I recently viewed a YouTube video where a senior director from a sizeable research agency expressed views on the growing presence of procurement professionals in the selection and purchase of market research services. As might be expected, there were the usual concerns and complaints about the difficulty of communicating quality of thought and creativity of design via the procurement process. This was followed up by the fear that, in the long term, research would become a commodity bought merely on price.
Whilst I can sympathise with the extra administrative process this seems to impose on the agency, I don’t agree that it will lead to a price-driven commodity market. Let’s face it, when we buy things for ourselves, services or products, we only want to pay for what we need and what has value for us. Ideally, we don’t want to pay for superfluous extras or for inefficiencies in the providers’ systems, whether they be features on the Blu-ray player we don’t (can’t) use or paying the banks for the privilege of benefiting from our own money.
Once the components of cost and their impact on prices is better understood, client’s’ budgets do not shrink, they just tend be spent more selectively. The increased involvement of the oft-derided accountants in the buying decision will force agencies to better package services making benefits clear to non-researchers as well. In other words, agencies will have to provide the cost-effectiveness and ROI of their approaches as ammunition for end-users in the client so they can justify the case internally with the “bean-counters” (a term coined, ironically, by research pioneer Arthur C. Nielsen Snr!)
Procurement is not going to disappear, so to respond in a way that helps the research supplier to flourish means understanding more clearly where and which parts of the research process add value to the end buyer. Taking a positive approach to procurement will strengthen research businesses that don’t ‘resist’. By better understanding the COST of and the TIME generated to provide what’s not needed or valued, research agencies can better apply their resources to providing services and solutions that have incremental value. Thus, a successful agency would be one which spends the highest proportion of its time (i.e. its main resource) undertaking tasks that command a relative premium.
The real problem for many agencies is that they don’t have very good financial disciplines to help them identify costs and inefficiencies in their systems. For example, they often ‘under-recover’ senior directors’ time, which should be adding value, with inaccurate charge-out rates that don’t reflect reality? In many cases, it’s easier to mark up lower cost activities, but these soon get exposed by the procurement process, or get supplanted by technological advances.
Often compounding this problem is a weakness in understanding the differences between cost and price when it comes to valuing a service. Agencies are very good at reducing their prices when the overall cost (that drives the initial price) appears to take the service above what the market will bear. But they are less good at pushing up the price, well above cost, for a service which has a high market value. In fact, the latter action is seen in many suppliers as akin to theft or deceit. Yet, I’ve never worked for a single research buyer who charges uniform margins across their entire product range – some brands break-even, some are hugely profitable despite similar production or provision costs.
So, as procurement grows, it will drive research agencies to employ better financial systems and approaches to pricing. And thus I firmly believe, for the good ones at least, this will raise prices as much as it will drive them down.