Friday, July 31, 2009

Why the Market Research industry is into the volume game

Currently I am reading an interesting book on Financial Management - sort of brushing up my basics in Finance.

One of the chapters that caught my attention was on Cost Structures of an organisation/industry.

What it basically states is that industries that have a high Fixed cost structure need to play the volume game to survive i.e. constantly push up volumes. Industries that have a high Variable cost structure can play the margin game i.e. chose to turn down business if the margins are not attractive enough.

Examining the cost structures of the MR industry, it is obvious that the MR industry has a high Fixed cost structure - anywhere from 60 - 75%. Which explains why despite so much talk about pushing up margins, the MR industry has always been pursuing a volume game - constantly under-cutting each other, picking up any business that comes in - so long as it covers the direct cost and contributes to the fixed cost.

For me reading the book was an eye-opener - and helped explain why despite the noble talk of raising margins, the industry still plays the volume game.

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