Keeping the faith (1)

How else can one explain the alarmingly low spend figures shown in TABLE 1 compared to other well developed mature markets, like France; and even perhaps less mature markets, like South Africa?





Source:
1. ESOMAR Prices Study, 2005

Perhaps it's this lack of success in convincing potential clients for research that they're likely to get a meaningful return on their investment, or perhaps it's for other reasons, but a worrying trend is currently more prevalent than ever before - price buying. Actually it's a trend which has a global as well as a local regional dimension to it, but whatever, an implicit message always in buying on price is that quality is a secondary consideration.

When a product loses its quality it becomes a commodity; and it has to be a fair bet that commodity research is much less likely to deliver telling consumer insights. A sort of Catch 22 situation?

Recently a much respected Turkish market research pioneer retired and he left behind these words: 'Just as we have soap operas, we now have soap research, '' said Akin Alyanak. 'It consists of simplified shallow research, serving global goods and services. It is driven by the desire to cut costs, which inevitably also means cutting corners.'

How did we get here? This is my hypothesis - how I see it. I offer it for comment.

As our Turkish friend refers to there is undoubtedly a global or more accurately a globalization effect operating here. But I think there are also more significant local factors and a local mindset at work.

After the first GULF WAR of 1991 many of the local economies slipped into deficit from the combined effects of the cost of the war, plus the erosion of their national incomes caused by a global economic slow down and falling price of oil. As a result, led by Saudi Arabia, especially in the public sector - and remember how dominant the public sector remains in many of these economies - real incomes declined and therefore consumer spending too.

Sales volumes declined for many fmcg suppliers to these markets - with the situation further exacerbated as margins came under pressure from an increase in competition and an acceleration in the shift by consumers of all nationalities towards the biggest retailer multiples. Another global trend. Globally the average price of the average fmcg product to the consumer is actually decreasing as multiples the size of WAL MARTS, or in our region, CARREFOURS, squeeze suppliers' margins - and squeeze out smaller competitors along the way.

Naturally these same fmcg suppliers looked in turn for ways to sustain margins - and cut costs wherever possible e.g. sourcing of raw materials, distribution, logistics, marketing support, etc.

Re marketing support, any of our colleagues in advertising here in the Gulf in the middle 90's will tell you that the traditional emphasis on above-the-line advertising came under serious scrutiny : media budgets were questioned, and sometimes cut or redirected into more through-the-line campaigns.

But the international partners/owners of the region's ad agencies have all been in this situation before - and during such times have learnt to respond vigorously, as an industry, with research to show that as a supplier you reduce your ad spend at your peril as your key asset, your brand equity, stands to erode as a result, so that you have a weaker brand when the good times return.

So the clients turned as well, or perhaps as a result of the ad agencies' campaign, instead, to their MR spend. And there they did not meet with such a well prepared response. For one thing, MR in this region has no industry voice. MR was therefore an easier target, and the clients had much more success in reducing budgets and/or prices.

As a result, real prices for MR services in the region have now fallen steadily for as much as up to 10 years - to a level where the sector is now under-priced - and, as a result, under-resourced and under-invested.

In many cases we hear of it is not hard to imagine that prices have fallen to a level where professional standards are being jeopardized. Research suppliers have been pushed into cost cutting which compromises standards and quality ; whilst their best people are often tempted away from the profession by much - and I mean 'much' - higher wages in, ironically, the client companies they were servicing.

As evidence of prices which are clearly out-of-line with both cost of living indices and cost comparisons for the same research in other markets, just stop a moment to take a look at Table 2 below;

TABLE 2

Sources:

1. Mercer Human Resource Cost of Living Survey, 2005
2. ESOMAR Prices Study, 2005

Certainly compared with a less expensive country, South Africa, these figures suggest research buyers in the UAE are getting something of a bargain ; ditto, with a more expensive country like France ; so that only for Greece are research prices roughly in line with the relative cost of living - though it probably comes as a bit of surprise that Greece is a more expensive country to live in than the UAE?

With oil prices around the $60 per barrel level and forecast to remain there or rise even higher, perhaps we've turned the corner now that we can expect these economies to boom again?

Certainly in September Arabies Trends reported that spend on advertising across the Gulf showed a 25 percent increase in the first quarter this year compared with the same period in 2004. But in the same article commentators suggested that hope was premature. The Creative Director of one of the region's leading ad agencies was reported as saying 'There's a trend now where a client chooses the agency that's put in the lowest bid. Ideally, the price should be the last thing you think about.'

So maybe the ' price mania ' mindset , as the more cynical call it, now so well established, will take some time to change. And if that is the case for advertising then perhaps we in market research need to be even more patient - that's if we're still around and in business to see it happen.

Interestingly, a second concern was reported as: 'While the numbers look good, word on the street is that the creative industry still has a long way to go before it reaches the level of sophistication found in other markets.'

Maybe that's a function of the same thing - a reluctance to spend on research in the first place? - and I'll have something to say about that in a follow-on article.