10 th National Convention on Statistics (NCS) EDSA Shangri-La Hotel October 1-2, 2007

Transcription

1 10 th National Convention on Statistics (NCS) EDSA Shangri-La Hotel October 1-2, 2007 Towards a Low-Cost Market Research Approach by Benvenuto N. Icamina For additional information, please contact: Author s name : Benvenuto N. Icamina Designation : Vice President Affiliation : AYC Consultants, Inc. Address : 14 th Floor Sagittarius Bldg. Dela Costa Bldg. Makati City Tel. no. : (0632) bingicamina@yahoo.com

2 Towards A Low-Cost Market Research Approach by Benvenuto N. Icamina 1 ABSTRACT The purpose of the paper is to show how market research can be done without resorting to expensive, full-blown surveys, or without having to acquire off-the-shelf market/industry studies that may be relatively less expensive but still not enough to meet the details needed by the business. The study is being done under the Philippine setting, where the data gathering challenge would be more formidable than in countries with more developed data base system and with a significant number of private market data providers, such as the US. The paper identified potential sources of Philippine data, and how the data could be enhanced cost effectively to address the market-related issues identified. For the purposes of the paper, only the sources of information and suggested enhancements for the following basic market research issues were covered: (a) size and growth of the market; (b) profile of customers; and, (c) competitors. The approach is perceived to be ideal for small and medium enterprises, especially those needing a feasibility study or a business plan to access financing or to pursue a business alliance, or for large firms that need to monitor their markets routinely and cursorily. The approach is not meant to replace the use of full-blown research/survey, which could be needed if the monitoring reveals interesting items that need more detailed assessment. 1.0 Purpose and Coverage of the Study This paper aims to show a low-cost approach to market research under the Philippine setting. Low-cost refers to an approach that does not resort to expensive full-blown surveys, focus group interviews, or to off-the-shelf market/industry studies that may be relatively less expensive but not enough to meet the market details needed by the business. The data gathering challenge in the Philippines would be more formidable than in countries with more developed data base system and with a significant number of private market data providers, such as the US. The problem is compounded in researches involving products or services that are new to the country. This paper will identify potential sources of Philippine data, which will be more illustrative than exhaustive, as it will be based on actual 1 Vice President, AYC Consultants, Inc. Paper presented during the National Convention on Statistics, EDSA Shangri La Hotel, Metro Manila, Philippines, October 1-2, 2007.

3 experience, and how the data can be enhanced cost effectively to address the market-related issues identified. The approach would be ideal for small and medium enterprises, especially those needing a feasibility study or a business plan to access financing or to pursue a business alliance; or for large firms that need to monitor their markets routinely and cursorily (using only full-blown research/survey if the monitoring reveals interesting items that need more detailed study for strategic purposes). Market research is the process of gathering, recording and analyzing data and information to provide useful insights about customers, competitors and the industry. For the purpose of this paper, only the sources of information and suggested enhancements for the following basic issues addressed by market research will be covered: (a) determining the size and growth of the market; (b) identifying and profiling the customers; and, (c) analyzing competitors. 2.0 ADVANTAGES AND DISADVANTAGES OF THE APPROACH The advantages of the approach are as follows: It is relatively low cost, as it basically involves secondary data gathering and limited interviews It can be done quickly, as conducting it does not involve formidable logistical challenges as a full-blown survey does It is easier to implement Time series data is likely to be available, making it possible to perform trend analysis and model building The disadvantages include: Available information may not be detailed enough to address the needs of the clients, especially for finer market niching The results may not be as accurate as a full-blown survey

4 The enhancements conceived are based on the views of key informants, mostly industry experts, not on the views of the consumers/users 3.0 SIZE AND GROWTH OF THE MARKET The most available source of data for determining market size and growth is the Annual Survey of Philippine Business and Industry (ASPBI) of the National Statistics Office (NSO). ASPBI contains time series data on the number of establishments, employment, compensation to employees, revenues or sales, value of output and total costs for 114 industries (see Table 1). The weaknesses of the data, however, are the 2-year lag time in reporting and the lack of figures on the volume of sales and of production. The more recent data would be those found in the National Accounts as reported by the National Statistical Coordination Board (NSCB), which is available for But it covers a lesser 64 industries. It also does not provide volume data but its constant price statistics can be a good proxy for determining volume growth. The problem arises if the ASPBI and/or the National Accounts do not have the sufficient breakdown to cover the specific product or service for which the market study is focused. In this case, other sources of data can be explored. Some industry associations may have the needed data, but not all. The Bureau of Product Standards of the Department of Trade and Industry (BPS-DTI) maintains a listing of industry associations and contact persons. However, the list of said organizations may not be exhaustive (for example, it does not have information technology associations, such as the Call Center Association of the Philippines or the Business Process Outsourcing Association of the Philippines on its Directory). If sales data (the best indicator of market size), in volume and/or value, are still not available with industry associations, the next best option need to be seriously considered, which is key informant interviews. The industry associations and their member firms are candidates for the interviews. Alternatively, a sampling of major industry players may be interviewed, but they tend to be less cooperative as the research is viewed as helping their competitor succeed in the marketplace at their expense (industry associations tend to be more accommodating because their role is to help the industry grow). Perhaps a better alternative would be to talk to a

5 sampling of companies distributing/selling the products, in the case of consumer-oriented goods, or to the companies in industries using the products, for raw materials, intermediate goods or capital equipment. The presumption is it would be to their advantage if there are more firms as there will be greater competition. In the interviews, one should consider that the key informants responses are based on recall, so the number of interviewees should be sufficient enough to be able to validate each other s responses. Also, information for at least two time periods would be required to be able to establish the trend. Table 1 INDUSTRIES COVERED THE ANNUAL SURVEY OF PHILIPPINE BUSINESS AND INDUSTRY PSIC Code Industry description Sales value in 2005 (PB) 70 Real estate activities Renting of machinery and equipment, personal & 7.21 household goods 72 Computer and related activities Research and development Miscellaneous business activities Production, processing and preservation of meat, fish and other seafoods, fruits, vegetables, oils and slaughtering and meat packing 152 Manufacture of dairy products Manufacture of starches and starch products, prepared animal feed and grain mill products except rice and corn meal 155 Manufacture of beverages Manufacture of bakery products Manufacture of sugar Production of crude coconut oil, copra cake, meals and pellets

6 153, 159 Rice and corn milling, other food products Manufacture of tobacco products Spinning, weaving and finishing of textiles Manufacture of other textiles Ready-made garments manufacturing Custom tailoring and dressmaking, manufacture of wearing apparel, n.e.c Tanning and dressing of leather, manufacture of luggage, handbag and footwear Manufacture of wood, wood products and cork, except furniture, articles of bamboo, cane, rattan and the like 210 Manufacture of pulp, paper and paperboard Publishing Printing; publishing and printing activities Reproduction of recorded media Manufactured of refined petroleum products , 233 Manufacture of coke oven products; other fuel products 241 Manufacture of basic chemicals Manufacture of other chemical products, man-made fibers Manufacture of rubber products Manufacture of plastic products Manufacture of glass and glass products Manufacture of cement Manufacture of non-metallic mineral products, n.e.c Manufacture of basic iron and steel Manufacture of basic precious and non-ferrous metals Metal casting Manufacture of fabricated metal products, except machinery and equipment Manufacture of machinery and equipment, n.e.c , 309 Manufacture of office, accounting and computing machinery Manufacture of electronic motors, generators and 30.97

7 transformers; electricity distribution and control apparatus 313 Manufacture of insulated wire and cables Manufacture of accumulators, primary cells, and primary batteries; lighting equipment and electric lamps; other electrical equipment, n.e.c Manufacture of electronic valves and tubes; semi-conductor devices and other electronic components; TV and radio transmitters and apparatus for line telephony and line telegraphy 324 Manufacture of TV and radio receivers, sound or video recording or reproducing apparatus and associated goods Manufacture of medical precision and optical instruments, watches and clocks Manufacture of motor vehicles, trailers and semi-trailers Manufacture of other transport equipment Manufacture and repair of furniture Recycling of metal and non-metal waste and scrap Manufacture of jewelry, musical instruments, sporting 9.91 goods, game and toys and other related goods, n.e.c. 160 Land transport, transport via pipelines Water transport Air transport Supporting and auxiliary transport activities; activities of travel agencies 164 Postal and telecommunications services Private elementary education Private secondary education Private technical & vocational post-secondary non-degree 4.91 education 814 Private higher education Private adult and other education Hospital activities and medical and dental practice Veterinary activities 0.04

8 853 Social work activities Sale of motor vehicles Maintenance and repair of motor vehicles Sale of motor vehicle parts and accessories Sale, maintenance and repair of motorcycles and related parts and accessories 505 Retail sale of automotive fuel Wholesale on a fee or contract basis Wholesale of agricultural raw materials and live animals, food, beverages and tobacco 513 Wholesale of household goods Wholesale of non-agricultural intermediate products, waste & scrap 515 & Wholesale of machinery, equipment and supplies, incl other machinery, equipment and supplies 516 & 517 Wholesale of computers, computer peripheral equipment, software and electronic parts and equipment Other wholesaling Retail trade, except motor vehicles and motorcycles Retail sale of food, beverages and tobacco in specialized stores 523 Other retail trade of new goods in specialized stores Retail sale of second-hand goods in store Retail trade not in stores Repair of personal and household goods Retail sale of computers, computer peripheral equipment, software, communication equipment audio and video equipment 551 Hotels, camping sites and other provisions of short-stay accommodation 5521 Restaurants, cafes and fast food centers Refreshment stands, kiosks, counters, day & night clubs, bars & cocktail lounges and other restaurants, cafes & fast 20.07

9 food centers, n.e.c , 018, 019 Growing of palay, corn, coconut, sugarcane, fruits, beverage and spice crops, and other related crops Growing of vegetables, roots and tuber crops, horticultural 0.85 specialties and nursery products 021 Hog farming , , 029 Farming of animals except chicken and hogs Chicken broiler production (incl. operation of chicken 6.90 hatcheries) , Agricultural and animal husbandry service activities, except harvesting, threshing, grading, baling and related activities Harvesting, threshing, grading, baling and related services All types of forestry activities , 455 Site preparation; renting of construction or demolition 0.14 equipment with operator Residential building construction Non-residential building construction General engineering construction Building installation Building completion Generation, collection and distribution of electricity Steam and hot water supply Collection, purification and distribution of water Gold ore mining Copper ore mining Chromite ore mining Metallic ore mining not elsewhere classified Coal mining Extraction and production of crude petroleum and natural - gas 113 Stone quarrying, clay and sand pits Non-metallic mining and quarrying, not elsewhere classified 0.45

10 061 Ocean and coastal fishing Prawn culture , 064 Inland fishing including operation of fish farms and 1.37 nurseries Pearl culture and pearl shell gathering, seaweed farming, 0.49 and other fishing service related activities Source: National Statistics Office (NSO), Annual Survey of Establishments 3.0 CONSUMER PROFILE The idea behind identifying the customer is to estimate how large this population of buyers is and to determine the potential gains of the business in going for this market. Ideally, existing businesses should have an information system on their buyers. This can help facilitate the estimation of the size and the fine-tuning of their target market. Some large companies spend money on client satisfaction surveys, which is a vital source of market information. In most cases, however, this data does not exist, or may be difficult to gather especially for mass consumption goods where it is not practicable for buyers to fill up forms to purchase small retail items. In this case, the alternative is to conduct a survey of buyers, but this defeats the purpose of this paper which is to suggest ways to gather information on customers without conducting expensive surveys. In the absence of internally-generated data on clients (or in the case of new products), the following secondary sources can provide some useful information on the consumer market: Family Income and Expenditure Survey (FIES) of the National Statistics Office (NSO) This provides statistical information on family expenditure patterns (what percentages of the family budget go to certain consumer items) by income class and by geographic location. The consumer items presented are reasonably detailed. One drawback of FIES, however, is that it is conducted only every 3 years and the lag time in reporting is at least 2 years. Table 2 shows a summary of information available from the FIES (the raw data has more details on expenditure items, geographic area, and income class).

11 Special consumer surveys published by private organizations, such as the Social Weather Stations (SWS), Pulse Asia and market survey firms, although some of this ready-touse data may not be publicly available and relatively expensive to acquire. Monitoring and content analysis of media releases related to the product and to the feedback on the product by customers, etc. Demographic information can be obtained from NSO s census of population data and the NSCB s Technical Working Group on population projections. Statistics are available by province/city/region, gender and age group. Additional information on the demographic and lifestyle characteristics of buyers may be derived from interviews with wholesalers, distributors and/or retailers. For producer goods (raw materials, intermediate goods, capital equipment, etc.), interviews of key informants from companies using the products can provide useful insights. Table 2 DISTRIBUTION OF FAMILY EXPENDITURES BY EXPENDITURE GROUP: 2003 Expenditure group* Distribution (%, unless otherwise specified) Food Food consumed at home Cereals & cereal preparations Roots and tubers Fruits and vegetables Meat and meat preparations Dairy products and eggs Fish and marine products Coffee, cocoa and tea Non-alcoholic beverages Food N. E. C

12 Food regularly consumed outside Alcoholic beverages Tobacco Fuel, light and water Transportation and communications Household operations Personal care and effects Clothing, footwear and other wear Education Recreation Medical care Non-durable furnishings Durable furniture and equipment Rent/rental value of occupied dwelling House maintenance and minor repairs Miscellaneous and other expenditures Total family expenditures (Billion Pesos) 2, ,801.8 * Detailed NSO FIES data contains 194 expenditure items Source: National Statistics Office (NSO), 2003 Family Income and Expenditure Survey (FIES) 4.0 COMPETITOR ANALYSIS The best source of secondary information on competitors would be the Securities and Exchange Commission (SEC). Summarized financial information, which include gross revenues/sales, net profit, liabilities and stockholders equity, are found in the Top 7,000 Corporations Business Profiles and Next 5,000 Corporations Business Profiles (2 separate publications) published annually by the Philippine Business Profiles and Perspectives, Inc. The data is also presented in terms of industrial group based on the Philippine Standard Industrial

13 Classification (PSIC), although the classification of the firms may not necessarily be accurate and would require judgment by the user. Business World (BW) has a more truncated version consisting only of the Top 1,000 Corporations, but which has a relatively more accurate classification of firms by industrial groups plus information on multinational corporations (MNCs) and government-owned and controlled corporations (GOCCs). (Refer to Table 3 for a summary of Business World data) If more data is required, one can request for audited financial statements of the relevant companies. In the case of listed companies (i.e., with shares traded in the Philippine Stock Exchange), additional information can be obtained from the quarterly reports of companies (SEC Form 17-Q) to the SEC. Table 3 BUSINESSWORLD TOP 1,000 CORPORATIONS IN THE PHILIPPINES: HOW COMPETITORS COMPARE, 2005 Industry (Number of firms in parenthesis) Gross revenues (Billion Net income (Billion Gross profit margin Current ratio (%) Debtequity ratio (%) P) P) (%) Agriculture, hunting & forestry (12) Fishing (3) Mining and quarrying (9) ,919.3 Manufacturing (428) 2, Meat & meat products (6) Fruits & fruit juices (2) (1.32) Powdered, condensed or evaporated milk, except for infants (2) Malt liquors (beer, etc.) & malt (2)

14 Snack products (3) Crude coconut oil (11) Petroleum products (4) Drugs and medicines (20) Perfumes, cosmetics & other toilet prep. (6) Cement (10) Computers, computer peripheral equipment and accessories (16) Insulated wires and cables (17) Accumulators (storage batteries) (2) Semi-conductor devices (42) TV & radio transmitters, receivers, etc. (9) Motor vehicles (11) Parts and accessories for motor vehicles (16) Motorcycles Electricity, gas and water (46) Construction (2.28) Wholesale & retail trade (243) Motor vehicles, retail (25) Auto fuel, retail sale (18) Wholesale - sugar, confectionery & bakery products (10)

15 Wholesale medicinal & ,149.7 pharma products (11) Wholesale solid, liquid ,188.9 & gaseous fuels (7) Wholesale computers, computer peripherals, software, etc. (8) Oth. wholesaling NEC (5.15) (396.5) (12) Supermarkets (14) Department stores (33) Drugs and pharmaceutical goods, retailing (6) Hotels and restaurants (15) Transport, storage and Communications (46) Air transport (4) ,161.3 Telephone, telegraph, etc. services (9) Radio & TV broadcast (3) Financial intermediation (117) Universal banking (12) Commercial banking (21) Financial holding companies (27) Life insurance (10) Non-life insurance (14) Real estate, renting and business activities (41) Real estate residential

16 and non-residential buildings (10) Call centers (10) Public administration and defense; social security (9) Education (2) Health and social work (5) Other community, social and personal services (2) Grand total/average 5, Source: BusinessWorld Top 1,000 Corporations in the Philippines, 2006 SEC can also provide information on new companies, which would be useful in determining potential industry players and competitors in the future. The other possible sources of information on future competitors would be the list of approved investments from the Board of Investments (BOI) and the Philippine Economic Zone Authority (PEZA), assuming that these firms/projects are entitled to enjoy fiscal and other incentives from either of the two promotional agencies. Other alternative resources on competitors would come from the competitors themselves: Annual reports either hard copy or as published on their websites, if available Press releases, as published in periodicals or disseminated by their communications/pr department What is more difficult to establish or estimate would be the individual companies production capacity, volume of production and volume of sales, by product lines. It would be a challenge to obtain the information directly from the companies themselves for the obvious reason that they are less likely to cooperate with a potential competitor.

17 Similar to the approach in determining market size and growth, an attempt may be made to get some helpful insights from the industry associations. But it would be ideal if a sample of major firms is able to respond positively to the query of the market researcher. 5.0 MARKET PROJECTIONS Market projections are crucial components of business planning or feasibility analysis of proposed projects. The issue being addressed is whether or not existing and new firms are able to meet the future demand for the product. This is reflected in the following inequality: C (P I + M X) / 0 Where C = Local consumption P = Local production I = Inventory of finished goods M = Imports X = Exports Demand is represented by C while local supply S is equal to P I X and should reflect the firm s capacity to meet demand. For projection purposes, I is assumed to be zero; if the firms produce only for the local market, X is also zero. To make the projections, one should set up some form of a working model. And modeling requires historical (time series) data. For projecting demand, an equation relating C to factors affecting demand like income, prices (of the product and substitutes), etc. need to be developed. This will require the use of regression analysis. This is a more realistic approach than simply projecting demand based on trend line. For projecting supply (= P, assuming I, X = 0), three sets of information will be necessary production capacity of existing firms, planned capacity expansion of existing firms and new firms that plan to enter the market, less capacity to be retired, replaced or depreciated:

18 P = P E + P N - P D Where P E = Existing production capacity P N = New production capacity P D = Capacity to be retired, replaced or depreciated Note that the above equation, for projection purposes, assumes 100% capacity utilization. This puts the supply projection rather on the high side (and the demand gap conservative). Possible sources of information were already mentioned in the previous sections. Finally, imports. Firms normally import for two reasons. First, products could be finely differentiated so specific market niches exist, creating market opportunities for imports. Second, imports may compete directly with local products if import prices fall (or local product prices rise). For projection purposes, it can be assumed that the price differential between local products and imports is maintained, so prices are not going to be a major factor. The import equation, therefore, can simply be a certain (perhaps the historical) proportion of imports to demand. Business can then make certain decisions depending on whether the result is projected demand exceeds projected supply plus projected imports, or projected demand is less than projected supply plus projected imports. If the result of the equation is > 0, there is a projected excess in demand that suggests an opportunity for the proposed new project or the expansion of an existing project, whatever case it may be. If it is < 0, there is an excess supply, which indicates a production cutback, the pursuit of more aggressive competitive strategy, the development of a differentiated product, or finer market niching.

19 6.0 CONCLUSION The low-cost method of market research would involve the use of available secondary data, enhanced by key informant interviews. The Annual Survey of Philippine Business and Industry (ASPBI) of the NSO would be a helpful source of secondary information on the size and growth of the market; the Family Income and Expenditure Survey (FIES) for patterns of consumption; and the Securities and Exchange Commission (SEC) for competitor analysis. This method of research and analysis, however, does not intend to supplant full-blown surveys and other market research methods, but only presents an alternative, easy-to-follow approach for SMEs needing acceptable market study for either a feasibility analysis or strategic planning. It is also helpful for large companies needing only an idea of the broad market trends. Other research methods are still important if more detailed understanding of the market is required.

20 References Business World, Top 1,000 Corporations in the Philippines, various years National Statistics Office, Annual Survey of Philippine Business and Industry, 2005 National Statistics Office, Family Income and Expenditure Survey, 2000 and 2003 The NYC small business resource center, Business Owner s Manual, smallbiz.nypl.org Philippine Business Profiles and Perspectives, Inc., Top 7,000 Corporations Business Profiles, various years Philippine Business Profiles and Perspectives, Inc., Next 5,000 Corporations Business Profiles, various years Securities and Exchange Commission, SEC Form 17-Q Quarterly Report Pursuant to Section 17 of the Securities Regulation Code and SRC Rule 17(2)(b) Thereunder