Who will be the Ikea of market research?

I had the pleasure of participating in a lively discussion on the impact and future of “DIY” (do-it-yourself) research a few weeks ago at the recent ESOMAR Congress in Athens, Greece.  In a 90-minute “discussion space” session I shared a few thoughts about the future of the market research industry.  The other half of the program was presented by Lucy Davison of marketing consultancy Keen as Mustard and Richard Thornton of CINT.  They shared the results of some research on DIY research that they conducted among consumers of market research (i.e. “clients”).  Bottom line, many clients are favorable to DIY for a number of reasons.

For my part, I am more interested in DIY as a symptom of deep and fundamental change in the market research industry.  When I began my career in MR (on the client side at first), most research companies were vertically integrated, owning their own data collection capabilities and developing their own CATI software, for example.  This made sense when the ability to coordinate and integrate the diverse activities required for a typical research project was a competitive strength.  Perhaps you remember the days when a strategic segmentation study might have three or four phases, take six to nine months to complete, and cost $500,000 ( in 1980 dollars!).  But vertically integrated industries tend to “de-integrate” over time.  Firms may spin off or outsource some of their capabilities, creating value chain specialists who are proficient at one link in the chain.  The emergence of WATS call-centers and off-the-shelf CATI software were early steps on the march towards de-integration for the MR industry.

Technological change (especially in the form of disruptive innovation) also provides opportunity for new entrants.  Sure, some of the face-to-face interviewing companies made the transition to telephone, and many telephone interviewing companies successfully converted from paper and pencil questionnaires to CATI, but each of these shifts provided a point of entry for new players.

The large, integrated firms have managed to hang on to a substantial share of industry profits, but there are three looming threats.  The first is (so-called) “commoditization”–the downward pressure on pricing.  While some supplier side researchers complain that clients are unwilling to pay for quality, this downward pressure is the result of basic competitive dynamics:  there are many competing firms, few barriers to entry, many substitutes (e.g., transactional datamining) and not that much difference in value propositions or business models across MR firms.

The second threat is do-it-yourself research.  At the moment, DIY appeals to the least demanding and most price sensitive customers.  DIY removes the access and affordability barriers, thereby democratizing survey research.  As Lucy and Richard’s research showed, customers like the low cost, speed and convenience of DIY, and I expect many will move up the learning curve quickly.  I hope so–many of the DIY surveys I’ve seen from even big companies have been pretty ghastly. 

The last threat to the traditional MR business model comes from the sheer deluge of data generate by both commercial and non-commercial online activity.  How much could Google tell any marketer about customer preferences based just on search data, for example?

At the end of the session in Athens I offered this analogy.  Imagine that you need a bedstead.  You could go to a furniture store and choose from a selection of attractive, well-constructed and expensive bedsteads.  Or you could go to the local home improvement store, purchase some plywood and paint or stain and with a few tools (which could be borrowed or renterd) and some minimal ability, construct a perfectly serviceable platform bed–at much lower cost.  This represents the difference between the full service integrated research firms at the top of the latter and what we’ve historically thought of as do-it-yourself market research.  The gap between the two has been sustained until now by a skill barrier and limited access to better, easier to use tools.  This is the gap that Ikea filled in the home furnishing market by creating a new business model based on attractive, customer-assembled furnishings. 

Unfortunately for the incumbent research firms, this kind of business model innovation does not often come from the current players in a market.  The incumbents have too much personal investment in the current business model.  Let’s face it–most of us are in market research because we like the high-touch, intellectual problem solving that’s involved.  It’s what we’ve trained to do.  Designing something like appealing flatpack furniture that customers take home and assemble themselves just does not fit our self-image.

The smarter, easier to use tools are here.  Who will be the first to package them into a new way to deliver market research?

Copyright 2010 by David G. Bakken.  All rights reserved.

 

Spirit’s carry on charge–smart move or not?

You’ve probably heard about Spirit Airlines’ decision to charge customers for carry on baggage–$30 per bag if purchased in advance, or $45 “at the door.” You’ll still get your one free “personal item.”  This latest example of an airline unbundling one more feature of its service offering resulted in a promise to Sen. Charles Schumer (D, NY) from five other major airlines that they will not follow Spirit’s lead, at least for now.

Spirit claims on its website that this charge will lower overall costs to passengers and improve service.  Here’s how this is supposed to work:  fares will be lowered somewhat, as will fees for checked baggage.  Since carry on bags have a big impact on how long it takes to board and to deplane (according to Spirit, but many passengers will probably agree), reducing the number of carry on bags on a flight will reduce turnaround time and get passengers off the plane more quickly once it has arrived at its destination.  Security lines will also move more quickly (ignoring the effect of passengers traveling on other carriers who will still have their carry on bags).

One wonders whether Spirit gathered any consumer intelligence or conducted any experiments to arrive at this decision.  Airlines have had varying success at generating revenues by implementing fees for service features that were once bundled into the fare.  US Airways, for example, seems to have retreated from charging for non-alcoholic beverages (including bottled water).  JetBlue has started charging for headphones but recent experience suggests that on some flights they still may give them out for free once the plane has left the gate.  Fees for checked bags may stick–as long as you get that free carry-on–but any additional fee gives a competitor a potential point of differentiation.  Have you seen the Southwest commercial, “Battle Cry,” where the ramp crew, in the manner of sports fans, flash the passengers on a rival airline with “BAGS FLY FREE” spelled out across their chests?

People’s Express was one of the first post de-regulation airlines built around a low cost no-frills business model, and perhaps the first to charge for checked baggage ($3 per bag).  Many elements of PE resembled Southwest’s model–one type of aircraft, open seating, and really large overhead compartments for those carry-on bags.  Food and drink were available for purchase, and all the seats on a given flight were the same price.  In many ways, the experience was more like being on a train or bus than an airplane, and with one-way fares between Newark and cities like Boston as low as $19, a lot of passengers were likely switching from those modes.   There’s no question that PE helped democratize flying, overcoming the affordability barrier for many passengers.  Following it’s initial success, People’s Express went on a buying spree (taking on a lot of debt) and the legacy carriers discovered yield management, enabling them to match or come close to PE’s fares for at least some passengers.  With all that debt, PE abandoned its original customer value proposition and profit formula and began to look more like other airlines.  Ultimately, PE was acquired by Texas Air and ceased to exist as a brand.

Whenever an airline makes a move like charging for carry-on bags or for using the lavatory (Ryanair), I can’t help but wonder if they even have a customer value proposition.  One problem may be that flying on an airplane is only a means to an end (the job that the consumer wants to do at the other end of the flight) rather than an end in itself.  This makes it hard to find a price that both matches the value to the passenger (which is a function of the value of completing the job at the destination) and the cost of providing the service, plus some profit.  The carriers have long inferred that business travelers place more value on the job to be done at the destination, and they have implemented a variety of pricing strategies to segment their customers based on the assumption that leisure travelers are far more price sensitive.  However, most of the assumptions about pricing do not reflect any understanding of the ways customers evaluate pricing relative to the value of the jobs to be done.  In the absence of such understanding, carriers have resorted to “mechanical” solutions to pricing and revenue generation.

Actions like Spirit’s carry-on fee often provide new instances of the law of unintended consequences.  It will be interesting to see what happens in the next few months.  Will Spirit retreat, or will other carriers follow suit?

Copyright 2010 by David G. Bakken.  All rights reserved.

 

Borders on the brink

Yahoo Finance published an article today from Investopedia by Mark Riddix titled “Business on the brink: Change or fail?”  Of the five companies profiled, the only one that evokes a twinge of sadness for me is Borders Books (the others are Blockbuster, Rite-Aid, Palm, and trucking company YRC).