How to Determine
a Company’s Competitive Advantage
Market
and the
importance of
Research
Gabriela Escobar Uribe BBus (Col) MBA IB (Aus)
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Gabriela Escobar Uribe BBus (Col) MBA IB (Aus)
How to Determine a Company’s Competitive Advantage
and the Importance of Market Research
Published 2012
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How to Determine
a Company’s Competitive Advantage
Research
What is market research........................................... 2
The market research process................................... 3
When do companies need market research.... 5
Click on these
section titles
to take you to
the major issues
business must
address…
Who uses market research....................................... 6
Types of research.......................................................... 8
Research analysis methods....................................... 9
The end result................................................................. 11
Bibliography.................................................................... 12
the importance of Market Research
Market
and the
importance of
1
the importance of Market Research
2
Every day markets become
increasingly competitive.
The problem many organisations
now face is that they lack the
mechanisms for detecting
changes in the marketplace
before it is too late...
What is market research
In an era fuelled by technological change companies who
want to remain competitive need a constant inflow of
market intelligence and research to optimise their business
strategy and assist them with critical business decisions.
This whitepaper provides an overview of the market
research process and provides some basic steps to help
managers determine whether or not they need market
research and how they should go about it.
Market research is the systematic and objective process
of designing, gathering, analysing, and reporting information
to support business and marketing decisions. It has two
fundamental tasks within any organisation: the first is to
help specify and supply accurate information to reduce
uncertainty in decision-making. The second is to monitor
the organisation’s performance after plans have been put
into motion; thus allowing close control over the execution
of the company’s operational, business and marketing plans.
Market research ultimately makes a contribution to longterm strategic planning (Birn & Forsyth, 2001).
Market research or competitive intelligence is the end
result of gathering data and information, and analysing
that information for strategic purpose (Evans, 2009). Its main
objective is to help management understand the big picture
which can easily be lost in any organisation’s day-to-day
operations.
It is not just about exploring other competitors, but also
understanding the macro-environment and the market
sector in which a company operates. This helps managers
strategise and plan ahead with information based on actual
facts from the competitive environment. Competitive
willingness is not just about gathering facts, but also drawing
findings and recommendations from them, and determining
what the organisation’s next move needs to be based
on hard facts. This ultimately represents a company’s
competitiveness.
Managers also rely on experience and their “gut feeling”
to make many of their decisions, doing so in a very intuitive
manner. And, taking into account management’s main
objective is effective decision-making (Zikmund, et al., 2007),
relying on intuition instead of a systematic and objective
system might be prejudicial for any organisation in the
long run. Market research is a tool, a sum of techniques,
designed to provide as much information as possible
to assist the decision-making process within organisations.
It does not substitute or eliminate from the process
management’s judgement or experience, but works
as a support system by providing a better foundation
on which to base business decisions.
The market research process
The following 10 steps (Burns & Bush, 2010) serve as a framework
for this process. However, it is important to note that many
market research projects might not be that straightforward.
It is difficult to generalise when there is such a great diversity
in market research projects and tailoring the steps to specific
projects is highly recommended.
The steps are as follows:
1. Establish the need for market research
Market research is essential when management is faced
with a decision that has many implications and for which
there is insufficient or inadequate information to serve
as a guide to determine what the best strategic decision
should be. Not all managerial decisions require market
research. It is the management’s role to determine
which issues are crucial and need to be backed with
facts and market intelligence.
2. Determine the issue
Defining the issue/s needs careful consideration.
The issue needs to be clearly defined in order to
ensure that both client and researcher know what
the desired outcome of the research should be.
There are two types of issues:
a. Fixing an existing problem such as decreasing sales.
b. Analysing an emerging or new business opportunity
such as buying into or entering a new market.
Either way, accurate and timely information is essential
to help understand and solve these business problems.
3. Establish the research objectives
Research objectives and the issues are closely aligned,
but are not quite the same. For example, if an
organisation is considering altering their product,
the research objective would be to determine the
customer’s level of satisfaction with each of the product’s
characteristics. By determining the research objectives,
it is possible to know what must be done by the
researchers so relevant information can be gathered.
4. Determine what types of data are available
Researchers must determine the type of information they
need to use according to the research methodologies
outlined in Step 3.
There are two types of information: primary and
secondary. The former is gathered specifically to explain
the problem at hand, while the latter is information
which already exists. All researchers start by collecting
secondary research as it is less costly and easier
to collect. Whenever secondary data is insufficient
or inadequate, researchers must resort to primary
information for their research. It is said (Evans, 2009)
that secondary and primary research adhere to the
80/20 rule, wherein the first effort to find information
(secondary research), 80 per cent of the data volume
is found with only 20 per cent of the total time; while
the remaining 20 per cent of the data is found through
primary research and takes about 80 per cent of the
time spent overall.
Figure 1: The 80/20 Rule
Secondary
Research
Primary
Research
Volume of Data
80%
20%
Time Spent
20%
80%
Source: Evans, 2009
5. Determine the research methodologies
Even though each market research project is different,
three main classifications define market research, which
is then categorised into two different methodologies.
The first is Exploratory Research, which focuses on
collecting as much information as possible on a subject
of which little is known. Descriptive Research then utilises
qualitative or quantitative methodologies that describe
the variables who, what, when, where, and how.
The final research category, Causal Research, is used
to answer the one question descriptive research does
not – why. It is used to understand cause and effect
through observation.
Two methodologies then further support the analytical
process; the first is Quantitative Research. This focuses
on answering questions using data that can be precisely
and numerically measured. Alternatively, Qualitative
Research is used to explore variables that cannot be
numerically measured, such as consumer tastes.
the importance of Market Research
Like any systematic and objective process, market research
has certain steps that should be followed in order to achieve
the desired outcome. Knowing and understanding these
steps can assist an organisation by enabling management
to determine how to spend the organisation’s resources
(such as time and money), in the most efficient manner.
3
the importance of Market Research
4
6. Determine the best way to collect data
Accessing data and information can be done in a variety
of ways. Over the past few years, the internet has had
a significant effect on data collection, making it less
costly, more efficient and easily accessible. From
Google to specialised websites with specific content,
businesses can now access an almost overwhelming
amount of data and information. However, researchers
must not limit themselves to online access, since
non-electronic mediums such as books, technical
manuals and ad hoc reports are still a valid source of
information. While accessing secondary research does
not usually represent a challenge, accessing primary
research can be difficult.
Researchers must determine which method they will
use to approach their research subjects, whether it is
face-to-face, electronically, or via non-electronic options
such as mail surveys, intercept interviews and so on.
7. Determine the best analytical methods
to understand the data
This step depends on the objective of the market
research i.e. what is the business issue at hand that
needs to be solved. Given the diversity of analytical
tools, it is important to select the method that best suits
each project’s needs, including budgetary constraints.
Researchers can use several methods to answer
one specific question. Determining the research
methodology allows researchers to get the best
understanding from the data they have collected
in order to maximise research outcomes.
8. Collect the data
Integrity of data collection, particularly primary
research sampling, is critical. Incorrect data sampling
can easily skew and corrupt data that can then go
on to provide inaccurate readings. Statistical sampling
errors need to be taken into account when doing
analysis where non-sampling errors can occur when
the methods used to gather the data are manipulated
by those in charge of the collection. However,
validation methods can always be used to prevent
this from happening. The same applies for secondary
and desk research, cross-checking and validating
sources is crucial to ensuring the integrity of the data.
9. Analyse the data
Once the data has been collected, it must be collated,
validated for errors and tabulated. The type of analysis
to be done depends on what has been determined
by the researcher in Step 7, always taking the research
objective into consideration.
10.Present the findings and recommendations
The importance of this step is often overlooked.
It is through the final report that the researcher is able
to properly communicate the results of the study to the
client supported with the integrity of the various market
research methodologies. Researchers should not only
focus their energy in providing key findings but also
include an overview of key recommendations or an
interpretation of the data.
Figure 2: Steps in Market Research
Step 1 Establish the need
for market research
Step 2 Determine the Issue
Step 3 Establish
the research objectives
Step 4 Determine what types
of data are available
Step 5 Determine the research
methodologies
Step 6 Determine the
best way to collect data
Step 7 Determine the best analytical
methods to understand the data
Step 8 Collect the data
Step 9 Analyse the data
Step 10 Present findings and
recommendations
5
When do companies
need market research
1.Time constraints
Since market research takes time, managers might
not be able to use it where they have to make quick
decisions. In this case, management will have to rely
on the information at hand and their experience
to make such decisions, regardless of the importance.
However, a company’s competitive advantage relies
on timely and accurate data. Acquiring knowledge that
might indicate trends or explain a market’s characteristics
can become an organisation’s competitive advantage,
only so long as the intelligence can be utilised before
competitors can react.
2.Availability of data
Managers need to be aware of the types of information
at their disposal, both internally and externally.
Whenever there is a lack of information to support
a decision, market research should be considered
a viable option. Managers should also evaluate whether
the information can be gathered through secondary
research, or if primary research is more appropriate.
The potential source of information needs to be
balanced with the cost related to acquiring the data
and its reliability.
3.Nature of the decision
Managers face making many decisions, from the
inconsequential, to those with long term and significant
ramifications. The value of market research will then
depend on the value of the decision to be made;
for example, the more strategic or tactical the decision,
the greater the need for market research. Market
research can not only evaluate existing managerial
decisions, but also provide market intelligence
to support short and long term planning decisions.
It is therefore imperative that research remains
bias free, giving the most realistic results. One way
to ensure that market research remains neutral is
to make it independent from any other part of the
company or from the company itself.
4. Benefits and costs
Managers need to weight the value market research
has against the cost, and identify and analyse alternative
courses of action and benefits each could bring to the
organisation. From an investor’s point of view, market
research can be analysed as such. Managers should
determine whether or not its rate of return would be
acceptable, if the expense can be justified by the insight
brought into the decision-making process, and whether
investing in market research would be the best use of
the organisation’s resources.
the importance of Market Research
There are four main
factors managers
should consider prior
to commissioning market
research. The following serves
as a guide to ensure that market
research outcomes are as effective
and rewarding as possible.
Who uses market research
the importance of Market Research
6
Many different kinds of organisations use,
and need to use, market research.
Traditionally, the biggest users are the large and often,
multi-national competition-driven consumer goods
companies. However, the last few years have brought
with them an increase in market research usage by small
and medium organisations, usually companies working
in the manufacturing and service industries. Non-profit
organisations and governmental agencies have also begun
to apply market research in order to determine ways to
maximise their resource allocation. Accurate, relevant and
timely data acquired through market research has become
an ally to a broad range of organisations, regardless of the
nature of their work.
Organisations can use market research in many different
ways. When determining the issue, managers tend to focus
on one or more of the areas outlined in this diagram.
Market Planning
Keep track of market trends and customers’ needs:
•identifying and analysing
•identifying, measuring
levels of acceptance for
and personifying
new products or services
consumer behaviour
and attitudes
•measuring customer
preferences
•assessing market
profitability
•tracking shifts in
competitive activity
•analysing general market
data
•sales forecasting.
•analysing potential new
business areas
•identifying and analysing
new markets for products
Market
Planning
(Crouch & Housden, 2003, pp. 16-18)
Corporate Planning
Create and measure short and long term strategic plans:
•competitor analysis
•forecasting and predicting
future demand for products •market share and
or services
profitability analysis
•identifying new markets
•determining marketing
problems and issues
•assessing the strengths
and weaknesses of the
•evaluating corporate
organisation and comparing
identity and image
it to the competitors
perception
•measuring customer
•acquisition and divestment
satisfaction
selection.
•industry and market
structure and composition
Distribution Planning
Corporate
Planning
Distribution
Planning
Determine the most effective distribution channels:
•penetration level
•channel selection
selection
•distributor cost analysis
•stock check policies
•margin analysis for
•inventory policy selection.
wholesalers and retailers
•incentive policy design
Competitive analysis is critical for
managers formulating corporate
or divisional strategies.
Product Planning
•gathering new product ideas
and identifying possible product
modifications
•concept testing
•product testing – usually before
it is launched into the market
•packaging testing
•product name testing
•comparative testing
•product line simplification
•determining perceived
product/service quality
in the market.
They also must be capable
of critically assessing their own
organisation’s performance,
over time, relative to its
competitive peers.
Colley, et al., 2004
Product
Planning
Promotional Planning
Promotional
Planning
Price
Planning
Used to select effective and persuasive communication
methods. This section is divided into two parts:
Communications Planning
•generating brand positioning
•message design and content
•creative position development
•ad pre-testing
•ad post-testing
•multimedia communication
strategies
•developing optimum
communications mix
Sales Force Planning
•defining sales areas
•testing selling techniques
•defining sales targets
•sales performance
evaluation
•compensation system
evaluation.
Price Planning
Market research can give an indication as to what
the price range for products/services should be.
The price determination process can be extremely
complex for certain companies, especially those
in highly competitive markets.
Figure 3: The Uses of Market Research
Source: Gabriela Escobar Uribe BBus (Col) MBA IB (Aus)
the importance of Market Research
Characteristics of products and services can be adapted
according to customers’ wants and needs:
Executives and planners must
be aware of the levels and
trends in performance of their
competitors to determine the
best direction for their divisions
and parent corporations.
7
the importance of Market Research
8
Types of research
A company’s competitive advantage is based on knowledge. The manner in
which an organisation is able to acquire knowledge about its market and apply
it will determine its ability to survive in today’s globalised market.
Understanding the market is one of management’s most
important tools. It is essential to the survival and growth
of any company. A company can use different types
of research to gather as much intelligence as possible.
The following provides background information on the
various types of research available to management.
Ad Hoc Research
Continuous Research
Field Research
This is used whenever a company is looking to expand
its general knowledge base. By using basic or pure research
methods with a continuous approach, organisations are
able to determine trends or detect changes in the market
before their competitors do. This type of research is also
used to verify the applicability of any given set of theories
or to understand how academic concepts apply to real
world scenarios.
Desk Research
This type of research ideally suits gathering secondary
information. It is so named because this type of research
can be done using the internet as the main source of
information. The main issue researchers face is that some
of the information found online can be from unreliable
sources whose information might not be able to be
verified. The vast amount of data and information online
can become overwhelming for researchers who do not
know how to delimit their search, or even what to look for.
Dated information, incorrect facts, wrong scope in research
papers and credibility are just some of the drawbacks that
researchers need to address.
A sample of credible sources is listed below:
•Australian Bureau of Statistics (ABS)
•All three tiers of government – Local, State and Federal
•RSS Feeds
•Google/Google Alerts
•Media Statements
•Customers and Competitors
•Professional Associations and Trade Publications,
for example:
–– Housing Industry Association (HIA)
–– Industry Capability Network (ICN)
–– IBIS Reports.
This type of research is used whenever there is a need
for applied research. It is conducted in order to assist
in the decision-making process for a specific problem.
This type of research is less broad, and information sought
is much more specific than the continuous research process.
Used for primary research, field research focuses
on obtaining specific information that cannot otherwise
be sourced through secondary research options. It is
through this process that researchers are able to design
research methods that will allow them to acquire specific
competitive information to solve a predetermined business
issue. There are a range of research methodologies that
can be employed, each of which has specific functions,
advantages and disadvantages. When selecting which
methodology they will employ, researchers must take into
account variables such as cost, timeframe and specificity
of the information needed.
Some of the research methods most commonly used are:
•face-to-face interviews
•telephone interviews
•focus groups
•online surveys
•observation.
(Zikmund, et al., 2007)
9
Research analysis methods
Product Life Cycle
By dividing a product’s life cycle into four distinct phases,
it is possible to determine what aspects of the product’s
market strategy are the most important and should be
management’s main focus. This method divides all products’
life cycles into four main phases: introduction, growth,
maturity, and decline (Encyclopedia of Small Business, 2002).
The main objective of this analysis is to maximise the value
and profitability of products at each stage, doing so by
determining the most efficient and effective allocation
of the company’s resources.
SWOT Analysis
This analytical tool is used to determine and evaluate
the Strengths, Weaknesses, Opportunities, and Threats
that surround any project or business venture. These four
elements allow the researcher to understand internal and
external factors that affect the business in both a favourable
and an unfavourable manner (Hali, 2007). By doing this type
of analysis, managers can clearly determine which negative
elements need to be minimised or changed, and which
positive elements should be maximised and used as a
competitive advantage.
Porter’s 5 Forces
This model is an analytical tool designed to weigh-up risks
and opportunities. The model determines the internal
forces that affect a business, such as the bargaining power
of suppliers and customers; and the external forces in
the microenvironment, such as the threat of substitute
products, the risk posed by established rivals, and the threat
of new entrants (Pringle & Field, 2008). By evaluating these
elements, it is possible to establish the competitive intensity
and attractiveness of a market, thus allowing management
to determine whether or not to enter a market, or
determine a plan of action to improve the company’s
competitive position in a particular market.
Value Net Model (PARTS)
explains this model as a way to understand
all players that interact with a business, not as a negative
force, but as value-adding entities. Each of these
cooperative forces adds value in unique ways, which are
analysed through the PART Model: Players, Adding Value,
Rules, and Tactics. Players are analysed and divided into
two groups: customers and suppliers, and competitors and
complementors, which mirror each other. The analysis is
simply the set of rules or behaviours by which the players
interact with each other. Moreover, the tactics are the way
players interact with each other to create value, based on
the relationships and perceptions they have of each other.
The scope overlooks the breadth and reach players have
within the group. Their connections, both within the group
and outside, create value for the players.
Evans (2009)
the importance of Market Research
While there are many research
analysis methods, not all are suitable
for every case. Researchers must be
able to determine which model suits
their problem best and offers the
most advantageous analysis of the
available information.
Customer Segmentation Analysis
10
the importance of Market Research
This type of analysis allows management to focus
on those segments that provide the greatest growth
in the market. By providing information that helps design
targeted marketing and service campaigns, companies
are able to reach those customer segments that are
the most appealing to the business, targeting them with
offers specifically suited to their needs and preferences
(Dalton, 2006). Without a correct customer focus, businesses
are at risk of allocating resources to a broad customer
segment, leading to poor growth and lower profitability.
Not all business is good business.
Strategic Business Units (SBU)
Porter’s Four Corners Analysis
This predictive tool seeks to determine the likely course
of action competitors might take in response to an
organisation’s strategy. By profiling the competitor and its
motivations, management can determine an accurate and
realistic prediction of how the competitors might react to
certain situations. This is based on elements such as internal
culture, value system, mindset, and assumptions.
The four analytical corners are as follows:
•the manager’s assumptions
•their strategy
•their capabilities, and
•their drivers (Evans, 2009).
Supply Chain Analysis
This is a quantitative analysis of the relationship between
suppliers, manufacturers, distributors, and retailers
(Beamon, 1998). It allows managers to understand the value
transfer between the parts along the chain, and to identify
and analyse where the problematic areas might be in order
to maximise efficiency and profitability.
Whenever a company has different SBUs, a periodic
analysis allows managers to detect those areas in which
they should invest further or divest; all as a part of their
overall business strategy. Each strategic business unit
needs to be analysed both internally and externally
with a review of the overall industry attractiveness,
and the SBU’s attractiveness. For the former, elements
such as potential growth, competitive position, capital
investments needed, economic conditions, regulatory
issues, and various other factors come into play; whilst
for the latter a SWOT-like assessment is done to determine
the SBU’s attractiveness (Evans, 2009). After placing these
ranked elements together, managers can easily detect
which of their SBU’s need their attention the most.
STEEP Model
This model gives management a general framework
to determine how the external environment in which
they operate will impact on their organisation’s strategic
plan and competitive capacity. The model monitors the
complete competitive landscape by looking into the Social,
Technological, Economic, Ecological, and Political aspects
of the market (Evans, 2009). It effectively audits the
externalities businesses must operate within, and helps
managers understand the potential changes that might
occur, allowing them to stay ahead of their competitors.
11
the importance of Market Research
The end result
An increase in globalisation across all markets, and the surging growth
of the internet, continuously shapes and defines the role of market research.
These two elements constantly change the environment in which companies
operate. In today’s volatile business environment, information is the key
to powerful decisions. In today’s business environment, information is power.
And, information is the key to competitive advantage.
The competitive advantages listed below can all be
determined through market research:
•distribution models such as strategic partnerships
•market niche enhanced with specialist in-house training
•enhanced product or service features
•store locations
•sustainability credentials.
Managers must keep up with the ever-increasing flow
of change around them, even those changes that seem
of little significance or might not even be noticeable at first.
Change is inevitable and managers who expect market
conditions to stay the same risk the rapid demise of their
business. The only real defence managers have to protect
themselves and their organisations is to evolve with the
marketplace, and the only way of doing so is by having
a continuous flow of information and intelligence. This can
only be provided by market research. Market research
is a set of tools designed specifically to make managerial
judgement more precise, thus improving business efficiency
and profitability.
No matter what the organisation or the business
sector, all successful businesses need to understand
the environment in which they operate. Today’s world
is increasingly competitive, and it is the manager’s role
to make sure their organisation is as responsive to their
markets as possible. Market research is a tool that serves
as a guide, a compass to navigate through markets filled
with competitors and other externalities where only
the fittest survive.
This whitepaper has been specifically written to remind
all managers of the importance and value of market
research, to value timely information in a volatile market,
and to act on it. As important as experience and gut
decisions are, they are not enough. Managers need
to gather as much intelligence as possible to ensure that
they make the most efficient, effective and productive
decisions for their organisation.
the importance of Market Research
12
Bibliography
Birn, R. & Forsyth, P., 2001. Market Research,
s.l.: Capstone Publishing.
Burns, A. C. & Bush, R. F., 2010. Marketing Research.
Sixth Edition ed. New Jersey: Prentice Hall.
Colley, J. L., Doyle, J. L. & Hardie, R. D., 2004. Corporate
Strategy. Illustrated ed. s.l.:McGraw-Hill Professional.
Crouch, S. & Housden, M., 2003. Marketing Research for
Managers. Third Edition ed. Great Britain: Butterworth
Heinmann.
Encyclopedia of Small Business, 2002. Product Life Cycle.
2nd edition Vol 2 ed. Detroit: Gale Virtual Reference Library.
Evans, M. H., 2009. Course 12: Competitive Intelligence,
Arlington, VA: Excellence in Financial Management.
Hali, S. M., 2007. SWOT analysis. The Nation,
06 November.
Lambin, J. J., 2000. Market-Driven Management.
First Edition ed. Chippenham: Palgrave.
Pringle, H. & Field, P., 2008. Chapter 8 – Porter’s Five Forces.
In: Brand Immortality: How Brands Can Live Long and
Prosper. s.l.:Kogan Page.
For further information or to discuss any issues that
may be solved through market research contact:
Research by Design
p:+61 7 3342 7792
e:info@researchbydesign.com.au
www.researchbydesign.com.au
research
by
design
2012