Why Market Research Sounds the Same
Things They Forgot To Tell Me In Business School
​
After many years working with market research around real estate and land development, where markets are today and where they are heading tomorrow, often using multiple sources to study the same issue, one thing that remains consistent is how so much of this market research sounds the same. It is uncanny.

Is it that firms are so erudite and markets so well-ordered and transparent that a series of independent-minded operators come to very similar conclusions? That is certainly part of it, but not the entire picture. Even in the most sophisticated markets, few count while many interpret. Be it a national census bureau or an esoteric B2B research firm, there are never more than a few primary sources of market-wide data. It is easily understood why this is so, cost, complexity, and data accessibility being not the least of the reasons, and it goes a long way to contribute to an echo chamber effect among the far larger number of market analysts each trying to make their voice heard.

The general sequence of events is that each analyst accesses the same primary data, interprets this data in similar fashions, looks closely at what they have previously reported, looks just as closely at what their close competitors have previously reported, spices it up with a certain amount of “proprietary trend data” usually from their own client base as the icing on the cake, and voila, job done. The proprietary data is critical as analysts need to offer a unique perspective in order to differentiate themselves and stand out from the crowd. But not stand out too far. While there are always a few truly iconoclastic characters in this world, most find it safer and more profitable over time to follow a generalized conformity accompanied by just a whiff of contrariety and rebellion, a sheep-in-wolf’s-clothing type of thing. Clients tend to be suspicious of outliers and require a lot more convincing, and the more institutional the investor or developer consuming the analysis, the more orthodox they tend to want their results.

In more opaque markets functioning without the benefit of reliable market-wide data sources you might expect a greater “divergence from the mean”, but no, if anything this clubbing together is even more pronounced. Firms relying entirely on data from their limited client bases cling even more tightly to their competitors. Part of it has to do with a lack of representativeness of any single firm’s data due to their specializations and niches, and part to do with overall market confidence. If analysts are all over the map in their forecasts, investors and developers can lose confidence in the entire industry, a situation to no one’s advantage. And of course, having similar market advice adopted by a large number of players collectively exercising significant influence over the market can create a degree of self-reinforcing behavior which only enhances the accuracy of the analysts.

So, if that is the story about overall market forecasts, what about narrower studies like site selection, the type of analysis that leads to gas stations (and convenience stores) being so very often located directly across the street from each other – a classic situation that has befuddled many including myself? Economists might well point to Hotelling’s classic Spatial Competition Model, or perhaps Central Place Theory, Nash Equilibrium, or even a Socially Optimal Solution. And they are no doubt right in many instances, but there are also more prosaic reasons. People are often “resource-conscious” (or lazy, if you prefer) and content to copycat, and we derive comfort by huddling with others. Thus it is quite possible that the first mover, the pioneer, did the necessary research to find an optimal location and the hard work getting permits, while the second, the parasite, essentially piggy-backed off the success of the first. Both hold first option on half the available market, and the thinking goes that if the pioneer did their homework well, both stations will do well. Having a third station appearing in the huddle is rarer as it destroys the symmetry of the pioneer/parasite model.

Another common cause is that, even in instances where each player does their own homework, most market research is far stronger on the market conditions side than on the competitive analysis side, due in significant part to data availability. This matters less than you might think as most players are [over]confident in their ability to win market share and thus not overly concerned about competitors’ positions. As such, the same juicy market value is dangled before numerous players, a situation that can easily lead to the over-saturation of similar offerings at a single location.

Some might decry such a state of affairs, particularly those paying top dollar for the product without understanding the process, but there are sound pragmatic reasons why it is so. Primary market data, where available, are rarely digestible without further analysis and provides the soundest possible foundation for decision-making. In markets relying on the partial visibility of individual analysts, additional sets of eyes only improve the view. As for the gas stations, it is helpful perhaps [?] to remember that imitation remains the sincerest form of flattery that mediocrity can pay to greatness…even if it does eat up half the market share.