Market Research

Introduction
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This section provides a step-by-step approach for conducting market research. It describes various types of research materials and offers options, tips and techniques for collecting quality data. This section will show the importance of research in developing a marketing plan and export strategy.

Market research is usually made up of the following steps:

Establishing objectives
Gathering information
Analyzing and interpreting data
Making decisions based on the information obtained

Export Market Research

Export market research consists of gathering enough information to make sound export decisions. Research should uncover economic, socio-political and cultural factors that either invite or challenge market entry. Effective research helps a firm to properly select, segment, target and position their product in an international market.

Types of Market Research

There are two types of market research: primary and secondary. First, we will discuss secondary research. Secondary market research uses information that has been previously prepared by others. It has often been prepared with a company like yours in mind. This is especially true in export market research for value-added, consumer-oriented food products. Secondary research often provides useful information at a fraction of the price of primary research.

The U.S. is well known to have the best sources of secondary market research in the world, especially for international trade. The U.S. has multiple government entities which are well trained at researching overseas markets and making the information available to the business public.

The main goal of primary research is to answer specific questions that secondary research has not provided. Market research usually begins with secondary sources, in order to save time and expenses, and is followed by primary research. The need for primary marketing research increases as the market screening process progresses.

There is a variety of ways to uncover marketing research for your firm for free or for a nominal expense. Food Export-Midwest and Food Export–Northeast provide primary marketing research opportunities for U.S. companies in various regions of the world. These two State Regional Trade Groups (SRTGs) can provide assistance at all levels of research, from the most fundamental secondary sources all the way to primary sources, such as having your product samples evaluated in the market or providing you with personal introductions to international buyers.

High quality research is at your fingertips, and this section will show you how to access it.

TIP: “Secondary research is conducted primarily, and primary research is conducted secondarily.”

Selecting a Target Market
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After identifying a few top markets, you will need to narrow down each into market segments and begin working on the countries with the most potential. A more detailed study of these markets is required in order to prepare a viable export plan.

Market Profiling

Most new exporters fail due to a lack of preparation and information. Export market research is crucial to overall long-term success. The minimum market research necessary falls into the following categories:

Identify top markets: evaluate export statistics and research markets that are the most active in your company’s product category
Define potential customers: determine which industry segment imports products like yours and the different channels of distribution
Recognize main competitors: research should show you which U.S., international and domestic competitors are in the market
Determine restrictions and regulations on product: learn about food import regulations as well as tariff and non-tariff barriers
Understand standard business practices: recognize how culture effects business within the target country
Find support for export development: identify who can help you with various aspects of export development including funding, research assistance and marketing activities
Identify promotional opportunities: determine which activities and promotions are available in your target market

What Top Markets Share

Top markets usually share certain traits, which include:

Similarities in sales and distribution methods to the domestic market
A solid comparative advantage for the product with good sales potential
Stable political and economic systems
Low tariffs, restrictions and regulations
Relative ease of currency conversion and favorable exchange rates
Realistic transportation costs as a percentage of the cost of goods sold

Where to Begin

You can start by looking for similar types of customers in the destination market that you either sell to or through the United States, and perhaps similar business practices or language. Over 60% of initial exports from U.S. companies are originally sent to Canada or the United Kingdom, because of the many market similarities. Mexico is also a frequent first destination because of the close proximity and the advantages offered through NAFTA. There is a tremendous amount of marketing information available on these countries that allows for entry decisions to be made more quickly and with more confidence.

Maintaining Focus

The most successful small business exporters are those who stay focused and committed over the long term. It is a matter of economies of scale in your efforts, time and money. If you stray from a top market focus initially, your efforts become diluted and your chances for success often fade.

One definition of marketing is not only to attract but to keep customers. If you start out by attracting too many customers, it may put such a strain on your resources that you become overwhelmed and not really satisfy anyone, thus losing valuable business. Applying modern marketing concepts involves customer retention as much as customer attraction.

A Step By Step Approach
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An abundance of market research is available for value-added, consumer-oriented food and agricultural products. To get the most from your efforts, information should be gathered in a systematic manner. A step-by-step approach will leave you with the right research to make informed marketing decisions.

An example of a simple step-by-step approach:

Identify your Harmonized System Code, HS Code and Schedule B Numbers
Perform statistical research to determine top importing countries for your product
Conduct secondary market research on target markets
Conduct primary research with the help of export assistance agencies
Use your research to select activities
Integrate activity selections into your export marketing plan
Initiate export marketing activities based on your top market segments

What is a Harmonized System Code Number?

Market research often begins with an export statistical analysis. This indicates the volume and value of exports from the U.S. to international markets. Before a statistical analysis can be performed, an exporter must identify the correct “Harmonized System” or “HS” code for his/her product(s). The HS is an international commodity coding system that most countries use to classify their products, thus the term “harmonized” is used. The 6- digit HS is known as the “international level” or “subheading.”

All goods which are imported into another country are subject to duties, which basically depend on:

The HS classification number
The value listed on the commercial invoice (or as determined by customs)
The country of origin of manufacture (not necessarily the country of export)

The 10-Digit HS Code

The Harmonized system is also used to track imports and exports with a more specific category that uses a 10-digit extension. Exports from the United States are classified with a 10-digit extension known as “Schedule B.” The 10-digit HS extension for imports into the U.S. is known as “Schedule A.”

For example, if your company imports an ingredient used in food processing, your customs broker will use the Schedule A number to clear it through customs. If you later export the finished good to another country, the Schedule B number will be used. The Schedule B may differ from the original Schedule A number because it has now become a finished product.

TIP: All exporters should know their HS Code numbers and their Schedule B numbers.

This is an example of the HS Breakdown to a Schedule B.

This example will be used throughout the section for you to follow. You may want to print it for reference.

Use of the HS Code

The following are some common uses for a six-digit HS Code:

Potential buyers may ask for your HS code. They use it to determine the duties on products in their countries. The buyer’s country will add its own last four digits to determine the final duty and other tariff treatment.
Many trade lead databases use HS numbers to identify goods, rather than naming them. This is because the name we give products in the U.S. may not be the same name used in other countries. In the Middle East, for example, many importers use the term “hot sauce” to describe ketchup and mustard; many U.S. exporters would miss an export opportunity based upon their definition of “hot sauce.” When you sort by HS codes, the description is much more specific and standardized.
The HS code is required on the NAFTA Certificate of Origin in order to claim preferential tariff treatment under the free trade agreement.
Many ocean carriers and forwarders use a part of the HS to establish pricing for shipments. In order to obtain an accurate price from the carrier/forwarder, it is important to know your HS number.
Market research reports often point out the top markets by using the HS as part of an industrial overview rather than on a specific product, since attractive markets are usually within industries – not individual products. If a market is consuming a lot of products “like” yours, they may also be interested in your products.

Locating Your Appropriate HS & Schedule B Number(s)

The U.S. Census Bureau administers the HS and Schedule B numbers. They have a very comprehensive website including an easy-to-use search tool. The website also contains valuable information about international trade issues. Click here to visit the Census.gov website.

If you have trouble locating your number, you can call the trade specialist for assistance, located under “Schedule B FAQS" When using the search engine, be sure to run a variety of searches to determine the number.

Practice Exercise: Search for HS and Schedule B Numbers

Directions:

Enter 190590 on the search engine in the popup window. You will first see all of the HS 6-digit references listed above, followed by the 10-digit extension into Schedule B. The correct Schedule B number for the products we are using as an example is:

1905901080: “Bread, biscuits, similar baked products, whether or not containing chocolate, fruit, nuts or confectionery, frozen.”

Other Schedule B numbers on the search under 190590 include all of the goods listed above. Schedule B numbers consolidate various appropriate products under the HS into more specific categories. That is how the frozen products were separated from the products which are not.

Obtaining Export Statistics
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Once you have determined the appropriate number or numbers for your products, you are ready for the next step, which is to obtain statistical data. At this point it is important to clarify what the Schedule B number has to do with export statistics and marketing research.

The Shipper’s Export Declaration

Customs Form CF-7525-V is known as the Shipper’s Export Declaration, or “SED”. It is an export document required by the U.S. government, before any shipment valued over $2500 leaves the country. There are some exceptions. Shipments to Canada do not require the SED, because we obtain our export statistics from them. It is required, despite the value, on any shipment requiring an export license and on those shipments to embargoed countries, such as Iran, Syria, Cuba and North Korea, and those that travel through Canada on their way to the ultimate destination.

It can be submitted by the exporter online through the same Census website where the Schedule B numbers are located. It might be difficult for many exporters to complete entirely though, because some of the key information may be unavailable to them until the shipment leaves, especially if they are using the services of an international freight forwarder.

The forwarder offers SED preparation as a service and files it online through his/her access, rather than through Census. In either case, be sure to obtain a copy of the SED for each export shipment that requires it, as it is a legal record of export. For a look at the SED, including instructions on how to prepare it click here.

A review of the SED indicates many key elements of the export transaction such as loading pier, vessel, and mode of transport, carrier and country of destination. For marketing research purposes, boxes #22, #24 and #26 are most relevant. This is where the Schedule B numbers, the units and the weights are placed as well as the value (the sales price).

This information is captured by Census and then released later in search databases so an exporter researching a market can evaluate what markets are importing most of their products over a given period of time by value and weight. Since most food products are measured by weight, you could divide the weight by the value and get an estimate if your product’s price is competitive within the market, as the value on the SED is the commercial invoice sales price. The weight expressed in the HS is metric. To convert kilos into pounds, multiply kilos by 2.2046.

BICO Reports

“BICO” reports are another source of statistics for analysis. BICO stands for Bulk, Intermediate and Consumer products, and are separated into these categories based on the value-added amount into the product exported. The breakdown is as follows:

“ Bulk” products are basically commodities, which have had little or no processing prior to export. They include: wheat, soybeans, corn and other products such as green coffee, cocoa and sugar.
“ Intermediate” products are value-added, but are usually not yet ready for consumption. Products such as vegetable oils, flours and other types of ingredient products fit into this category, many of which are sold at a higher value per kilo than commodities. Fresh fruits and vegetables are also considered intermediate products, as they might be used as an ingredient as well as for retail sale.
“ Consumer -Oriented” are high value-added products that require little or no additional processing prior to consumption. They are usually ready for retail or food-service sale in their imported condition, but may also include food ingredients used by processors to produce another product. Dried fruits, dairy and eggs, tree nuts and spices fit into this category, along with all other finished goods.

The reports can be sorted from very broad to specific categories. You can sort anything from commodities, such as grains, to value-added cheese, breakfast cereals and pancake mixes. In the commodity group area you are able to review all of the products listed in each part of the BICO, and then click on the product category to open up the products under the Schedule B numbers. You also can sort by calendar year, country or geographic region.

Click here to continue the Baked Goods example referenced previously.

The Food Export Helpline™: Top Product/Market Evaluation

If you would like help locating your HS codes and Schedule B numbers, more specific export statistics, or customized secondary marketing research for your company, you may want to register for The Food Export Helpline™. Food Export-Midwest and Food Export-Northeast provide this free service which is designed to supply you with one-on- one support in your export efforts.

Support from the Food Export Helpline™

Whether you have only one question or are in need of ongoing assistance, the Food Export Helpline™ service can help. Support includes a wide variety of export-related topics “from connection to collection,” including:

Assessing your company’s export readiness
Statistical analysis of your top export markets (see below)
Helping to respond to trade leads
Assisting with export pricing and quotations
Explaining export documentation and correspondence
Understanding NAFTA rules and regulations
Understanding methods of payment
Providing customized secondary market research
Locating export service providers and referrals appropriate government agencies
Assisting with trade event preparation

Most of these services will be discussed in more detail in later sections. For now, one of the services provided by The Food Export Helpline™ is a Top Product/Market Evaluation. Based on your company’s HS or Schedule B numbers, a detailed analysis of exports can be prepared along with comments and explanations of current export market trends. This will give you a good idea about which countries are importing products like yours.

Click here for an example of Top Product/Market Evaluation report using our baked goods example.

What You Have Learned So Far

After reviewing that report, consider what you would have learned so far with this secondary marketing research, about the export potential of these products.

Canada has a 83% export market share of the total value in 2007
The NAFTA partners combine for an 88% export market share
Exports of these products average nearly $17 million per month
Four out of the top ten markets are in Asia, a surprising number considering baked goods are not basic staple in their diet
South Korea has shown a decline of 54.2% in 2007 after years of steady growth
7 out of the top 10 markets show growth in 2007 over 2006
Exports of baked goods to the Dominican Republic increased over 178% in 2007, a sure sign that the CAFTA-DR has had a positive affect.

This analysis has proved invaluable to many exporters in building their market research base. It will lead you in the next step in your research, which is to further investigate the markets that interest you based on the data. It will also help you utilize other Food Export-Midwest and Food Export-Northeast services.

To learn more about the Food Export Helpline™, or to register for the program, click here.

Conducting Export Market Research
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Generally, when there is enough volume of exports to a specific country or region, adequate secondary market research is available. As market research reports are quite expensive to produce, they are not done on products which have little current potential or where there may be significant constraints in the form of regulation, tariffs, non-tariff barriers or economic and political upheaval.

Always check the validity of secondary marketing research. When collecting research, make note of who actually conducted the research and for what particular purpose. Private marketing research is often of high quality, but also quite costly. Some “free” marketing research conducted by private parties may be biased, and not in your best interest to make business decisions on. The best source of secondary marketing research for value-added and consumer-oriented food and agricultural products is made available by the USDA, Foreign Agricultural Service.

Secondary Research from the USDA, Foreign Agricultural Service

The FAS website is the largest source of export assistance for food and agricultural products in the United States. Because of its size, many valuable sections will be examined more specifically throughout the sections to come, but right now the focus will be on using the site to research markets.

Attaché Reports

Attaché Reports are provided by the Agricultural Trade Offices (ATOs). They are often published annually or semi-annually, on a schedule. More than 25 types of reports are published. Many reports are based on specific products including commodities. The value- added, consumer-oriented food exporter usually focuses on about half of the reports on a regular basis. Reports can be sorted in a variety of ways, including daily reports, reports by country, or reports by product or industry. Search Attaché reports here.

You can also subscribe to have daily reports e-mailed directly by clicking here. Subscribers will receive every report released each day.

Note: Although there is an obvious interest in obtaining the most recently published secondary data available, don’t overlook the fact that reports from six months or even 1-2 years earlier have relevance. Older reports offer an opportunity to review past trends and changes in markets when analyzing similar reports published on a bi-annual or annual basis. Often, there have been no major changes in a market, so the previous reports are still relevant.

Frequently Used Reports

The most frequently used reports for businesses with value-added, consumer-oriented food products are:

Agricultural Situation: These reports deal with current events and are released frequently. They update the researcher on dispute resolutions, new regulations and pending changes in an industry. Reports for NAFTA partners dominate this section. Market Development Reports are similar, but focus on opportunities rather than challenges.
Exporter Guides: These and many other non-regulatory reports are referred to as “GAIN” reports, which stands for Global Agricultural Information Network. Exporter Guides provide research reports designed to give you an overview of a country’s market, challenges and opportunities for U.S. exporters, business tips, market structure and trends, best high-value product prospects, key contacts and economic analysis. They often include an overview of import procedures, regulations, documentation and notes on tariffs and taxes.
Food Processing & Ingredients Sector: Food Processing & Ingredients Sector reports are a useful way to evaluate the ingredient market. These reports evaluate the market of processors and include competition, market share, manufacturers and the products they make.
Food & Agricultural Import Regulations & Standards Report (FAIRS): These regulatory reports specify the food laws of the destination market including: labeling regulations, nutritional claims, packaging and container regulations, import procedures and regulatory agencies. In some cases they are produced on a single product or industry, and are known as “FAIRS: Product Specific” reports.
FAIRS Export Certificate Reports: These reports offer a summary of the documents countries require for food and agricultural products exported from the United States. They usually also include a matrix, which briefly outlines the type of information that is required on the various certification documents and the various ministries that have oversight. Sample export certificates and links are also included.
Note: The buyer is in the best position to know what you need to stay in compliance. The FAIRS reports come with a disclaimer that companies should verify important requirements before any goods are shipped.
HRI Food Service Sector: Hotel Restaurant Institutional Sector reports cover a wide range of products including ingredients and retail consumer products. The reports contain a market overview of the foodservice industry and a roadmap for entry into commercial catering (schools, airlines, cruise ships, hospitals, prisons and military), hotels, restaurants and convenience stores. They describe channels of distribution and competition; have company profiles and best product prospects as well as contacts and further information.
Kosher Foods: The Harmonized System does not isolate product categories such as kosher or organic foods, so the statistical data is the same for all types of products. For example, it is difficult to evaluate how much of the baked goods that are exported into a country are kosher. The kosher market is global, but it is also a very specific market segment, and requires its own market research.
Product Brief: Product Briefs are essential market research if published on a product segment that you are interested in exporting. They focus entirely on the specific product and provide an excellent overview on the market in a particular country. Many product briefs have been published for value-added, consumer-oriented products in the markets where they have the most potential. These briefs include candy and confectionery, snack foods, pet food, beverages, seafood and baked goods.
Promotion Opportunities Reports: These reports provide you with a schedule of promotions from the ATOs and other agencies. Many of these events are also coordinated by Food Export-Midwest and Food Export-Northeast, who might be able to offer support in attendance, logistics or funding.
Retail Food Sector: Companies planning on exporting retail food products can benefit greatly by studying Retail Food Sector reports in addition to the Exporter Guides and FAIRS Reports. These reports detail market entry opportunities and challenges for U.S. food products in the supermarket, hypermarket, super center and club and wholesale outlets. They also include an overview of convenience stores, gas-marts and kiosks as well as independent grocery stores. Company profiles, best product prospects and economic overviews are also included.

Click here to see samples of all reports listed.

How to Use This Information

As you can see, there are a variety of reports available to build a market research base from. Many more useful reports are available on the FAS website as well. Information from FAIRS, Exporter Guides, Promotion Opportunities reports, Market Development reports and specific product reports should be incorporated into your market research. Depending on a product’s end use, sector reports should also be utilized. The information gathered in these reports serves as the building blocks of a strategic export plan.

Click here to search Attaché marketing research.

Other Resources
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Resources from FAS

The FAS website is a huge portal and this section will only cover a fraction of the information available. In addition to the BICO and Attaché reports, here are a couple of other worthwhile sites.

FAS Worldwide Magazine

On the front page of the site you will notice a picture of the current cover of FAS Worldwide magazine, which lists the highlights of that edition. Beneath it is a search engine to select specific topics as well as the magazine index that goes back to 1996. The articles are current snapshots of market developments and can be used to supplement larger reports. Click here to go to the search engine for FAS Worldwide magazine.

Commodity Information

The commodity information includes a focus on processed foods including high value- added products. The site allows you to isolate all of the reports that might pertain to a certain industrial area, which includes wine and organics as well as consumer-oriented products. There are also valuable insights into meat and dairy products as well as tropical fruits and vegetables. Click here to go to the Commodity Information area of the FAS website.

Resources from Other Agencies and Countries

Resources from Other Agencies

“Export.Gov” is the U.S. government export portal that assembles free international trade information from most Federal Government agencies and makes it available through one location for easy access. It has information on the basics of export, trade leads, counseling and advocacy, trade events, export finance, shipping, pricing, quoting and documentation as well as market research. Access the Export.gov site here.

Resources from Other Countries

Foreign governments are not typically in the business of helping other countries market their products. However, there are a couple of exceptions worth exploring.

Japan External Trade Organization

The Japan External Trade Organization (JETRO) is the official trade organization of Japan, with a history of bringing Japanese and American companies together for 45 years. JETRO is a nonprofit, Japanese government-supported organization dedicated to promoting mutually beneficial trade and economic relationships between Japan and other nations.

Canada’s Agri-Food Trade Service

Our neighbors to the North have also produced a tremendous amount of marketing research for value-added food products, which often serves as a compliment to that prepared by the U.S. Not all of it is accessible, but what is available is quite helpful. You can sort the information by product category or by country. The Canadian perspective on U.S. food markets is included as well, since we are an export destination for Canada. You can access the Agri-Food Trade Service website by clicking here.

Food Export-Midwest and Food Export-Northeast
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Food Export Association of the Midwest US and Food Export USA-Northeast (Food Export-Midwest and Food Export-Northeast) offer a combination of market research opportunities. Secondary research is available through the Food Export Helpline™. Research provided by the Food Export Helpline™ is customized to each company. It can also help you select appropriate marketing activities and prepare you for the events in advance.

Market Builder – Primary Marketing Research

Food Export-Midwest and Food Export-Northeast help companies establish distribution in foreign markets through the cost-effective Market Builder program. This program is divided into two segments: MarketScan and RepFinder.

MarketScan provides customized and comprehensive research to help you decide if your product can be successful in a market. MarketScan takes your product to actual importers who purchase American food products and gains feedback on your product’s taste, appearance, packaging and labeling. While obtaining this information, your product is compared to other regional and imported brands similar to your product. The service provides a final report which includes a list of potential importers/ distributors with complete contact information for further market development and follow-up.

The second segment of Market Builder, RepFinder, actually introduces you to importers in a market. RepFinder sets up appointments with qualified importers, provides an interpreter, assists in travel plans and provides follow-up consultations on your trip.

Market Builder is currently offered in various markets. Please click the link above to learn more.