Market Research encompasses different areas of study

Many of us are aware of this fact and many of us are also aware of who said this - Internet usage was growing at a whopping rate of 2300% in 1994. Yes. Jeff Bezos wanted to capitalize this new area of rapid growth potential and he and his wife started Amazon starting to sell books in the Internet. This is a good example of Market Analytics, studying market trends and secondary research used in Market Research.

This is from another successful businessman known for bringing innovative, needful, sleek, high-quality, high-pride-association products to the market - Steve Jobs. He said it is not enough to rely just on Market Research focusing on focus groups and survey results. He said it is all about reading things that are not yet on the page. His opinion is customers do not know what they want in the product until it is shown to them. An innovator has to conceive a product and by taking risk and with strong self-belief and conviction has to develop that product and bring it to the customers. Once the customers start using the product, then they will come up with feedback or we can infer from their usage to know what features should be developed and to lay out a product roadmap. This is an example of application of secondary research, primary research, understanding consumer preferences, psychology, innovation and product development in Market Research.

Back in 2010 when parallel computing, distributed cloud-storage, and less cost of ownership was showing as a rapidly evolving market trend, we started a Cloud SaaS based product company called Jooji Software Solutions in Chennai, India. We developed a cloud SaaS ERP product to manage finance and procurement. At first there was resistance from the businesses. The primary concern was that the internet is not reliable and that it would jeopardize their operations if the internet is down. There was also another concern that the data is not secure and that it is not safe to have the data in the cloud. But our in-depth study of market trends and the understanding of the underlying technology drove us to develop the product and bring it to the benefit of the businesses. Today 15 years hence everything is in the cloud and people prefer having it in the cloud. Cloud migration is a high-growth revenue-generating consulting service these days.

Let's get started with Market Research

Introduction to Market Research 

Market Research - Each word ‘Market’, ‘Research’ by itself are broad and in-depth words. Bringing together Market and Research allows us to gain insights about the needs and psychology of people. This in turn helps to bring innovative useful products and services to the market. Putting all these (needs, psychology, products, services) together is multi-faceted. It is art, science, psychology, sociology and therefore an intriguing herculean task.

I have worked in several Research and Analytics initiatives for over 20+ years and have thoroughly enjoyed the challenges and outcomes involved in Market Research. I want to share my understanding and experiences which I believe will help aspiring Market Research professionals. Market Research has a huge impact for businesses and society and a smart Market Research professional can be a game-changer for the world. 

A glimpse into Market Research and the scope 

Market Research encompasses different areas of study to name a few - studying consumer preferences, studying market trends, understanding the psychology of people, exploring new product development, market analytics and so on. All these studies have this as the primary objective - driving growth of revenue for the business. There can be secondary objectives which are bringing impactful products to the people, driving improved standard of living, making research-based data-driven strategies, bringing awareness of the products and so on. 

Businesses need Market Research services to bring new products to the market. Businesses need Market Research services to sustain those products in the market. One can argue if people like the product, then the product will speak for itself and that there is no need for Market Research services. It is true but still Market Research is required in order to proactively engage with the market if needed to course-correct and to ensure the product is still in good books in the customers’ mind.

Green Chemistry: Being Proactive and Not Reactive

Chemical Industry has improved the life style and standard of living of people. The discovery of petroleum, research and investment done during World War II, rising population, increased urbanization were some of the factors which drove the growth of the Chemical Industry in the 20th century. While meeting the above challenges and turning them into opportunities, focus was lost on environmental factors namely climate change and Green House Gas (GHG) emissions.

Energy efficiency, lesser carbon emissions, less dependence on non-renewable resources need to be the driving factors for product design and process design in this century. The end products could be better heating devices, insulation materials, lesser weight materials and all those which could result in less human carbon emissions into the atmosphere. Apart from just the product focus (which is quite visible to the public as such), better processes need to be employed so that they result in lesser carbon emissions. The following figure from World Resources Institute (WRI) shows carbon-di-oxide emissions over the entire product life-cycle in chemical industry. The below image is available on the net.



The figure shows that Raw Material Acquisition, pre-processing and Production accounts for 50% of the emissions. The rest 50% comes from Distribution & Retail, Use and End-of-life treatment of the products. The orientation towards Green Chemistry (i.e. considering low greenhouse gas emissions in each and every step we carry out) should change the way product life cycle is designed and managed in the future.

Before considering “greenchemistry-conscious” product and process design, accounting and reporting standards have to be developed to measure if we are making progress. Greenhouse Gas emissions have to be measured at each and every step in the process. If considerable progress could not be made, then the process has to be re-designed or else methods have to be developed to be able to capture the gases and not to let them into the atmosphere. WRI has started a road-map towards this step and their site shows that 60 companies have volunteered to participate in the project. It will be interesting to follow the progress made in this initiative.

In the past, we have been reactive in dealing with incidents. Destructions in World War II led the way to the establishment of a global political monitoring organization - the United Nations Organization. The Enron and WorldCom Scandal led to strict Accounting Standards. The current global financial meltdown is making Lawmakers and Regulators to come up with strict standards, regulations and greater transparency. We should not follow suit when it comes to environmental factors. It is time to be proactive and develop strict accounting, reporting and measuring standards to monitor Greenhouse Gas Emissions. The outcome could be much severe and non-reversible if we are reactive in this case. Challenges and Opportunities are now well visible for Chemical Industry in this century.

The year 2010

The year 2010 will see much more activities from power, energy, infrastructure and and automobile sectors. With economy expected to show positive progress, these sectors are believed to provide the stimulus towards the growth. Demand from these sectors will help the chemical industry. The investor confidence is expected to increase this year for chemcial industry.

Businesses involved in green technology practices (be it biofuels, renewable feedstocks, etc.) will be the ones to follow up this year. Here is a list of few companies in India which would be interesting to watch for this year:
Godavari Sugar Mills
India Glycols Ltd
Dhampur Sugar Mills Ltd
Andhra Sugars Ltd
Natural Bioenergy Limited
SPC Biotech Private Limited
Asian Ligning Manufacturing Pvt. Ltd
Godrej Industries Ltd.
ADI Biotech
AP Biofuels
Andhra Sugars Limited
Asian Ligning Manufacturing Pvt. Ltd
Bajaj Hindustan
Balrampur Chini Mills
Bannari Amman Group
Biodiesel Garware
BIODZL Energy Farms (Inida) Pvt. Ltd
Chemcel Biotech Limited
Clean Cities Biodiesel
D1 Oils Limited
Daurala Sugar
DCM Sugars
Dhampur Sugar
Dharani Sugar
Dollex Industries
Dwarikesh
EID Parry
Emami Biotech Pvt. Ltd
Godavari Sugar Mills
Godrej Industries Limited
Gomti Biotech
GrowDiesel
Indai Glycols Limited
KCP Sugar
Kesar Enterprises Ltd
K M Sugars
Kochi Refinery
Kothari Sugar
Mawana Sugar
Mint Biodiesel Ltd
Natural Bioenergy Limited
Navath Biofuels
Nova Bio Fuels
OUDH Sugar
R Bukhari Renewable Energy Pvt. Ltd
Rajshree Sugars & Chemicals Ltd
Rana Sugars
Royal Energy Limited
Rusni Distilleries Pvt. Ltd
Sakthi Sugars
Shakumbhari Sugar & Allied India Ltd.
Shirke Biohealthcare Pvt. Ltd
Shiv Shakti Sugar
Shree Renuka Sugars Limited
Simbhaoli Sugar
Southern Online Biotechnologies Ltd
SPC Biotech Limited
Thiru Arooran Sugars Ltd
Triveni Sugars
Ugar Sugar
Upper Ganges Sugar
Uttam Sugar

Reliance Industry’s bid for acquiring LyondellBasell

The first blog analyzed the acquisition of Rohm & Hass by Dow Chemicals and Ciba by BASF. There was further analysis of other companies that could go about with a similar strategy of acquisition. A month later after writing that blog, Reliance Industries (the largest petrochemical company in India and one of the largest in the world) on November 24th announced its interest in acquiring financially burdened petrochemicals maker LyondellBasell. The acquisition is expected to make Reliance a leading chemical-manufacturer in the world. It will give Reliance access to 19 countries where LyondellBasell has its presence. It will also give Reliance access to Lyondell’s technology patents. Chinese company Sinopec earlier expressed interest in LyondellBasell acquisition but later backed out of it.

Reliance has quoted that it is willing to pay $12b for the acquisition. If the deal goes through, Reliance will be inheriting a debt of $19.3 billion and litigations faced by Lyondell from creditors and debtors. LyondellBasell has assets worth $27.1billion and debt of $19.3b. Reliance has the financial power to fund its acquisition. Unlike Dow which was relying on Kuwait Petroleum Authority deal to fund for its acquisition, Reliance has enough cash and fund-raising power by itself to fund for the deal.

Reliance revenues and EBIT from its three major sectors (refining, petrochemicals, Oil & Gas) are:
Sector Revenues EBIT
Refining 68.10% 28.80%
Petrochemicals 26.60% 46.80%
Oil & Gas 5.10% 24.30%
Source: October 2009 financial report presentation from Reliance Industry website

In the following table, percentage of revenue is shown per 1000 units and EBIT is calculated as percentage of this revenue.
Sector Revenue (per 1000 units) EBIT (units) EBIT/Revenue
Refining 681 196.13 0.29
Petrochemicals 266 124.49 0.47
Oil & Gas 51 12.39 0.24

This table shows that even though Refining is the major revenue and Earnings generator, it’s EBIT to revenue ratio is less. This sector is getting matured and is not going to be a major earnings driver. Oil & Gas sector is a promising growth sector where it contributes 25% of EBIT from just 5% of revenue. Petrochemicals sector is in between these two sectors and it is a good strategy for Reliance to find partners or go in for acquisitions in this sector to expand its revenue and market. For the near term, it is relying on domestic market demand for growth opportunities. However, this is not going to be enough in the long term.

In the current economic and industry scenario, companies are available for acquisitions in low valuations and this would be a good opportunity for Reliance to enter global markets. Acquiring LyondellBasell which is into petrochemicals will be a strategically good opportunity for Reliance.

Increasing Product development costs and decreasing length of Product Life Cycle

A major problem in chemical industry has been that product development costs are going up whereas the product life cycle is getting shortened. Especially in this industry which is heavily based on research, it is of a big concern.

Product development costs have gone up for reasons such as:
1. Increasing Research and Development costs. Chemical Industry is a research-based business. It requires massive investment for research and development. Specialty chemicals business in particular needs highly skilled labor and that requires paying higher than average salaries to maintain innovation and quality.
2. Increasing energy costs. Chemical industry is the largest consumer of energy
3. Increasing raw material costs. Commodity chemicals businesses rely heavily on oil and gas. Oil prices have fluctuated a lot in the recent past and is expected to do so in the future.
4. Increasing disposal and clean-up costs.
5. Increasing costs to oblige with regulations and comply with Safety, Health and Environmental (SHE) issues.

On the other hand, the product life cycle has got shortened for reasons such as:
1. Changing specifications for the end industries. For e.g. the changing requirements in sectors such as automotive, construction, packaging, paints, etc.
2. Increasing competition from other products introduced by competitors
3. Changes in product processing methods with changes in regulations

As a cyclical effect, when the product life cycle gets shorter the product costs further go up. This is because products that have shorter life-cycle have high R&D expenses, high marketing expenses, require high new product sales, high costs, high prices and a low degree of vertical integration.

It is all the more important now to be able to introduce new products at low costs and/or extend the product life cycle of existing products. Food Industries have extended the product life cycle by introducing frozen foods. Pharmaceutical companies are extending their products by getting into generics and collaborating with low-cost production facilities. Some ways to extend the product life cycle, generate more revenues and/or decrease costs are:
1. Making early promotions about the product
2. Releasing products with minor modifications through each stage of the product life cycle
3. Making substitute products in the maturity stage
4. Discovering processes to turn wastes into some other form of useful products (e.g. turn some organic wastes into fuel)
5. Developing low-cost waste disposal options
6. Collaborating with other players to share the costs and resources
7. Continuously monitoring customer needs and plan well-ahead about future products
8. Developing a product development process which will require no or very less modifications when external factors such as regulations change
9. Introducing existing products in new markets or for new purposes
10. Increasing automation of product manufacturing

REALIZING GROWTH IN INDIAN CHEMICAL INDUSTRY

Indian Chemical Industry is the 13th largest chemical industry in the world. As of 2008, its size is approximately $35b which is 3% of Indian GDP (Source: http://chemicals.nic.in/chem1.htm). The industry employs about 1million people. KPMG in its report released in the year 2002 assessed that under optimistic and realistic conditions the industry by 2010 can reach a size of $100b and $60b respectively. However, as of 2008, the industry size has only reached about $35b, just a $7b increase from the year 2002.

Here are a few thoughts on what could be done to improve the size of this industry. Please post your thoughts too in this blog.

1. CONSOLIDATION: The industry is highly fragmented with as many as 1900 companies. Consolidation will help to increase efficiency and reduce costs. Further it will also help in pooling money to invest in Research and Development which is a need for this industry.

2. EXPANSION TO GLOBAL MARKETS: Huge Domestic market size has helped Indian companies in the past and is continuing to do so in the current global scenario. However, this narrow focus will not allow increasing revenues in the long run. Aggressive expansion to global markets will be required to increase revenues. Further, it will also help to increase quality, efficiency and performance. Government on its part should not try to protect the industry. Free passage of goods should aid in strengthening quality and efficiency.

3. INVEST HEAVILY IN GENERIC DRUGS: Companies such as Ranbaxy, Dr.Reddy’s Labs are already holding patents for generic drugs manufacturing processes. The healthcare market is bound to increase all across the globe. Population is aging faster in western countries and at the same time the healthcare costs are increasing exponentially in those countries. Drugs should be affordable to cater to this market. Big global pharmaceutical companies will try to establish plants or get into joint venture agreement to manufacture generic medicines with Indian companies. Pfizer recently entered into Joint venture agreement with Wockhardt. Mylan Pharmaceuticals, the world’s 3rd largest generics drug manufacturer entered into agreement with Biocon. India has huge revenue growth potential in this business. Big pharmaceuticals have drugs whose patents are expiring in a few years. Establishing plants or collaborating with Indian companies will aid them in making revenue from these patent-expired drugs at a minimum cost.

4. FOCUS ON EXPLORING BIOFUELS: Indian government is spending on Jatropha research to exploit it as an alternative source of feedstock for ethanol. Jatropha is a toxic plant which grows in marginal lands in India and whose oil can be processed to bio-ethanol. Unlike other oils like corn oil, soybean oil, etc, the oil from Jatropha plant is not edible. So this will not compete with the edible oils’ resources. India right now is spending a huge amount on importing crude oil from Gulf countries. Exploring on Jatropha has benefits such as making India a front-runner in the world in biofuels, reducing costs on importing oil, realizing huge export and revenue opportunities & so on. Challenges do exist in this study but this should not lead to stepping back from this effort. So far about 500,000 to 600,000 hectare of land have been used to grow Jatropha. Government right now to encourage Jatropha research has increased import tariffs to 28% for vegetable oils, a feedstock for manufacturing bioethanol (not sure if this would work as it is again trying to protect this industry). Incentive programs need to be put in place to encourage farmers to grow Jatropha.