INDUSTRY INSIGHT
As a former secretary of defence once said, (in abbreviated edited form), to justify invading Iraq for weapons of mass destruction, there are known knowns (we know what we know) and known unknowns (we know that we don’t know some things) and unknown unknowns (we don’t even know we don’t know some things).
For businesses, what always trips them up are the last two unknowns. Looking at the market is critical to adding to a business’ “knowns” and reducing the number of “unknowns”. These approaches to understanding markets are market research, market analysis and market assessment.
Market research
Market research is an effective methodology to quickly and inexpensively learn about a market’s current size/value, basic segmentation, structure of channels and supply chains and customer preferences. It is usually done through the acquisition of secondary data from Internet searches, government and trade publications.
Market analysis
Market analysis brings us a step closer to finding out what is going on in a market. In addition to using “market research” described above for secondary information, it goes one more step, collecting primary data from people who participate in a market.
The process of collecting primary data allows the consultant to understand the intricate workings of a particular part of the market.
Market analysis provides an understanding of the mechanisms of how a market works at different levels and how it is changing. But there are limitations to this methodology. First, focusing in one channel or market segment often biases the results. Turning qualitative inputs from interviews into quantitative data is difficult and subject to errors.
Market assessment
Market assessment takes everything done in market research and market analysis and adds the client’s business as a variable in the market. Market assessment provides the context of the client’s resources, talents and capabilities into a description of how the future market is likely to look.
Selecting the most appropriate approach to obtaining market information depends on the questions the client asks and how the information will be used. Information through market research can provide valuable inputs for day-today tactics or as a check on what is going on in a market as a “snapshot”. Understanding the market’s future requires more in-depth analysis and primary interviews.
Finally, what the client wants to do and what resources and talents
an organisation that stays connected with the customer always has an ear to the ground. —
will be required within a market requires a full market assessment.
Understanding your competitors
There are many ways of gathering of competitive information right. Obtaining competitor information falls into three categories defined by the information requested by the client and how the information will be used. These categories are competitive intelligence, competitive analysis and competitive benchmarking.
Competitive intelligence
Competitive Intelligence (CI) has a bad name because it is often associated with industrial espionage. CI questions are usually single-point facts of often sensitive information. The answers derived from CI are used for near-term tactical purposes by the client. In most cases the impact of the information is short-lived and focused. CI is a useful tool but provides little context.
Competitive analysis
The next type of competitive information gathering is competitive analysis. The information collected and analysed is at a higher level than CI. Rather than a single point of competitor information, it covers sales, manufacturing, technology, HR and financial functions. Competitive analysis provides a context that allows clients to compare the target competitors with themselves or others.
Competitive analysis is usually used to formulate business unit responses to competitor actions and plans. It is also used extensively by private equity firms looking to understand a market’s competitive environment and their target’s position in it.
Competitive benchmarking
Another form of competitive information is competitive benchmarking. Competitive benchmarking covers a broader range of functional issues than CI or competitive analysis. It is ultimately an inward-looking exercise. Competitive benchmarking helps the client establish factbased benchmarks for performance and measures against other competitors. The main purpose is to make internal changes to improve performance. Benchmarking can be further used as input to a balanced scorecard analytical approach to improve performance and correct problems.
What is the best approach?
Competitive information can provide valuable inputs for day-to-day tactics or for the formulation of strategy. Selecting the most appropriate approach depends on the questions the client asks and how the information will be used. If it’s just general fact gathering on the competition, CI is the way to go.
But if a greater understanding of the competition, and most importantly, what the client could do, competitive analysis and benchmarking are the best alternatives.
Conclusion
The value and effectiveness of any market or competitor information gathering efforts is dependent on clients’ knowing what questions to ask and what answers they are seeking. It is also important that clients realize that there are “known unknowns” and “unknown unknowns” that will impact their businesses in the future. The writer is partner at Cedar Management Consulting International. Views expressed are his own and do not reflect the newspaper’s policy.