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OPINION28 August 2009

Weathering the storm: Can marketing services groups still bank on research?

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Marketing services groups have been looking to the supposed resilience of research to help them weather the economic storm. Robert Bain asks whether this is wishful thinking.

In an interview with Research last October, GfK’s Phyllis Macfarlane said 2009 will be the year when we find out “if market research really is recession proof”.

Recession ‘proof’ might be an exaggeration, but the belief that market research is recession resistant, in comparison with related industries, is certainly widely held. The industry has in the past shown itself to be, to an extent, counter-cyclical, thanks to its role in minimising risk and providing greater certainty in decision-making.

The question is how this plays out in what might be the most severe recession since the 1920s, with clients slashing budgets and scrapping any non-essential activities.

Last year, when most companies were still taking a “wait and see” attitude to the financial crisis, there was still a lot of positive rhetoric about the resilience of research. But after the sharp deterioration in the fourth quarter, which, according to the Bellwether Report, saw record marketing budget cuts in the UK, attitudes changed. In Q1 2009 things were less bad, but still bad. Research Ratings, which provides analysis on the information industry, estimates that market research spending fell 8% in those three months.

“The global market for market research proved less resilient than expected and the assumption that it would be less affected by the recession than other advertising and marketing activities proved to be incorrect”

Statement from the Aegis Group

As a result, marketing services groups with their fingers in multiple pies have been looking to their research operations for a glimmer of hope as their other activities take a battering. But in results released by Aegis today, which showed a £3.2m loss for its research business Synovate, the group said bluntly that: “the global market for market research proved less resilient than expected, and the assumption that it would be less affected by the recession than other advertising and marketing activities proved to be incorrect, at least in the first half of 2009.”

And Aegis isn’t the only company that has been pinning its hopes on research.

Back in March WPP’s Sir Martin Sorrell said insight was one of the group’s “engines of growth”. But figures released on Wednesday suggested otherwise. Insight turned out to be the hardest hit of all the group’s sectors in the first half, suffering a 10% revenue decline on a like-for-like basis (excluding the effects of last November’s TNS acquisition), compared to 8% for the group as a whole.

Of course, things are changing fast, and it’s only gradually becoming clear where research fits into the big picture. But even in June we heard similar words from Creston, owner of ICM and MSL, which cited MR as one of the areas driving its “robust” performance – even though revenue for its insight division fell both in absolute terms and as a proportion of the group total in the year ended 31 March 2009. The company said it has already addressed the issues that led to the disappointing performance, and insisted that its weighting towards MR positioned it well for the future.

Stuart Butler-Smith of Research Ratings said he understands the temptation to fall back on research, but warns that the devil is in the detail.

“There has been a major trend of marketing or marketing services companies moving into market research because it would seem that the earnings profile of research companies is more stable and predictable than for marketing services or advertising,” he told Research. “The mistake companies make is to think market research is part of some greater marketing services empire, and it just doesn’t hold true because the business model is different. It’s slightly confused thinking to think that you can add on MR and all will be well.

“The larger part of MR is continuous information, and that’s a very different business model to, say, advertising. And with the advent of internet access panel research and digital information it’s going to go more and more away from the marketing services revenue model and business model. It can [be complementary] if you can manage it, but you need scale to do this.”

As recovery gets underway, research may yet fuel the growth these companies are looking for. In the meantime, it would be wise to take the received wisdom about research and recessions with a healthy pinch of salt.

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