Market Research

1. Knowledge is power

In any market economy, producers of goods and services try to satisfy the demands of consumers. As such, it is of vital importance to develop an understanding about the consumers. Who are they? What is it they want? How can they be reached? These are only a few of a whole range of questions that can be raised. The need for information in order to serve the consumer well, and hence to run a business well, is so big, one can not do without market research. Both quantitative as well as qualitative data should provide a sound basis for management decision making on market entry, market expansion or diversification.

“Market research has lost its powers of prediction”, a large supermarket chain in Europe lamented. Research agency A.C. Nielsen believes: “We need to develop a ‘shopping understanding´ as the main marketing skill.”

It is not always easy to set oneself to conducting market research, especially in those cases where a buyer shows up and invites you to deliver a trial shipment of goods. Without you knowing much about the market the buyer operates in, you may be tempted to take up this chance for immediate business. However, it involves a considerable risk: you will be operating in the dark and be fully dependent on what the buyer says and does. You will lose full control. Not a very sound basis for developing a long term business. “Know your business, know your market!”

Therefore, any (prospective) exporter is advised to conduct market research before entering new export markets. Especially when targeting the EU market, characterised by so many different markets, so much competition and a wide variety of rules and regulations conditioning market access and doing business. Doing the research may actually be less cumbersome than you may think, especially with all the new technology that makes access to information much easier. However, it requires a commitment and a financial reservation. Yes, it means you will have to make some costs. However, the money will generally be well spent, since you will be guarded from making expensive mistakes later on in the export process. Being well-informed, means being well-prepared, which will enhance your chances in the market.

If knowledge = power, that commercial asset should be safeguarded and stored for later perusal. Build your own information system , to which you constantly add new data or update the old ones. On the basis of your data bank, export plans can be made.

2. Desk research

Desk research generally precedes field research. In some cases, it may even make field research obsolete. The beauty of desk research is that one makes use of research that has been done (by others) before. One uses so-called secondary data: existing material. Since we are living in an information era, with information technology steamrollering over both developed and developing economies, easing the access to an unimaginable number of information sources, one can safely say that there is a lot of valuable market information available, to anyone, even in the remotest corner of the world. The Internet opened up enormous opportunities in this respect. Libraries and databases world-wide can be accessed and market information obtained, often even free of charge.

Therefore, it is strongly recommended to identify what kind of information is available. Since this will no doubt be a lot, make life easy and narrow down your research questions as much as possible. Before you know it, you will be drowning in the information flow. Also, don´t forget: “ input gives output”. If you do not ask the right question, you will not get the right answer. So before you start the search for information, either on the Internet or by using conventional sources of information, make sure you have the research questions clear.

One can in fact identify 3 levels of information relevant when conducting desk research:

• Country information at macroeconomic level
• Sector information at meso-economic level
• Product information at micro-economic level

Secondary data are generally fairly easy - and quickly - accessible when it comes to quantatitive data regarding population, political situation, relevant economic sectors, economic performance, production and import figures, infrastructure, rules and regulations, culture and business practice. Country reports are widely available (also on the Internet) This information may be helpful to you in narrowing down the number of possible target countries. However, it will not be sufficient in determining whether or not you will be able to introduce (or expand) your product in a specific market.

However, in order to understand the mechanics of the markets (e.g. present competition, future trends etc.), you will have to dig deeper. You will need more specific information about the sector and comparable and or competing products in the market. Information regarding product characteristics, product requirements, sales figures, sales outlets, distribution network, pricing, consumer behaviour, packaging, promotion etc. This information may be somewhat more difficult to collect. However, there are several good and very informative market reports on specific sectors available, amongst other through The Economist Intelligence Unit and CBI. Generally, the more specific the information, the more you need to pay to get it. So contrary to the general country information, this kind of market information has usually to be paid for. CBI is an exception and makes the market reports available to exporters and trade promotion organisations in developing countries free of charge.

However, this written information about specific product sectors in specific markets may still not be sufficient for your decision making. That means that no research has ever been done, or no company is willing to share the information with its competitors. Most of the reports available cover a sector in general and will as such not provide information which may be relevant to your particular product, with its own characteristics. It is due to the general nature of the reports. Besides, the data may be dated. The research findings may be at least 1-2 year old, especially when statistics have been used. Therefore, there is a risk involved in using this kind of material. Data may no longer be valid or accurate. Trends may have changed.

Therefore, it is often a need, and even so often recommended, to validate the findings from the desk research and collect additional information which is in particular relevant to your own specific product, by doing field research. This should provide you the missing information for the decision making on whether or not to go, and if so, how to go.

3. Field research

In the case of field research, the focus of the research is zooming in very much from the general country and sector level to your specific product. How does it compare with competing products? What do consumers think about the product?

In doing field research, some different approaches can be identified. One can for example decide to commission out the research and have a third party, a specialised researcher or research firm, do it for you instead of doing it yourself. Also, one can decide to use the more scientific method of running questionnaires and interviews among a sampled target group of consumers, or one can decide to have talks with the people in the distribution chain like importers, wholesalers and retailers.

Two risky ‘hot spots´

Researching markets that are unfamiliar to you, involves two problems:

• determining the correct target group, and sampling for research purposes,
• understanding the research results and statements.

That is inherent to international business: you cannot fully understand the population structure nor the culture of the foreign markets, however well you may speak the language. So leave these hot spots to the people who do know: compatriots of the target population. This is why most international researcg agencies have foreign subsidiaries, almost fully manned by locals.

Western or Japanese approach?

The Western approach used to be different from the Japanese approach with the Americans and Europeans putting more emphasis on out-commissioning of research and focusing on large numbers of questionnaires and interviews as part of consumer attitude surveys. The Japanese often favoured personal talks with wholesalers and retailers (so-called “soft data” gathering) in combination with an analysis of “hard data” about shipments, inventory levels and retail sales. One of the division heads of Matsushita was once quoted saying: “Why do all the extensive complicated and expensive market research, when you can find out what you need by travelling in the market?”. Observe, ask and compare is the motto.

When Japanese companies do conduct surveys, they interview consumers who have actually bought or used a product. They do not scrutinise an undifferentiated mass public to learn about general attitudes and values. For example, when Toyota wanted to learn what Americans preferred in small, imported cars, the company asked owners and others who had driven the car what they liked about the Volkswagen Beetle.

It seems that the Japanese approach definitely has added value to the Western methods, not in the least because it is found more and more difficult to predict consumers buying behaviour (as explained below). Also to prospective exporters from developing countries, the hands-on approach may be more appropriate and practical. And by no means can we say that it is less valuable.

Personal orientation or independent research

The advantage of doing the field research yourself is that you have the full market orientation. You can get a comprehensive picture of the market. The advantage of commissioning out the research is that there is an independent, un-biased view and outcome. Also, it may give authority in case you want to convince a third party about the potential of the product. Besides, it allows you to make use of methods you would not have used yourself, because of the complexity and time-factor. Let´s face it, preparing questionnaires, sampling a target group, running hundreds (or even thousands) of personal interviews, or telephone interviews and running the statistical analysis is not an easy job.

Although the 3 rd party research is likely to be more expensive, do not underestimate the costs of the personal orientation. It will not only cost time and money for making the trip, it will also take considerable time in the preparatory phase, identifying and contacting the organisations and people to visit. An option could be to hire a consultant in the target market to prepare an itinerary for you and to accompany you during the trip.

The blessing of information technology

Over the last few years, marketers in Europe have been complaining that it is becoming more and more difficult to predict buying behaviour of consumers. Brand loyalty is decreasing and private labelling is increasing. At the same time, people are becoming less inclined to co-operate in market research operations. Not surprising though. Market research methodologies have become more aggressive over the years. Since postal surveys generally give a poor response, more and more market research shifted towards (personal) street interviews and from street interviews to telephone interviews. Especially the rise of the latter is becoming a growing concern to consumers. People feel that market research firms are breaking into their private lives. The more so, since market researchers tend to call during or around dinner-time: since that is the moment most people will be at home, it will give the highest possible chance for response. One can imagine, a negative attitude among many households towards market research has emerged. Nowadays, around 40% of the people is reluctant to co-operate.

Besides, most of the market research methods are based on ratio, whereas buying behaviour of consumers is by no means always rational. What´s more, the consumer is not even consistent in his/her buying habits, switching from top brands to private labels, from specialty shops to convenience stores. To keep track of such behaviour, methods like Customer Relations Management (CRM) are being developed, mainly by the retail industry. Using electronic data systems, actual buying behaviour can now be detected through bar code scanning in retail outlets. Through loyalty cards (customer cards), information about customers is being stored in databases. When they actually make a purchase, that is being recorded and linked to the demographic data of the customer. So, over time, a record is being built about the actual spending pattern of customers. Information about what is being bought by whom, when, in which quantities at what frequency now become easily accessible. It proves to be a valuable source of information to tailor-made promotional programmes.

Since such information is usually owned by the retailers, suppliers seek co-operation with them in order to design optimal ‘product/market matches´ and tailor-made promotions.

4. First things first

For prospective exporters to the European market, the most appropriate start would be to do some homework. That means, familiarise oneself with the characteristics of different European markets by using secondary (= previously collected) data.

Amongst those, qualitative data (which provide merely indications, not a truthful market picture) can prove as valuable. Reading brochures, price-lists and annual reports (of your future competitors), magazines (looking for products, designs and lifestyles), even door-to-door leaflets can give you a general idea of what is going on in the market.

In case one or two markets seem to offer possible opportunities for marketing of your product, a field visit to conduct more in-depth research would be a logical follow-up. In case you are completely unfamiliar with the particular market, it may be wise to ask for your embassy or some local consultant to facilitate your trip and possibly accommodate you to certain appointments.

AvD-09/98, upd. JLT 6/00

Appendix : A selection of valuable Internet addresses for general data retrieval

LT May 2000