Convergence in Primary Research


In the past few weeks, the team at Integrity Research has been conducting a new buy-side study on a specific segment of the primary investment research industry – the market for Channel Checks and Market Research. 

And while we have yet to complete this study, preliminary interviews suggest that various parts of the primary research business are starting to converge as buy-side analysts and portfolio managers search for unique proprietary data which will give them an edge as they make their investment decisions.

1.       Definitions

As we have mentioned in the past, Integrity Research Associates has developed an extensive taxonomy to categorize the various types of investment research used by institutional investors.  The following definitions are based on a blog on this topic posted on January 18, 2008. 

Market Research:  Integrity views a company as a market research firm if and only if they conduct surveys of end user communities to determine product penetration and/or customer attitudes.  These surveys can take many forms including face to face interviews, telephone surveys, or online surveys.  Some market research firms provide custom survey work for their clients; others perform regular syndicated market research studies.  Either way, they fall within Integrity’s definition of market research, so long as they survey end users.

Market research firms can provide unique insights for buy side investors who are looking to get a pulse on consumer attitudes, which can be predictive of earnings and share price performance. They can also provide both qualitative insights and quantitative data points, and are useful for both quantitative and fundamental money managers. They can usually execute large-scale, statistically significant surveys at affordable rates. Some higher-end market research firms can provide additional value-added services, such as survey design and extensive statistical results analysis.

Channel Checking: Channel checking firms are like market research firms in that they are geared towards obtaining insights on near-term demand trends, product distribution patterns, and customer attitudes. Whereas market research firms typically conduct standardized surveys, however, channel checking firms employ an open-ended investigative approach that is designed to draw out unique and often unexpected information. Moreover, firms that provide channel checks generally seek to interview all participants in the supply chain, rather than just end users.  This would include suppliers, distributors, consumers, and even competitors.

Channel checking firms are great for obtaining anecdotal evidence that can help define or clarify an investment issue. They often undertake a range of tactics to find relevant information, including store/plant/office visits, interviewing distributors, phoning suppliers, etc.  On a per interview basis, channel checking is generally more time intensive than market research.  As a result, channel checking is often not the most economical method for obtaining statistically significant data samples.

2.       Preliminary Findings

As we have done in other segments of the investment research industry, Integrity Research Associates is currently in the process of interviewing analysts, directors of research, and portfolio managers at hedge funds and mutual funds, to better understand how the buy-side makes use of third-party market research and channel check vendors. 

Given the thousands of firms that provide market research in the United States and the dozens of firms that conduct channel checks for investors, we expected to discover the buy-side using numerous boutique vendors to conduct these two types of valuable primary research. 

However, we are finding that a large number of buy-side investors are using a handful of unexpected firms to conduct this type of primary research (particularly one off channel checks) – the large Expert Network providers, including Gerson Lehrman, Vista Research, Coleman Research, Guidepoint (formerly Clinical Advisors), MEDACorp, and Reuters Insight.

In addition, we are finding that some buy-side investors are engaging their sell-side brokers to conduct occasional custom channel checks or market research on their behalf instead of hiring third-party vendors. 

As a result we are finding that US buy-side investors are not engaging a large number of specialized market research or channel check providers to help them conduct custom investment research.

3.       Consequences

These findings suggest that the buy-side is unexpectedly leveraging existing resources to solve their research needs.  Of course, this cannot be a good development for the dozens of firms that specialize in conducting detailed one off channel checks for buy-side clients.  However, we suspect that these developments will force many channel check providers to focus on producing higher value research that leverages their core competencies.

One such area consists of conducting regular quarterly channel checks of a discrete universe of public companies.  It is clear to us that the ongoing nature of this type of research is actually more useful (and significantly more reliable) than one off channel checks based on a small number of interviews.  Unfortunately most research firms don’t want to have to dedicate the time and resources necessary to produce a useful coverage universe of these types of studies.


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