Anatomy of Market Research

Managing Relationships

Market research should never be performed without reference to the environment in which a company is immersed. This environment involves the relationships between the company and its customers, its suppliers, and its competitors. These relationships serve to determine the type of research that can be done, the interpretation of the data to be obtained from the research, and the ability of the company to act on that data.

The Value Chain

A company's relationships can be defined by its "Value Chain." In his book, Competitive Advantage, Michael Porter describes this concept in detail. The following diagram from his book is a representation of a company's Value Chain.

porter1

This diagram is an arrow directed towards the flow of goods and services. The components of it represent the resources of the company. It shows the "overhead" functions (infrastructure, technology, and procurement) being shared by the "operations" functions (inbound and outbound logistics, operations, marketing & sales, and service) of the corporation. The "arrow" denotes the value being delivered and the margin represents what is left over after the resource costs are utilized.

Using the Value Chain concept prevents market research from being done in a vacuum. It can uncover opportunities in the market place which are affected by the infrastructure of the company. How a company responds to the opportunities is determined by its own anatomy and interrelationships. Porter shows typical relationships between companies in the following diagram.

porter2

Here we see that the company interfaces with its customer in several place in the organization. Its R&D is in communication with the customer's R&D, developing products and technologies that satisfy the specifications of the market place. Final inspection and shipping must interface with inbound logistics. Field and service engineers must negotiate service contracts with purchasing and must establish routine communication with operations to keep equipment running reliably. Of course, key customers must also have an interface at the top management level where important relationships are nurtured in the light of the company's long-term strategies. Not shown on Porter's diagram are the many relationships that exist between the company's marketing department and the customer. Marketing and sales personnel are in the business of relationships and they often have contacts within many different levels of the customer's structure.

There may be several customers with which you have such relationships. Typically these customers provide you with the lion's share of your current revenue. We often refer to this as the 80-20 rule, where 80 percent of your business comes from 20 percent of your customers. However, this will not sustain a competitive advantage. It is almost certainly true that in 5 years these 20%-customers will not be in the same position as they are now; and thus, your 80 percent of revenues will decrease. Because of this important fact of life, you must be developing similar relationships with other companies. Which other companies? This is one of the roles of market research.

Market Research

Most often my clients ask me to do research on a particular topic. Such research would be represented on the diagram as follows:

porter3

This arrangement is expedient and will provide information on a particular product or technology. The consultant simply uses his or her contacts in the marketplace to acquire data. The data, structured through the use of a questionnaire, is segmented, parsed, analyzed, and reported back to the client. However, there is an opportunity to gain even more information that will help the company in its strategic positioning.

Developing New Relationships

There is a tremendous amount of information that a consultant has which can benefit a client. A written and oral report can only convey a small percentage of this. It is much better if the consultant "trains" (and is trained by) the company while the research is in progress. The following diagram illustrates this process:

porter4

Here the consultant becomes part of the Value Chain as it pertains to the specific research at hand. In addition to the company's existing relationships, the consultant brings his or her own contacts (illustrated in red). Furthermore, the process of doing the research in concert with company personnel establishes new relationships that had not existed before. This is not to be seen as the consultant standing between the company and the customer - it is only a small percentage of time that the consultant is involved with the company's personnel. But it should be noted that:

This involvement increases face-time with the customer
In many cases contacts are in addition to those normally pursued
It raises the esteem of the company in the customer's eyes because of the proactive nature of research

When I work closely with my client's personnel for my research, the organization is capable of continuing the flow of information after I complete my work. It is important to realize that a market research report must not only contain marketing specifications, market sizes, and potential market growth, etc., but it must also contain the actions that will be necessary to capture and maintain the first position in the market or market niche. Your company relationships are of paramount importance in that action plan.

Here are the key steps in achieving the most efficient market research plan:

A clear statement of the research project's goals and objectives
An analysis of the company's organizations structure and relationships
A compilation of existing company information about the given marketplace
A survey of public information about the given market
A design of a questionnaire and identification of the target market
A plan for utilization of the company's resources to reach the target market
Research and analysis
Follow-up action plan

Summary

This approach to research is not trivial. Since a given company is steeped in its own culture, it is difficult to step out of its skeleton and actively seek new relationships. Companies are not used to thinking in terms of the Value Chain and those relationships are usually taken for granted. Most often, a company will become complacent with its existing customers without looking ahead at the long term strategy.

It is difficult in our busy schedules to read and understand a canonical text such as Porter's Competitive Advantage. For those who have not read it, I recommend it. It contains much more than just an analysis of the Value Chain. But for this simple concept, it is invaluable for understanding how relationships between companies can affect how research is done and interpreted.

Robert McGeary