B2B International

October 9, 2013

Ten ways in which business-to-business market research will make your business an international company.

Market research and market intelligence do not enjoy the most dynamic of reputations throughout company board rooms. Marketing departments often see surveys as little more than a raw data resource, to which they then add the main value. CEOs criticise surveys as lacking the business context necessary in order to be actionable, while sales teams often deride market research as unnecessary window dressing. In reality, however, good quality market research is an invaluable strategic resource for any dynamic business, and particularly those companies with international aspirations. This article sets out 10 key ways in which market research can expand the horizons and operations or your organisation.

1. It will tell you what your customers want

The most fundamental question to any business is ‘what do our customers want?’ Market research is really the only way in which to answer this question effectively. While most companies possess a mine of internal knowledge about their customers’ needs, it is usually a mistake to assume that this represents a comprehensive view of what customers really value. Without doubt, internal knowledge from sales teams, business developers, senior management and other client-facing personnel offers critical insights into customer requirements and should always be systematically gathered as regularly as possible. However, it is also important to recognise that internal data is often seen through the prism of prevailing corporate culture, which has the habit of filtering or distorting the true picture. For example, why would someone working for a company whose ethos and even strapline espouse low prices admit that the market has changed and today’s customer wants something different? Why would a client manager admit that his or her customers have a range of unmet needs, at risk of being branded a failure?

More formal market research tackles these challenges in a number of ways. Firstly, the use of a third-party agency to conduct the research means that research is independent and impartial, while the anonymity of the commissioning company can be maintained. This also has the effect of minimising the likelihood of any criticism (or flattery) directed at the company from interview respondents. Secondly, the wide variety of questioning, analytical and statistical techniques at the disposal of market research agencies also help to maintain the independence of findings. For example, while projective questions place respondents in ‘virtual’ business situations that help to elicit real-life responses, statistical driver analysis isolates the real factors behind purchase choice, rather than simply relying on the articulation or agenda of respondents. Finally, market research agencies are specialists at analysing data independently and have a remit to find out the full and true picture; that is, good research agencies are motivated to challenge the status quo rather than to maintain it.

For companies seeking to expand overseas, the independent approach is all the more essential. Multi-million-dollar global investments may rest on companies being faithful to the principles of the whole truth and nothing but the truth.

2. It will show you the size of the prize

The decision to enter a market, the decision to expand capacity or sales presence within an existing market, the setting of sales and growth targets, and the choice of distribution channels are all critical decisions that will often depend primarily on the overall size of the opportunity in a particular country or market.

High-quality market research agencies specialise in deriving market size from a variety of statistical sources and through commentary methods, while data triangulation offers reassurance that market size estimates are accurate. Some of the common ways in which agencies estimate market size include:

  • asking a representative selection of target customers how much they spend on the product or service and aggregating up to take account of the whole market;
  • aggregating the total revenues from all players in the market (for the products/service in question);
  • calculating market size for other geographies or sectors and applying proxy multipliers to calculate the size of the market of interest;
  • using existing secondary data, research reports and the views of independent experts to cross-verify and sense-check the market size.

In most markets, there is seldom sufficient information to rely on one market calculation method alone, and typically a combination of the above will be used. This combined approach normally results in a market size that is accurate within a 10 per cent margin of error. Again, the market size estimation is independently obtained by a company whose key motivation is to get it right.

3. It will show you exactly how to ensure competitive advantage

Many companies with international expansion objectives may be looking to enter new and unfamiliar markets for the very first time. More often than not, the competitive environment in other territories and markets can look significantly different from the company’s home market, where it is likely to enjoy higher market share and the competitive advantages conferred by a strong reputation on high levels of brand awareness.

Market research can fulfil the important function of identifying which competitors are active in the target market, what the relative strengths and weaknesses of these companies are, and how effective it will be to compete with these companies in terms of product/service offering, price, channel coverage and promotional capabilities. External research agencies can gather detailed information of the competitive landscape, highlight the key competitive barriers to market entry and help companies to formulate strategies to position themselves most effectively against the competition and to leverage the areas in which it retains strongest competitive advantage.

4. It will show you that distribution is everything

Marketing and business development strategists often focus on the three most evident and definable aspects of the marketing mix – product, price and promotion. More often than not, however, too scant attention is paid to routes to market, which is surprising given the critical role of the distributor in business-to-business markets.

This failure to properly understand how products find their way to market is a key reason why many transnational market entry strategies fail when actually put into action, and especially in BRIC (Brazil, Russia, India and China) and other developing countries, where distributor channels are often fragmented and can appear opaque to foreign eyes. Proper channel research conducted by a qualified agency with a local presence is critical if investment in product development, promotions and pricing strategy is not to be wasted. When it comes to international expansion, nothing is as important as getting the channel right, and channel research therefore plays a crucial role in helping companies to take the right decisions on their distribution channel strategies.

5. It will either make you money or save you money

Market research companies obsess about return on investment (ROI), as they cast envious glances at the rewards gleaned by their clients as they implement the recommendations derived from research. Separating the benefits derived from research from benefits derived from in-house brainstorming and other sources can be very difficult, and it is clear that market research is just one of many inputs to the business decision-making process. However, it is clear that, when used effectively, market research has a fundamental role to play in helping companies to maximise revenues and long-term profitability. In particular, market research can help to:

  • confirm whether the opportunity is big enough, reducing the risk of investing and saving any potential losses associated with misguided investments;
  • give decision makers confidence that their assessment of the market opportunity is the correct one, ensuring the correct decision is taken;
  • discover if and how the company’s view of the market needs to be refined, thus maximising the success of the decision.

6. It will prove that your customers don’t care about price

Accurately determining the level at which products should be priced in new markets can be a minefield for organisations looking to expand into new and unfamiliar regions. There is a strong temptation among many companies to assume that a lower price point will be necessary to succeed in developing markets, even where the company may occupy a premium price position in its home market. Simply relying on the views of local sales staff and distributors on optimum pricing can be a recipe for disaster, as the interests of the company and local stakeholders do not necessarily correspond with one another.

Pricing a product is one of the most challenging decisions marketers have to make, and independent market research plays a vital role in helping to determine the optimum pricing level of a product. A variety of different research tools and techniques exist for understanding the trade-offs that respondents make when selecting and purchasing products, such as price sensitivity models and value maps. Research very often helps to illustrate that the growing demand for value in developing regions belies the common assumption that price is always the key driver in markets such as China and India. Very often, research may suggest that a price cutting strategy, whilst intuitively making sense, is usually the road to ruin in new markets, where local competition can undercut you from a lower price base. The results of research can give companies a rational basis for increasing prices and growing profits, when the received wisdom may be that only price cuts can secure market share.

7. It will show you that marketing is as important as selling

Marketing, like market research, is sometimes derided in business-to-business companies. In manufacturing businesses in particular, the salesperson is king, with marketers seen as support staff. Market research, however, repeatedly proves that strong marketing is the foundation of a strong salesforce, not least in showing that in most markets good sales figures are not about low price. When customers are spoken to independently and confidentially and their responses mythically analysed, it becomes clear that many salespeople are giving value away by charging insufficiently to some customers, at the same time as losing others by charging too much. Marketing at its core is about the profitable satisfaction of customers’ needs, and sales teams routinely have an insufficient understanding of how to achieve this.

8. It will show you that cultural differences are not important

Companies with a local rather than an international focus are often fearful of the prospect of selling to customers operating in entirely unfamiliar cultural environments, frequently assuming that differences between countries are so distinct as to make entering new markets practically impossible. For example, it is very common to assume that personal networks, relationships and face-to-face selling are the only ways to succeed in developing markets such as India and China. While such assumptions have an element of truth, in reality a strategy that relies on a relationship- based sales strategy alone is likely to fail to take account of the myriad factors that inform decision-making in b2b markets.

Market research can enable companies to get beneath the surface of decision makers’ thought processes, and develop more sophisticated sales strategies that rely on more than just personal interaction and loyalty. In particular, market research can help to segment target customers into different target groups, according to firmographics (company demographics), needs or buying behaviours, and to help develop customer value propositions (CVPs) that most closely meet the needs of each different target audience. In other words, research can help organisations to realise that cultural factors impinge far less on buying decisions in new markets than factors such as company profile, buying habits and purchasing behaviour.

9. It will show you what is worth measuring and what is not

Companies that are expanding internationally have a thirst for measurement. How much money are we making? How long until we have wiped out our set-up costs? How does our performance in one country compare with our performance in other countries? Market research is all about measurement, and above all about the inter-relationship between different data sets. Fundamentally, market research seeks to identify to what extent different variables impact upon growth and profitability. Good market research results in a series of firm actions that should be taken by the client, each of them impacting upon growth or profitability, and each of them measurable.

10. It can help you plan for the future

In today’s globalised world, any company looking to achieve sustained long-term growth needs to seriously consider ways in which international expansion can contribute to its growth plans over the long term. Although many companies may have a strong hunch that entering new territories will act as a catalyst to future expansion, there is still a clear need for impartial research to reinforce this perspective. Effective research will not only examine the long-term opportunity a market presents in terms of market size, customer needs and degree of competitive rivalry, but it will also look to examine the broader market environment and long-term implications that any changes to this environment may have for a company’s strategic approach.

One way of doing this is for the research agency to gain insights from knowledgeable experts and stakeholders, as well as using a variety of published and web-based information to build up a comprehensive picture of how the whole market environment is likely to develop in the future. Research can examine the PESTLE forces (political, economic, social, technological, legal and environmental) shaping a market, and make predictions on how this can affect a company in the years ahead. As well as looking at environmental factors, research can also help companies to make market, product and sales forecasts, based both on internal data and information derived from speaking with a broad cross-section of customers, suppliers, distributors, competitors and experts.