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VINAY CHAND ASSOCIATES

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MARKET RESEARCH
 
 
Vinay Chand came to market research by accident. It began with writing two articles for 'Retail Business' in the UK on the market for cakes and on the market for biscuits. Undertaken while a lecturer in 1975, this led to managing a market survey on tobacco and research on whether Cobatobacco should launch a smaller cigar. In the course of undertaking the study, Vinay had to hire a Consultant to cover Brazil and was so envious that he quit his academic post to become a full time Consultant Marketing Economist.
 
 
Market research is like detective work. It consists of gathering information, analysing it and coming to recommendations. Sometimes the information is in the public domain although nearly always now you still have to pay to access it. There is an erroneous assumption that in this age of the internet and information technology that most information required is gathered and published but it is simply not true.
 
Within particular industries, information is often commissioned from researchers and released to members or subscribers but in most industries there simply is no published information. This applies in particular to the lack of disaggregated data. Market segements that are too small or disorganised for information to have been collected over time.
 
There are three ways of overcoming such gaps. One is to undertake surveys to gather current data, another to hold meetings of affected groups in workshops or focus groups and the other is to interview selected key informants. That sounds better in theory than it is in practice. Selection of samples is the first problem area. Scientific selection leads to questionaire preparation and response rates. People have to have a reason to participate in a meaningful way and the motive itself can distort findings.The process can be taken further by obtaining consumer responses and test marketing products.
 
It is expensive to undertake market research that is representative. Although nearly everybody talks about 'market driven' they appear to have a research fatigue and market research is rarely if ever undertaken on development projects although it is normal for the private sector. Development institutions use all sorts of forms of words to avoid having to undertake the research. In our opinion it is because they do not respect market research, planning or reports although they are obliged to pay lip service to them, particularly as they tell others it is a necessary part of the process. We do not believe that any aid or donor organisation even understand market driven let alone practice it. It is understandable given that most who work for such organisations do not have a strong private sector background.
 
Unfortunately, what does happen is that people end up producing and then look around for markets. They often think that looking for markets consists of getting someone who has a key to the markets to share that information. There is a belief in developing countries, often shared in developed ones, that markets are in the pockets of some people and all they need is access to that information. In reality, that is far from the truth. If you produce and then look for markets, you have already missed the boat. that is the opposite to being market driven.
 
There is also an illusion that is held by many that if you build, they will come. It is simply not true. The market rarely comes to you just because you have something to sell. It is far too easy to end up producing something that people simply do not want to buy or do not buy at a particular price level. It can be the wrong product, market, time, space or any mix of the factors.
 
 
In most situations, the market is king. You can disrespect information about it, or think you can manipulate it, but it is very hard if not impossible to do those things. Despite this fact, people try to manipulate market price. The Hunt brothers tried to corner silver, Philippines and Sri Lanka tried to corner the market for desiccated coconuts and an investor tried to do so for cocoa recently. It does work in the short run. It is not difficult to manipulate commodity prices in the short run if you have the money to do so. A quick profit. But in the long run such efforts are generally in vain. Exceptions probably do exist, maybe gold, tin, diamonds and oil can be looked at. In nearly all cases, the market expresses itself in the end.
 
 
More data does exist today than ever before. Some countries collect production and trade data more rigorously than others but for the main commodities the information is out there. You have to be careful in gathering it, some of it is terrible. Entire series on production of a commodity in a particular country can turn out to be a typing error. There are many under the illusion that there is adequate data in the form of trade maps from ITC, but this is very much an illusion. No private enterprise would be happy with that standard of data.
 
 
The data does exist in the private sector. Multinational corporations like Nestle or Unilever do know a hell of a lot. They can afford to collect and interpret data even if the data they are interested is narrowly defined. It leads to an unequal relationship in that developing countries do not collect that level of information. There is no match. The multinationals are in a different league altogether.
 
 
Commodities are offered for sale but not marketed
 
 
The traditional pattern was that ships called in at ports where local exporters laid out their commodities for sale by the dockside, these were inspected, the buyers generally pointed out that the goods were not first grade, that the market had collapsed and that they could not offer what they paid last time. But, as a favour, because they were dear friends, they could take the produce off their hands, just this once. Whereupon, the sellers went to those they had bought from and relayed the comments and the wholesalers went back to the farmers and offered a lower payment. The farmers have to pay the bill and have no control over the situation. It is not a matter of price information, it would not help the farmer to know what the final retail prices are. That is a waste of time.
 
The only prices that concern farmers are the different ones under offer at locations and times that the farmer can access. All other price information is of academic or long term concern.
 
Farmers are price takers. By nature of definition, as commodities, what is being sold is indistinguishable from that from any other source. The farmers are usually indebted to those who have leant them money or inputs and have no option but to sell to either their creditors or to the first offer made. It is not a level playing field.
 
Those further down the value chain can today corner the entire warehouse supply of cocoa beans and with rumours of crop failures raise prices for a quick substantial profit. Other traders find that hedging against currency movements is so profitable that trade in commodities becomes peripheral.
 
The worst thing is that the attitude selling commodities inculcates is a dependent mentaility. It is a position of being a suppllicant. Farmers can think of nothing but offering for sale. The price is something they can not dream of worrying about. It matters little if it is a local or international price. The price differentia between farm gate and retail is often 20:1 and sometimes as high as 40:1. The value chain is long, crowded and inefficient for commodities in general.
 
In contrast, products are marketed and not just offered for sale. The more unique a product, the larger the premium that it is theoretically possible to charge. While real soft commodities have been declining for decades, the real relative prices paid for products have been rising. Terms of trade have been moving against soft commodities. The value chain is usually far more efficient with factory gate to retail often being as low as around 3:1 or 3:1.
 
 
This simple difference is very important and relatively unappreciated. It masks a central lack of appreciation of marketing and thus market research. The empahsis is on selling and international development officials are often not from a private sector background themselves and share in not understanding why there has to be an emphasis on developing appreciation of marketing technology.
 
The lack of market information is a major constraint. Not information on prices being paid far away to those able to get their commodities there. But market information that tells farmers of the options that they have, what to grow, when and when to sell it to maximise profits. Of course, that also requires being liberated from loans taht prevent the exercise of choice but the market information is vital.
 
 
The individual small farmer cannot gather or analyse such information. Unlike the traders he lacks critical mass. It needs to be done for him as a group of farmers or by the state. Yet, no one undertakes such research as a general rule.
 
 
Marketing Technology
 
 
One of the most serious problems that underdeveloped countries face is the lack of marketing technology. Whilst there are research scientists training in areas such agronomy, crop protection, nurseries, soil analysis etc., there is lack of understanding of the crippling backwardness in marketing that is disguised and misunderstood by making it synonymous with selling. Nearly all commodity producers do know about selling or offering for sale and sophisticated value chains have developed to ensure produce is collected and transported and then sold.
 
Developing countries are backward in marketing technology, that fact is understandable. Their officials reflect this lack of understanding, and that too is understandable. What is less easy to understand is that aid organisations are often increasingly staffed with the same officials and they too often reflect this ignorance of marketing for historic reasons. These organisations are in the public sector and their staff, whether it comes from developed or developing countries, often does not have the exposure to what is common practice in the private sector. Bureaucrats are rarely great marketers, and in the wrong job if they are. That should not be an impediment provided that they understand the gap that they have to fill.
 
In contrast, private sector companies in soft commodities such as British American Tobacco, Nestle, Cargill, Tate and Lyle, Armajaro, and the trading arms of the Japanese conglomerates operate at a differrent level of sophistication and know as much about selling, trading and marketing as anyone does. There is nothing you can tell such companies about the need for market research, intelligence and analysis.
 
This is equally true for the buyers of soft commodities, whether to process like Cadbury, Mars, BAT and Tetley or to distribute and retail like Sainsbury or Tesco. Supply chain management is an art and the concepts have been imported into development in a rather crude form. The words are the same but their implementation and understanding very different.
 
We need to educate the donors and aid officials and government officials to be able to change the attitudes of the commodity producers. The easiest way is for organisations to hire people who are practioners in the private sector but that is very expensive. That leaves a gap that NGOs try to fill as do advocates of Fair Trade and Ethical training. I personally am sceptical as to the progress we are making. The producers need to be in the same league as the traders and end-users. Ideally, they should be organised to act together but no one is doing that adequately at present.
 
A better understanding of markets and needs is probably the most important obstacle to development today together with channelling finance to small farmers. Both are linked to one another. Money is hard to mobilise if you dont know what you are doing.