For decades, financial research has been a critical resource for investors in public and private markets to make bets and manage their portfolios. The market for financial research and data has ballooned, with buy-side macroeconomic research alone estimated at over $2 billion USD globally.
Recently, demand for financial research and data has been changing fast. This is causing headaches and sleepless nights for leaders of financial research and data providers, who are tasked with gaining market share, building customer loyalty and creating enduring prosperity.
Four Growth Headwinds For Financial Research And Data Vendors
1. Research Budgets Under Pressure
Investors facing margin compression (e.g., asset managers) or public scrutiny (e.g., pension and sovereign wealth funds) are under pressure to reduce spending. Financial research is necessary to invest successfully, but it’s still a cost.
Investors typically subscribe to multiple research and data vendors and review them every 1-2 years. They must find value in each vendor’s research, or they will churn. Value for money is a leading cause of churn.
2. Changing Customer Expectations
Demand for new formats – apps, podcasts, video – is increasing with the younger cohorts of investors. The shift from static reports to real-time, interactive, and tailored insights is accelerating.
There is also a growing expectation that financial research and data vendors integrate into investors’ workflows. This is particularly acute for data vendors.
These expectations are additive. They do not replace demand for static PDF reports, which are the mainstay of more tenured investors. They also do not increase willingness to pay.
3. Shifting Brand Loyalty
Trust and familiarity are key drivers of loyalty. Many investors who subscribe to financial research become loyal to a research strategist that they have read for years, more so than to the company that they subscribe to. When a star strategist leaves, many subscribers will follow. Let a star strategist leave at your peril.
4. Low Barriers To Entry
It’s never been easier to create a financial research and data vendor. Growing availability of economic data, and easier access to distribution technology and financial media outlets, are reducing the moats of leading incumbents. As a result, the competitive set has broadened, which is giving clients more reasons to shop around. While financial research and data firms with a brand retain a trust and familiarity advantage over new entrants, investors are willing to shop around to find research and data that fits their needs.
Five No-Regrets Initiatives That Financial Research And Data Vendors Can Execute To Prosper In Today’s Market
1. Retain Every Subscriber
Most financial research and data vendors sell high margin subscriptions. In this business model, churn is hugely expensive. Every customer that leaves you is a straight loss to your bottom line. Losing just one large account can erase years of gains from acquiring small accounts.
Arresting churn is the #1 no-regrets move. Adopt auto-renewal clauses. Encourage multi-year subscriptions. Deploy churn analytics based on machine learning [hyperlink to Maurits’ articles on Sales and Marketing Automation] to identify subscribers at risk of churning. Engage at-risk clients early to turn the situation around before the contract renews.
There is such a thing as best-in-class retention. Is it better than what you are achieving today? Probably.
2. Understand Your Customers Intimately
Understanding your customers intimately – what they need, what they want, what they value, who they work with and why – is everything in subscription businesses like financial research and data. It guides the new products you should launch, the new content formats you should prioritize, how you bundle subscriptions. It guides who you target when selling into a new customer, and what to cross-sell to existing subscribers.
How well do you really know your ideal customer personas – what they need, what they want, what they value, who they work with and why?
3. Create a Low Effort Customer Experience
Being easy to do business with should permeate your every waking thought. It needs to be easy for a customer to trial your products and services. It needs to be easy to subscribe to your products and services and to make changes, to add and remove users. It needs to be easy to find a report or a dataset. The only exception is that it should not be easy to terminate a subscription, within reason.
For a financial information provider, being easy to do business with is increasingly contingent on your technology choices and your underlying IT architecture. If you have a lot of technology debt that makes it hard to add features, you are behind. If you app is not good, you are behind. If you are not using AI to help customers find relevant research and datasets, summarize it and develop pattern recognition across your various products and services, you are behind.
How good is your customer experience? How do you know?
4. Improve Pricing Discipline
With the fat margins and zero margin costs that financial research and data subscriptions offer, it’s tempting to discount prices to gain new customers. Go down that path at your peril. Selling the same product at different prices to different customers is fraught with risk: it creates a bad reputation when a subscriber leaves one employer to join another and reaches out to you. It creates operational complexity, such as grandfathering issues when trying to migrate customers into new products. It makes annual price increases harder. To remediate this, build rigorous processes, workflows, and governance to approve discounts. Discounts should be based on sound business principles, such as longer terms, more users or more products.
Across the board annual price increases are also a watch-out area. Increase prices too fast, and watch half of your forecast increase evaporate with churn. Instead, segment your price increases. Some segments will get more than the target price increase, some will get less. The former are typically customers who are delighted with your services, the latter are typically customers who are not. To enable segmented pricing increases, it is necessary to have an intimate understanding of how your customers perceive you e.g. with CSAT or NPS.
Is your pricing disciplined and segmented enough?
5. Grow Your Customer Base With Lead Generation At Scale
There are tens of thousands of institutional investors, hundreds of thousands of financial advisors and millions of individual investors in the market. All consume financial research and data. And they consume it from multiple vendors, because financial research and data is not a winner takes all market.
You will never be tapped out for subscribers to your financial research and data. But you can lack subscribers, or not grow your subscriber base fast enough. If you rely on a direct sales force and on search engine visibility, you probably lack subscribers and your base is not growing fast enough.
If your customer base is institutional investors and financial advisors, to generate more leads, engage with the entire universe of potential prospects using drip email and SMS campaigns. If you are not, you are behind your competitors.
Authors – Nicolas Mialaret, Partner and Matt Rocca, Principal
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