Economy & Market
Role of Market Research in Strategy Formulation
In the first part of the paper presented by
Soumen Karkun, Deputy Managing Director, Holtec Consulting
, on the case study, the author elucidates the backdrop of the case and the Company's internal and external scenario.
The case presented in this paper is based on a market strategy assignment, executed by Holtec in early 2012, for a leading manufacturer of cement in India. It seeks to highlight the role that good market research can play in formulating a holistic marketing strategy.
With surplus conditions prevailing in the cement industry, decision-makers in different companies set about re-examining the marketing elements which could provide them a competitive advantage. The need to revalidate the existing perceptions of the 4 Ps viz., Product, Price, Place (Distribution) and Promotion necessitated the launching of a variety of market information gathering initiatives. One of these was market research.
The company addressed in this case, had traditionally been able to command a price premium over its competitors in its principal markets. Immediately prior to the assignment described in this case, the company had observed two disturbing trends - its premium was eroding and its market shares, in districts where its realization was better, were dwindling. It, therefore, commissioned Holtec to undertake an integrated marketing assignment which could enable it to achieve a targeted return of 30% on its investment in assets.
Strength -Weakness Analysis
Strength -Weakness Analysis
A structured questionnaire was applied to volume-users, key channel functionaries and the company's own management and marketing staff to obtain a strength-weakness profile of the marketing function. A total of 20 factors were graded on a 5-point scale. It was found that the company had two real strengths, eight marginal strengths (which, if not attended to, could become weaknesses), five marginal weaknesses (which, with minimal effort, could be converted to strengths) and four real weaknesses.
Demand - Supply Forecasting
While demand forecasts in markets relevant to the company were determined using a variety of econometric and end-use models, projected supply was determined through the use of Holtec's dynamic database of projects in the pipeline. It was found that the overall surplus situation prevailing in early 2012 would moderately increase over the next 3-4 fiscals and thereafter show a slightly declining trend. The demand-supply forecasting exercise was performed not only at the national level but also at the regional level.
A technical assessment of the company's existing production facilities and input sources was used to ascertain its production potential over the next five years.
Realization Potential from Sales Redistribution
A bi-dimensional analysis was done in which each district in the four states which constituted a relevant market for the company, was mapped.
Competitive Advantage was determined using factors such as marketing proximities, the company's relative strength in the market (measured by price premiums, market shares, etc.), number of dealers vis-àvis competitors, etc.
Market Attractiveness was determined using demand forecasts, prevailing prices, number of competitors existing/ expected, etc.
Using the above data in conjunction with the price elasticities of demand in different markets, (which were determined) as well as the transport tariffs to move cement from sources to destinations, it was established that redistribution of sales could substantially add to the company's realization.
The objectives of the market research activity were to obtain a good, impartial insight of relevant market conditions, to test a set of hypothesis relevant to cement marketing and to use the information collected to develop market-oriented, competitor profiles
Research Dimensions, Methodologies & Tools
The survey spanned the entire month of March 2012. The activities included questionnaire development, field investigator training, field data collection, data coding/ entry/ validation/ analysis and interpretation of results. The survey team consisted of 18 field investigators and 2 supervisors. The geographic coverage included a total of 32 districts in the company's home state and the 3 states in its immediate vicinity. The research segments included trade channels and end users (individuals, private firms and government bodies). The research methodology consisted of personally administered, structured questionnaires as well as unstructured observations on market conditions. The statistically determined sample size consisted of 650 channel members and 125 end-users. This accounted for about 8.5% of the total market population.The analytical tools included regression analysis, statistical inference tests, hypothesis testing, etc.
Information gathered through Research
The information areas and some of the important types of information, collected and analyzed for all districts and all competitors, are shown below:
• Channel Information: Member sizes (storage/ sales), brands carried, exclusivity, supporting activities, other products sold, etc.
• Product Perceptions: Attribute ranking, cement type perceptions (OPC, PPC, and PSC), preference reasons for products/ packing, etc.
• Price Perceptions: Competitive price comparisons, seasonalities, elasticities, premium possible for a superior cement, discounts applicable for a lower category cement, etc.
• Market Sizes/ Shares: Competitive market shares, incremental sales potential, segment shares, usage determination, etc.
• Market Conditions: Sourcing requisition, delivery lead times, volume seasonalities, etc.
• Channel Perceptions: Best cement ranking, perception of competitive marketing functions, brand recommendation reasons, etc.
• Buyer Behaviour: Brand pulls & pushes, selection reasons, segment preferences, brand influencers, best cement ranking, brand usages, etc.
• Promotion: Preferred media, media effectiveness, message recall, competitive publicity effectiveness & measures, etc.
• Channel Concerns: Availability, margin comparisons, supplier attention, complaints, problem areas, preferred promotion schemes, etc.
• Hypothesis Tests: A set of 20 hypotheses was statistically tested for confirmation. These were applied to both channel members and end-users. Differences observable between the two states surveyed as well as between different consumer segments, were specifically analyzed. Some of the hypotheses tested are shown below:
• Darker cement sells better
• Quality varies widely between brands
• Cement from a new plant is better in quality than that from an old plant
• OPC gives better concrete strength as compared to PPC
• Consumers are perceptive of short weights
• Better quality cement has lower unit consumption in construction
• Lower priced cement has more demand
• Jute packing reduces price realization
• Instructions on cement usage increases the brand's demand, etc.
Based on the information collected through Market Research, and its subsequent analysis, meaningful competitor profiles were generated. These included competitor names, brands, production capacity (including timing of expected additions, if any), products & volumes, product quality, packing used, districts serviced, competitive advantage ranking in different districts, prices, marketing channels employed (types and volumes), user segments catered, supply lead times, promotion methods & schemes, message recalls, push/ pull statistics, etc. Apart from the above, district-wise comparisons with the company were carried out for factors such as reputation, publicity effectiveness, price leadership, incremental sales potential, etc.