Unlocking the mystery

Editor's note: Matthew Oster is an institutional analyst with Euromonitor, a Chicago research firm.

Fast-moving consumer goods (FMCG) companies have long been avid clients of traditional B2C market research, from market-sizing and trends analysis to consumer panels and focus groups. A longstanding focus by the research community and the average retail consumer (as well as detailed scan track data) has allowed companies to comprehensively analyze the market for a particular product and surgically implement outreach and advertising campaigns to target likely customers.

This need for, and reliance upon, traditional market research by FMCG companies in the B2C space doesn’t look to change in the near future but as companies are searching for other avenues for value generation, many are increasingly looking to the institutional (or B2B) marketplace as an underdeveloped opportunity for future sales expansion and resource allocation.

B2B still represents a small and not-well-understood segment for most FMCG companies. (An obvious counterexample is paper companies, which have consistently treated B2B more centrally to their sales strategies and outreach than other types of FMCG providers.) The market for most FMCG products is wholly different from those found through retail. Many products are sold unbranded or in bulk and are less respondent to consumer trends or whims; as a result there are fewer opportunities to differentiate brands and product lines. Consequently, purchasing decisions in B2B channels are much more determined by other, more structural metrics: price; quality and functionality; flexibility and service; timeliness. Factors like advertising and promotion have limited if any pull in these channels.

In the absence of using outside market researchers, most FMCG companies have developed in-house techniques that are frequently incapable of meeting the difficulties of understanding market drivers in the B2B space: who is leading in that space, whether they may be other FMCG manufacturers, distributors, wholesalers or service providers; and whether their sales are successfully meeting the size of the opportunity in this space. Many FMCG companies are frankly even unaware that a blind spot exists in their knowledge of the B2B marketplace.

One FMCG packaged food company we recently worked with in Mexico had always performed its B2B market research in-house, which it felt was sufficient in understanding the institutional marketplace for its products. However, that changed when one of the company’s insight managers was surprised to see the firm’s products being served in his daughter’s elementary school. He had no knowledge of its products being sold into that institution and he realized they had a serious lack of visibility of their products within institutional channels.

This limited visibility constrains individual FMCG companies’ ability to effectively or efficiently measure this marketplace on their own. The most common (and most cost-effective) in-house option that these companies typically employ is a simple survey of their clients, which in this case are frequently distributors or wholesalers. However, this suffers from a number of limitations, as the preceding anecdote suggests. Distributors are only one link in the value chain for FMCG products and many times are too far removed from the final end users to be able to understand their purchasing and consumption behavior, how they have evolved over time, and, yes, even who they are in the most basic of senses.

In our experience, these constraints have forced FMCG companies to look to market researchers to shed light on the B2B landscape in a more systematic and nuanced way than the companies can realistically provide for themselves. For such analysis to be credible and comprehensive, it must marry a variety of approaches, both top-down and bottom-up, to paint the picture of how institutional channels operate, what they look like and how they are evolving, while at the same time examining individual channels’ purchasing behavior, product needs and decision points.

At the most fundamental level, research on the institutional end-users within a B2B environment has to start with a broader examination of the institutions themselves before a deeper dive on purchasing and consumption trends. As a result, such research typically involves a top-down analysis of the underlying components of these institutions (how many exist; what they look like and offer their customers; how they can be segmented; how many people they serve, either in the form of employees, guests, visitors, etc.; how fast they’re growing or declining, especially compared to other similar types of institutions). Research such as this relies on interviews with industry experts (trade associations and other industry groups, government statistical agencies, prominent end users) as well as official statistics, FOIA requests and demographic/macroeconomic analyses.

This structural approach is combined with bottom-up research focused on understanding the specific behavior of a particular channel. Sizing the opportunity for a particular product in the B2B marketplace comes in the form of online, in-person and telephone surveys of procurement and purchasing officers, service providers and distributors, with care to sample a range of facilities by size, type and needs (e.g., within channels like manufacturing, certain facilities require specially-formulated products for services like cleaning and sanitation). Though this methodology doesn’t change markedly depending on the institutional channel, country or product in question, the sampling size might change to reflect the level of integration in the industry, the amount of respondents who can credibly add insight and the comfort of industry professionals to respond to market research inquiries.

Recognize and ameliorate chief pain points

Clients’ comfort and willingness to contract out for market research on the B2B landscape is dependent upon the ability of the researcher to recognize, and ameliorate, their chief pain points. Due to the natural opacity of the markets in question and the complexity of handling this type of research alone, most clients have a number of blind spots when it comes to understanding this marketplace. I’d like to touch on a few of the most frequent challenges for any FMCG company that tailored market research can address.

Understanding and maximizing the value chain. (How effective are you at getting your products to market?)

Returning to the anecdote above, many FMCG companies have expressed basic confusion on not just the size of the prize within institutional channels but also how their products are getting to market. This lack of vision severely limits their ability to effectively evaluate and manage the value chain for their products.

This knowledge gap takes many forms and can lead to inefficiency, redundancy and incomplete coverage of a company’s product portfolio across institutional channels. More important, it costs money, as cost efficiencies routinely enacted in B2C markets cannot be leveraged when companies don’t know enough to incorporate them in a B2B setting.

This deficiency is more acute the more complex a product’s value chain is. How many hands are touching the product before final delivery? Which link in the value chain has the most power? Who ultimately determines where these products should go? Without a systematic approach to understanding the links in this ecosystem and how they interact, many companies are at a loss on how to take advantage of it.

To resolve these issues, companies typically request a variety of market research services such as distributor profiling, route-to-market mapping and vendor matchmaking. Successful programs should dissect existing routes, identify best-in-class partners and reconfigure networks to expand and strengthen the company’s customer base.

Shedding light on purchasing. (Are you missing key sales opportunities?)

Speaking of customer base, many FMCG companies are similarly at a loss in assessing the final customers of their products, a deficiency that cannot be fixed through simple surveying of their distributors. With a clearer understanding of who is purchasing these products and why, FMCG companies could develop strategies to expand or consolidate their market share and shift into underdeveloped channels.

To do so, FMCG companies require detailed analysis on how their final customers are using their products or services, how quickly products are replaced, refilled or reordered, who makes purchasing decisions for each customer, how they choose vendors and how often these relationships change. It helps to understand which end-users use a formal tendering process, whether they instead rely on their distributors for the types of products they purchase or even if they use wholesalers or cash-and-carry outlets for the bulk of their product needs.

To effectively segment potential and recurring customers, a suite of solutions like lead-generation and market opportunity analyses help identify where opportunities lie. Through this, companies can examine the characteristics of certain customers and make decisions based on these metrics: Who is going to their customers’ facilities (employees, guests, patients, students)? Are they public or private? What industry do they reside in? How complex are their supply needs? These are all critically important in understanding the size of the prize.

Sizing international opportunities. (Where else can you go to sustain strong sales growth?)

In other cases, FMCG companies have a good enough understanding of where and how their products are being sold and have identified limited options for broad future growth in that country’s B2B markets. Even with these types of knowledgeable clients, their vision only extends so far and they might be missing golden opportunities abroad, especially in markets with less-developed B2B networks and less self-evident institutional customers.

Strong and long-term growth potential

The opacity of foreign B2B markets can be opened up to enterprising companies through the various solutions highlighted above. Inevitably, the B2B market for FMCG products will migrate with greater frequency to foreign markets, especially developing economies like China and India, that offer strong and long-term growth potential and limited competition for products and services.

Effective diagnosis and treatment of a client’s pain points are instrumental in validating the need for external market research assistance in the B2B space. Though FMCG companies are increasingly amenable to these types of services, it still remains a challenge to get clients over their preconceived notions and to look critically at their own processes and systems. However, it is well worth the effort given the large potential opportunity to be found in this space.