Manufacturers' Corner: The Myths and Realities of Industrial Market Research

There is a lot of skepticism on the part of small and mid-size manufacturers (SMMs) about doing or using market research. Probably 90 percent of all SMMs have never done a market analysis or competitive research unless they were writing a plan to raise money.<br clear="none" /> <br clear="none" /> Nevertheless, there is a growing need to find out more about customer needs, investigate competitors (particularly foreign ones), and find new markets to enter for new sales opportunities. Answering these questions is all part of surviving in the new globalized economy. <br clear="none" /> <br clear="none" /> But before embarking on a market analysis project, it's important to debunk the numerous myths surrounding the process:<br clear="none" /> <br clear="none" /> <b>Myth 1:</b> All market research companies can do research on industrial products. <br clear="none" /> <br clear="none" /> <b>Reality:</b> Industrial products and services vary from simple valves to locomotives. To be able to do industrial research on products like custom-built palletizers or forward-looking infrared radar requires a very good understanding of technology and engineering. <br clear="none" /> <br clear="none" /> Many market research firms do not understand the dynamics of the industrial selling process, the types of purchasing people who play different roles in the sales process, or the complex applications that use these products. What works in market research for cereal products probably won't work for capital equipment. <br clear="none" /> <br clear="none" /> Also, just because the firm claims to do market research doesn't mean they have the people, methods, or competencies to research industrial products or service. <br clear="none" /> <br clear="none" /> <b>Tip:</b> Always ask for a summary of the industrial products the firm has researched and a description of the methodologies used. If in doubt, ask for a guarantee in terms of payments. Make their terms 50 percent down and 50 percent after the presentation, with qualifying language determining how accurate the answers must be.<br clear="none" /> <br clear="none" /> <b>Myth 2:</b> Good market research can replace schmoozing with customers.<br clear="none" /> <br clear="none" /> <b>Reality:</b> There simply is no substitute for getting close to customers in the field and doing personal interviews. No matter how comprehensive the desk research is, it can never give you some of the insights face-to-face meetings with key customers can provide. <br clear="none" /> <br clear="none" /> In my years of doing industrial research, many of the true insights and most relevant information about competitors or changes in the market was gleaned while hanging out with customers at their plants, in restaurants, and at bars.<br clear="none" /> <br clear="none" /> <b>Tip:</b> Always include some face-to-face time with key customers.<br clear="none" /> <br clear="none" /> <b>Myth 3:</b> The macro market myth.<br clear="none" /> <br clear="none" /> <b>Reality:</b> When you ask an SMM to describe what markets they sell to, they'll usually answer aerospace, auto, food industries&#2026;or some of the huge macro markets within these industries.<br clear="none" /> <br clear="none" /> The reality is, they really sell to small market niches that can be identified by SIC code numbers. This is one of the first things I look for when asked to examine someone's business plan seeking money. <br clear="none" /> <br clear="none" /> It goes something like this: The 2005 sales of single-board computers in the U.S. exceeded $1 billion. Annual sales of Acme's new Model 8000 single-board computers is equivalent to only one percent of this market, which translates into 10,000 units or $100,000 in gross sales. <br clear="none" /> <br clear="none" /> This projection has no basis in reality, because the total single-board computer market is divided up into 10 different categories, and these are divided into even smaller categories by technology and applications. <br clear="none" /> <br clear="none" /> <b>Tip:</b> The plan would be much more believable if the company could have specified the market niche with an eight-digit SIC code and then showed the number of prospects in the market niche.<br clear="none" /> <br clear="none" /> <b>Myth 4:</b> All owners and managers of SMMs know how to use market data.<br clear="none" /> <br clear="none" /> <b>Reality:</b> Most owners of manufacturing firms are not trained in marketing and don't know how to interpret market data. In fact, what they really want is the answer to some specific questions. Unless the research data can be easily understood by owners and managers and converted to business decisions, it's usually a waste of valuable resources. <br clear="none" /> <br clear="none" /> For instance, many manufacturers come up with ideas for new products. They want to know if the product will sell, what market niches to sell to, how many competitors there are, what the competitor prices are, etc. <br clear="none" /> <br clear="none" /> <b>Tip:</b> I suggest all industrial research projects begin by doing "backward research." This means sitting down with the customer to determine the specific decisions they want to make and the specific questions they want answered. <br clear="none" /> <br clear="none" /> In other words, develop the last few slides of the PowerPoint presentation up front. Make the proposal the prototype of the final report. Next, determine the methodology you will use to answer the questions, such as mail surveys, phone interviews, field research, etc. <br clear="none" /> <br clear="none" /> Have a good idea of the price for each methodology, because you may find some of the questions are so difficult and expensive to answer the customer won't pay for them.<br clear="none" /> <br clear="none" /> <b>Myth 5:</b> Markets can be projected by sampling customers.<br clear="none" /> <br clear="none" /> <b>Reality:</b> Unlike consumer products where it is fairly easy to gather a sample of consumers that are in a specific age group, industrial customers are often very different. <br clear="none" /> <br clear="none" /> I did a survey of customers in concrete block manufacturing plants many years ago. I received a sample of 25 percent out of 900 plants. But the person who answered the questions varied from the plant manager to the company owner to the plant engineer. Also, some of the companies were huge multi-plant companies, while others were small Mom-and-Pop companies. <br clear="none" /> <br clear="none" /> The sample of all of these different buying influences was very different&#x2014;often with very different opinions. In other words, the sample was not a valid sample of customers and could not be projected.<br clear="none" /> <br clear="none" /> <b>Tip:</b> Be very careful with people who survey industrial customers and make projections about the total market. The samples are usually not valid for projection.<br clear="none" /> <br clear="none" /> <i>Mike Collins is the author of "Saving American Manufacturing" and its companion book, the "Growth Planning Handbook for Manufacturers." To learn more about the author or these titles, visit <a href="" target="blank"></a>.</i>