MR industry faces challenges in UK

21 October 2009

LONDON: The market research industry in the UK is facing a number of substantial challenges, as the financial crisis and the emerging range of online data collection tools threaten its core areas of operation, a study by Morgan Stanley has warned.

According to Morgan Stanley's analysis, WPP Group, the advertising holding company, should be considered the "least preferred" option of the four major organisations it assessed.

The marketing services conglomerate boughtTNS, the research giant, last year, and currently derives around a third of its revenues from consumer insights, a field Sir Martin Sorrell, its ceo, has argued represents one of its main "engines of growth".

However, sales levels in this area have slowed since the onset of the financial crisis, with other similar organisations, like GfK and Synovate, similarly struggling as marketers trim their budgets.

In its report, Morgan Stanley said "we are concerned that market research pricing may remain under significant pressure even in a recovery scenario due to pressure from online competition that is driving down prices."

More specifically, Edward Hill-Wood, who authored the study, suggested many MR specialists have come under pressure from smaller rivals using various web and social media tools.

As such, most of the bigger players have moved towards providing "value-added" insights, an area that has come under increasing pressure during the recession.

"The whole sector has performed worse than expected. There was a little bit of false hope going into it – research was expected to trade through the recession relatively unscathed, maybe with flat revenue or small declines, and what's ended up happening is the declines have been very significant," Hill-Wood said.

Indeed, market research "wasn't really a category of any scale" in the slowdown of the late 1980s and early 1990s, meaning this period does not provide a fair comparison with the present climate, he added.

Similarly, in the slowdown at the start of the millennium, "you still had this massive theme of globalisation and deregulation, with lots of big customers entering new markets," boosting revenue levels for the MR sector, Hill-Wood suggested.

This situation has now changed, with the additional problem that the FMCG and automotive categories, which continued to advertise relatively heavily in the period from 2001 to 2003, have "cut spend aggressively" in the credit crunch.

While market research will always play an important role in certain areas, Hill-Wood thus predicted that "it's not ever going to be perceived as a defensive industry in the way it used to be."
"Regardless of your profits, you're always going to need to know what your market share is, so they're still getting that work, but the margin they're charging is much lower," he said. 

"They've dropped prices for that and raised prices for analysis. But if you're cutting your budget back significantly, you don't necessarily need all that expensive value-added data analysis."

Data sourced from Research Magazine; additional content by Warc staff