How new market forecasting should be conducted?
In order to keep it more exciting, let's imagine your company is interested in tackling market opportunities abroad, meaning a new and unfamiliar territory outside your home market. A good starting point could be the following sources:
Government or other Public Data
Customer Relationship Driven Information
Supplier Relationship Driven Information
Also, we need to consider risks factors affecting accuracy
The strategic plan of an organization is carried through the processes of: Identifying Demand, Designing Products and Processes, and Delivering Products and Services (APICS CIRM, 2000) as depicted in Figure 1. This blogis focused on the first.
Figure 1 - Business Processes related to Strategic Planning
Demand is a vehicle that an organization uses to implement its vision and mission. In order to do that, there are major activities that need to occur when identifying and creating demand:
Business planning – how to meet the business objectives.
Marketing –identify customers and products to generate revenues to accomplish the business plan. It has been suggested with the group discussions that an environment with a greater risk should have increased margins.
Sales – execute market plan through business plan promotions, personal contact, etc.
Customer order and customer service – sell product, after-sale maintenance, warranty, repair.
Performance measurement – results of market plan, forecast, promotion.
The business plan will be discussed in more detail later in a future blog, so let us start with Marketing, which achieves the organization’s goal through: analyzing the market, setting the commercial strategy, and executing the plan.
The market analysis should start with the evaluation of internal and external environments. Market research leaders like BMI (Business Monitor International) and Passport GMID (Global Market Information Database) can provide good insights about the targeted markets, even SWOT[i] analysis are available in BMI.
Companies should have a keen instinct to identify trends and evaluate opportunities, especially when entering unfamiliar markets, more likely to be located at undeveloped economies as they have more than three-quarters of the top 20 world urban locations (Barron’s, 2011). In addition, the forecasted emerging markets aggregate growth for 2011 is much more attractive than the 1.5% seen in developed countries for the same period. Table 1 depicts the aggregated market growth forecast for each major Region (BMI Vietnam, 2011)
Table 1 - Emerging Markets Forecasted Aggregated Growth
If the company’s initial assessment reveals the new market potential is there, further investigations should be conducted. For this purpose, additional data sources are available like the ones depicted in Figure 2. Special attention should be placed on verifying the reliability of such data, either through cross checking multiple sources or hiring a trustable local market research company.
Figure 2 - Sources for New Market Forecasting
Government / Public Data; definitely, there are good sources of information, i.e. INEGI (National Institute of Statistics, Geography, and Information) in Mexico was appointed autonomous in 2008 –only from a technical and management perspective- however, its President and their four VPs are assigned by Mexico’s President (INEGI, 2011). This entity owns the national census, performed gives access to some data free of charge. Also it generates customized reports for more specific data requirements. The easiness, meaning the accessibility to find ‘INEGI’ from typical research tools like Business Source Complete is simply not there, the name of this entity only gave 29 records in the cited tool. Therefore, it is suggested to have a trusted local market research company that understands what the ‘investor’ company is looking for.
Customer Relationship Driven Information; definitely, this is one of the main data source for new market forecasting. One of the goals of CRM -Customer Relationship Management- is visibility (APICS CSCP M3, 2009). Information about the customer’s desires, buying habits, and experiences are captured constantly and they can derive in excellent insights about a mutual need to enter new markets. However, several requirements are needed to create synergy to make a ‘deal’ like creation of customer loyalty through meeting and exceeding customer needs and wants. Collaboration can evolve towards joint-effort activities like sharing ‘Business Intelligence’ information from targeted markets, which basically no market research company can beat it.
Supplier Relationship Driven Information; this is a very similar case to the one described above. The only difference is the position of the company in the supply chain. Collaboration plays also a critical role to pursue together new market entry plans, just a step behind the M&A (Merger & Acquisition). Cases like ‘Pfizer’ and ‘Warner-Lambert’, on which the former used an alliance with the latter as a gateway to an acquisition (Dyer, Kale, Singh 2004). A strategic alliance is shown in Figure 3, both companies have multiple points of interactions like: MIS, Distribution, Customer Service, Sales/Buyer, Marketing, Operations, and Finance.
Figure 3 - Strategic Alliance
Risk factors affecting accuracy; this is the obvious, but harder to ensure in an ever changing business environment. In the case of China, the Real GDP Growth –forecasted- for 2011 has a slight difference between two sources: BMI (Business Monitor International and EIU (Economist Intelligence) – 9.2 and 9.0 respectively, a variance of 0.2 or 2.2%. Other indicator, consumer price inflation, has a difference of 12%. The intrinsic complexity of gathering and interpreting projected economic data may be part of the reasons explaining this difference; however, the numbers in the cited comparison seems to be within acceptance level.
Also, the new market forecasting data requirements need to be adjusted accordingly. For example, early in their lives most markets go through a short but steep growth that defines the competitive landscape. During these time, also called Hypergrowth, companies must make sales their top priority. Later they can focus on efficiency and the business model and pay more attention to costs. Innovation too should be put on hold. Decision rights should be pushed out to the front line (Izosimov, 2008).
[i] SWOT analysis helps the organization to identify their core competencies (internal environment) in order to recognize opportunities for matching them with customer needs. SWOT Analysis Reports are available at BMI at a country level, from where Business Environment rankings are prepared at Regional and Global basis.
