As the information about an international market is gathered, researchers should sort and analyze it to develop market intelligence. Their analysis can then be used to answer specific questions about the market characteristics that apply to business objectives. The answers that market intelligence provides will be useful in guiding business strategies and helping companies trade more successfully.
Market intelligence can answer several questions, including:
- In which market will our new product be most likely to succeed?
- What is the best way to enter this market?
- Do customers in this market need our product?
- Are there customer needs that are not being met by existing products or services?
- What is the market potential for this product?
- Can we establish a cost-effective overseas production plant?
- Why is our product not selling effectively?
In one example, an international medical products manufacturer had been trying without success for four years to find a partner that could help it gain entry to the U.S. market. The company commissioned an in-depth market intelligence report that developed a comprehensive picture of the U.S. medical products market.
This knowledge answered the question, “What are the critical success factors for this market?” The answer was that potential partners needed to mitigate the risks of launching new products.
Armed with this knowledge, the company demonstrated to potential partners that it was capable of mitigating the risks associated with licensing of new products in the U.S. With this new approach, the client founded a successful partnership and began generating substantial revenue.
Don’t jump to conclusions without knowing a market’s geography
Market intelligence about geographic and climatic conditions will help companies assess how easy or difficult it will be to exploit a new opportunity.
The size of a country, its distance from the company’s distribution centres and the nature of the terrain will affect distribution costs and the ease of communication.
It will also indicate the types of goods that can be traded and how goods must be packaged. For example, processed food products in countries such as Japan that have a regular rainy season, often require special packaging.
Perishable goods might not be suitable for export to a country where an inefficient distribution system might lead to delays of many weeks. Intelligence about the geography and environment of a region is also critical for decision making when a company is contemplating locating production or distribution facilities in another country, as the case study below illustrates.
It is important not to jump to conclusions when making decisions based on geographic characteristics. For example, distribution in many African countries relies on a complex system of riverboats, trains and even carts. However, this system is often very cost effective and reliable when compared to modern infrastructures.
Geographic and climatic factors can also provide important indications of the market potential for products related to weather and climate conditions, such as snowmobiles, snow blowers, ski equipment, jet skis, sunglasses, swimwear, air-conditioning units and electric fans.
One U.S. food processor built a pineapple cannery on a river delta site in Mexico. A pineapple plantation was located upstream, and the plan was to float the ripe pineapples downriver on barges. This would have been an efficient and cost-effective transportation method; however, at harvest time, the river was flowing too rapidly for barges to be used safely.
There was no other feasible method of transporting the fruit, so the company closed the plant. The equipment was sold to a Mexican competitor for a fraction of the original cost, and the competing company immediately relocated the plant.
Effective market intelligence could have helped the food processing company avoid this costly mistake.
Add demographics to your market intelligence for the full perspective
Demographic figures provide important indications about the size of a market, but how these figures are applied and interpreted will vary depending on the product or service.
For example, China, with a population of 1.3 billion, seems at first sight to be a huge potential market for many goods and has attracted the attention of many exporters. However, even after recent economic growth, income levels of most Chinese people are extremely low.
According to Chinese government figures, 10 percent of the Chinese population lives below the official poverty line of $87 a year. It is estimated that at least half the population lives on less than $2 a day. This means that, while the potential market does seem very large, many goods might be beyond the means of ordinary Chinese people to afford.
Use your information about economic characteristics
Analysis of economic characteristics can provide companies with an idea of the affluence, stability and potential for growth of a market. Less affluent markets will not be attractive options for marketing luxury goods such as consumer electronics, designer goods, jewellery and high-end automobiles.
However, some large markets such as India have very affluent sub-markets that can be targeted effectively.
How tech-savvy is your potential new market?
Market intelligence about technological indicators will help companies decide whether there is likely to be sufficient market potential for sophisticated products and services such as personal computers, electronic games, books and training programs.
For example, a company that produces online software will research the number of companies in a target market with substantial sales forces, the frequency of Internet use in industries with sales forces, the availability of computers and mobile devices and the amount of software that is currently available in the market.
Information about the level of technological education in a foreign market will also help companies decide whether to invest in the market and locate company facilities there. It is usually very expensive to support expatriate managers and employees, so the presence of a skilled indigenous workforce will be an important factor in determining whether a proposed investment will be cost effective.
What can socio-cultural characteristics tell you about how customers will respond?
Information collected about cultural values, lifestyle patterns, linguistic variation and cultural and ethnic patterns in a market is essential for helping companies decide what the market response will be to a product or service.
This information is especially important for companies considering whether to export products such as food, clothing and beverages, because the use of these products is highly dependent on cultural views. For example, in countries such as Korea, consumption of dairy products is uncommon.
Information about the range of languages spoken in a country or about the alphabets used will help a company determine whether translation will be a potential problem and whether products will require different packaging for regions in the same market. For example, Serbs and Croats speak a similar language but use two different alphabets.
Add all your market intelligence together to see the true market potential
Market potential represents the maximum amount of sales all suppliers of a particular product or service can make in a target market in a stated time with a defined level of marketing effort and under defined conditions. The market potential is determined by analyzing a variety of market factors, including socio-political aspects, market access, size and characteristics of the market and growth factors.
An idea of market potential can be determined by gathering and analyzing the following data:
- The amount of product that is consumed or purchased in the target market
- Supply figures, including domestic production figures
- Export and import figures
- Factors affecting imports
- Competing products and sales
- Market share trends
- Price trends
- Demographic trends
- Trends in purchasing power
The size and growth of product imports can be an important indicator. If import numbers are small relative to the potential market size, this might be a sign that the market is unreceptive to the product or that the market is not adequately supplied.
If imports of a product are growing more slowly than consumption in general, this would suggest that the market is not interested in the product.
If import numbers are large relative to the potential market size, this might be an indication of strong demand or of very strong competition.
Import figures rising more rapidly than domestic consumption does suggest an intense and successful marketing effort, but can also indicate the potential for weakening long-term products when the market becomes saturated.