Firms without highly rated analysts, or not being specialists, should perform a cost/benefit assessment to decide whether to continue providing research services.
Growth / Sector consolidation
Research business is characterized by high fixed costs, making growth (either organically by increasing their market share, or externally by merging with/acquiring competitors) the more straightforward way to boost returns.
Partnering with the up-and-coming Online Research Marketplaces and making research services available on their platforms should be considered by providers to broaden their potential client base. Thus, smaller fund managers on tight budgets could be interested in accessing research on-demand, and larger ones could appreciate this as a way to access small niche providers.
To avoid paying these platforms a commission on sales, large investment banks should contemplate improving or developing their own portals, and potentially partner with other providers to launch a common marketplace to distribute their research and share the costs.
Fair flexible pricing models
Like in most industries, offering several pricing models to suit all clients’ preferences could allow for winning business.
To avoid locking into year-long contracts clients who are potentially unwilling to commit to a pre-set amount to pay over the year (whether or not the quality will be there, and whether or not they will actually consume all the research material that the amount was based on), it might be beneficial to develop a trusting and transparent relationship by:
• Assessing the costs to produce each research service in order to define fair competitive prices
• Designing clear, fair offers based on a pay-as-you-go model as well as all-inclusive and tailored packages (with the option to review the price during the length of the contract in case of greater/lower usage or lower quality). In details, this would translate into:
for access to platforms: either a clear fee schedule proportional to the number of users or by bucket , or a pay-per-report
for bespoke interactions: a clear, fair price (that could be volume-dependent) for each type of interaction (analyst meetings, dedicated calls, customized work, valuation models, etc.), that could be packaged or used by the unit, on-demand
Resistance to soaring prices or quality reduction
To avoid Portfolio Managers turning away from “too expensive” research services and increasingly relying on more time-consuming but less costly solutions (like reading written research and speaking to companies), research providers should not succumb to the temptation of pricing some interactions, even with star analysts, too far outside the competition price range.
Thus, some providers plan on charging up to 3000€ for an hour of top-rated analysts’ time (there are even reports of quotes up to 5000€ an hour), when the average price is 1000€.
This would end up creating a vicious circle with the necessity to make these services even more expensive for the ones continuing to use them in order to maintain profitability.
Some providers also plan on using quality as an adjustment variable or issuing teaser research reports that would require paying for an analyst meeting to reveal their most essential insights, which should not play well in the long-run.