses around the world to become substantial global players.

This trend mirrors a myriad of other industries, such as grocery (think Tesco, Sainsbury’s and Asda), clothing (M&S, Next and Debenham’s) and cars (Ford, Vauxhall and Nissan). Growth being driven by mid-market players – for example in 2007, £1 in every £7 spent on the high street was spent in Tesco.

But in the past decade this apparently unstoppable trend of mid-market growth has smashed into the buffers. The middle is now more often in decline, and in some industries the decline is rapid. As industries mature and growth slows, the middle tends to get squeezed from the poles. With grocery, it is Aldi, Lidl and M&S Food that have performed well; with clothing it is Primark, Boohoo and the luxury brands that have had a great decade; and in cars it is Kia, Dacia and Mercedes that are growing share.

Fundamentally, it’s the customer shifts that kills the middle. In automotive, for example, it was leasing. Leasing enabled credit worthy people to buy Mercedes at £500 a month, or a Ford at £350, so they bought a Mercedes. And all those who couldn’t get credit bought even cheaper, better cars because they were rational, value savvy buyers who saw what the likes of Kia, Skoda and Dacia meant.

The squeeze of the middle is also driven by new entrants who reset customer expectations. These new entrants are not going to pass on needless fixed costs to customers. They also make it the norm to serve consumers through cheaper to run platforms – easyJet and Ryanair disrupted the airline industry by making the customer do the work, dressed up as empowerment and speed, for instance.

Applying this to research

This trend may have been experienced later in our industry than some, but its impact is undeniable. We have witnessed a rapid fall in valuations of the historic mid-market leaders e.g. Kantar, GfK and Nielsen; alongside extraordinary value growth of software-empowered players, which promise simple studies done quickly and at low cost via automation e.g. SurveyMonkey, Qualtrics and YouGov.

At the same time, we have seen the major consulting firms give research much greater focus than ever before. Using it to drive board-level decisions.

This trend has truly only just begun, and to thrive it requires mid-market insight firms to change or struggle. Much like construction, a lot of research remains stubbornly expensive and too often the insight delivered is not very insightful.

How to grow?

The changes needed to avoid the ‘squeezed middle’ are more substantial than initially meet the eye. Insights firms must increasingly make a choice. Either invest heavily in technology, vertical integration and nimbler labour models to better serve the ‘inform’ pole of the market; or invest in knowledgeable, charismatic and impactful consultants to serve the ‘inspire’ pole. Better still, invest in both poles at the same time – but this takes deep pockets, a flexible proposition and a broad team skillset.

But what does this mean in practice? Ultimately at the ‘inform’ end, it means that a lot of the current processes being carried out by research professionals – tables, charting and reporting – are increasingly redundant. We need to vastly enhance our productivity through end-to-end automation, smarter databases, data gathering and AI. We also need to expand our delivery channels, giving the control our clients crave, through APIs, smart dashboards, portals, video, voice and so on. PepsiCo’s new ‘Ada’ platform is a glimpse at the near future. What begins with the multinationals will eventually become standard.

At the ‘inspire’ end, we need to train our people in additional skills such as business modelling, planning, innovation development, creative execution and process design. We need to go toe-to-toe with strategy consultancies to hire the best talent, while simultaneously persuading those in the C-suite that our ideas are worth listening to and implementing.

The challenge is daunting, and I imagine many firms will fall by the wayside. However, it also has the potential to become a golden age of research. Where our data, tools, ideas and impact are experienced by people across the world’s organisations every minute of the day; truly driving progress from the basement to the boardroom. Exciting times indeed.

Roger Perowne is global CEO of Savanta

3 Comments

6 months ago  |  1 like

Roger has hit the nail on the head. However, I think there is one other aspect of today's industry that contributes to his analysis: the emerging and very different capital structure underlying research, data and insights. The newer, technology-driven 'inform' players are backed by Venture Capital (especially in the US), while the bigger, more 'inspire' properties are now increasingly owned by Private Equity. Both poles benefit from significantly available capital. The middle, primarily privately-owned, does not. That's why we are seeing more and more 'middle-to-middle' mergers, giving size and seeking to attract the big pockets of PE.

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6 months ago

The new wave of MR technology capability is ready and waiting for the industry to grasp it and move ahead. It just needs the will and vision of it's leaders to grasp the mettle and take the plunge.

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5 months ago

Great article Roger. The good news is that there are technology solutions out there that can help on a case-by-case basis and can be scaled up accordingly. This will help both in terms of productivity gains and using new exciting tech to delivery. Thus freeing up the consultants to spend more time on adding true value to their clients. But yes, the scary (and also exciting) thing is that we need to get away from BAU doing things like we've always done them.

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