3: Research can be the haulier's key to expansion and diversification
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(Previous articles in this series appeared in CM on January 2 and 9.)
FREIGHT CARRIERS are very knowledgeable about operations in their own field. Ask a tipper operator about traffic available in his area and he will tell you, almost to a ton, who is carrying what and to where it is going—similarly with a trunker or parcels carrier.
The operator will probably even be able to tell you what rates are being charged and who is making a profit, and who at a loss. But ask him about traffic and services different from the kind he himself is engaged in, and he will probably tell you that he is too busy with his own problems to worry much about what people in a different sector of the industry are doing. Nor does his knowledge always extend very far forward in time. Asked what he will be carrying in five years' time or what his customers will be making and how they will be distributing it five years hence, and he is again too busy with this year's pressing problems even to think about 1975, let alone plan for it.
Yet if he does not take an active interest in other spheres of operation or try to forecast future customer requirements, he may find himself overtaken by events. If you can anticipate these events you will be better placed to deal with them than if you merely react to the events as they happen.
In my previous article (CM January 9) I emphasized the necessity for market research not only as a means of maintaining an awareness of what is happening now but also as a means of forecasting traffic and service requirements in the future. In this week's article I will try to show why research is necessary, for what purposes it can be used, and point to some of the basic sources of market information. I will also briefly discuss some of the pitfalls to be avoided.
Market research is the systematic gathering of information relevant to a particular problem and the analysis of that information to assist in making business (especially marketing) decisions. Notice that as with all marketing operations the decision is not made for you, but the risk of making a wrong decision is reduced.
It can be simple or complex, depending on the information that is required. Too little information and you may draw the wrong conclusions, too much and you could be wasting a lot of money, because like all other specialized activities market research can be costly and wasteful unless very carefully controlled. You may be able to get the data that is wanted merely by analysing your own company's records, but on the other hand you may need the help of an outside specialist organization. In its simplest form it is just a matter of keeping an ear to the ground, at its most complex it can take you into the world of computers.
The method of analysis is just as important as the gathering of the data because if it is incorrectly analysed the wrong conclusions may be drawn. This is not an infrequent occurrence, nor is it uncommon for the wrong information to be obtained in the first place, thus rendering subsequent analysis and conclusions meaningless.
Traffic potential
The uses of market research are:— '
1. When measuring traffic potential and market share.
To plan his services efficiently and profitably every freight operator at some time will want to know the total potential for his type of services, or a contemplated new service, i.e. given the right circumstances what amount of traffic could be obtained, either of all kinds between certain points or areas, or specialized traffics such as bulk liquids, animal feeds, palletized grocery products, etc. He will also want to know what his-own share of the total amount available is or should be, and whether his share is increasing or reducing in comparison with his competitors.
If the operator does not know the total potential and has no idea of what his share of that potential is, he will not be sufficiently aware of the market forces at work around him, and will be rather like an airline pilot flying blind with no instruments to guide him.
Suppose that an operator's tonnage between two points is increasing at the rate of 10 per cent per year and that he is one of the premier operators on that route, but that tonnage available between those two points is increasing by 20 per cent a year. Within four years the traffic available will have doubled, whereas the operator's traffic will only have increased by 50 per cent.
Without this information the operator will continue to think himself in a very secure position whereas in fact he is probably being rapidly overtaken by other operators and his position as market "leader" being rapidly undermined. Even with the information he might still be reasonably satisfied, but at least he would be better placed to take action if he thought it necessary to safeguard his position.
2. In rate fixing.
Rates that are quoted without regard to the "market" are unlikely to be good rates. They will either be lower than they need be or they will be too high to secure the traffic.
The best rates are those that are quoted with a full knowledge of the competition, whether it be from other carriers, in which case you need to know what their costs and rates are, or whether it be competition from customers' own-account operations, in which case you will want (ideally) details of their costs of operation.
Similarly, when seeking rate increases, confident negotiations will depend on the possession of reliable and up-to-date information about competitive moves in the same field.
3. As an aid to operating efficiency.
Given an overall fleet ton/mileage capacity, the aim, in normal circumstances, is to use that capacity to the full, and to achieve this it will be necessary to know how much and what kind of traffic is available, between what points, and what rates can be charged.
If a good service is being offered in one direction and capacity loading being achieved, it should not be assumed that an operator will have to return empty or with a cut-price "back load" until research has been carried out to discover precisely what traffic is on offer at higher rates. Facts are always more reliable than assumptions.
Where ancillary services, i.e. warehousing, are being supplied and there is spare capacity, systematic research will often throw up other traffic flows which could efficiently be dealt with through the same warehouse with some consequent spreading of overhead costs.
4. When planning the future.
Research under this heading can take on many aspects. First, you will need to know what the future holds in terms of the traffic you are carrying now. Will your today's traffic continue to pass in the same quantities, between the same places and at the same charges for the next five and 10 years? To forecast that you will want to know what your customers will be doing in five and 10 years' time, and what new customers and traffics you are likely to have then that you haven't got now. You will also need to anticipate what traffic you will not be carrying then that you carry now.
In examining your present traffics, if you find that most comes from a few big firms, it is essential that you know what those firms' plans are for the future. The kind of questions that must be asked are: will they still be producing the same product in five years' time, will the distribution pattern remain the same, are they likely to develop new methods of handling and packaging, will their customers' needs be different from what they are today?
Research may have to go deeper than this and take in whole industries. Today, animal feeds tend to be distributed over a radius of not much more than 60 miles because compounders are located at each of the principal ports.
However, as ships get bigger and ports become modernized we may find imported grain centred on not more than two or three ports. This could mean compounders concentrating on these ports with possibly deliveries to farmers or warehouses over much greater distances than are being covered now. Or compounders could stay as they are now and receive train loads of grain from the ports. Similar changes are taking place in imported timber, iron ore, and deep-sea container traffic.
These are just a few areas in which research is necessary. Others include sales forecasting (to be covered in a later article), identifying trends, identifying the more profitable traffics and types of operation, anticipating likely changes in transport legislation, and—very important— studying likely changes in the international character of traffics. Research need not be confined to the domestic market, and indeed market research into the foreign trades and their distribution needs may be the most rewarding research of all.
Obtaining information Market data can be divided broadly into two kinds, that which is already available in usable form, and that which has to be obtained and tabulated for a specific problem.
Data already available can be external, that is, information from outside the company, or internal—from within the company itself, usually in the form of sales or operating records and statistics.
Taking first the external sources, the main problem is one of selection from the enormous quantity of published material that is available, and I have not attempted to give more than a few of the basic or standard publications, all of which can be found in a good reference library.
First, there are the Government publica
tions such as the Monthly Digest of Statistics and the weekly Board of Trade Journal. both published by HMSO. The former gives statistics relating to the economic situation in the UK and contains a regular series of detailed statistics on a wide range of subjects including transport, industrial production, industrial materials, fuel and power, wages and prices. The latter is a current weekly report in both statistical and editorial form of the UK's home and foreign trade, and is especially useful for those engaged in carrying either imports or exports.
Secondly, there are specialized reports by government departments such as the Forestry Commission report on the future of the timber industry, the nationalized industries' reports and accounts, "glossies" published by port authorities with a wealth of statistical information, and the many surveys and reports published by Industrial Development Corporations and Economic Planning Councils.
If you want information about your own customers, start by studying their annual reports and accounts, which are generally available at a city reference library, but in any case you can write to the company secretary and ask for a copy.
New source
A new and potentially very useful source of information that will shortly be available is the continuous survey that the Ministry of Transport is now undertaking which will regularly produce information about vehicles, journeys, tonnage, commodities carried, pick-ups and drops, and empty and laden mileage.
The industrial and financial Press is another invaluable source of market infor mation. i
Internal sources
Internal data is available in the form of your own organization's records which are frequently an untapped source of valuable market information. Anyone undertaking a market research exercise should glean facts and figures from his own records before going to outside sources. After all, you will know how reliable your own records are and the information is there for the taking, whereas "outside" research can be costly, and allowances have to be made for unreliability.
Special exercises
However, information in relation to a particular problem cannot always be obtained either from publications or internal sources, and so a market research exercise has to be carried out and, depending on the size of the project, you may undertake this yourself, that is by using your own staff, or you may have to resort to a specialist market research organization to do the work for you.
Pitfalls Objectivity is the byword in any approach to market research. "I've made up my mind —don't confuse me with the facts" is an all too familiar response to unpalatable facts, but if research is to mean anything at all a detached view must be taken by whoever carries out the research.
It is also necessary, before undertaking research to spell out precisely what information is being sought and in what form. Frequently time and effort are wasted because an insufficient and ambiguous remit is given to the researcher in the first place, so that he does not fully understand what is required of him and applies his own interpretation of what is wanted. When this happens the results inevitably cause disillusion with this essential first step in applied marketing.
The solution to a problem often presents itself once the facts are known, and market research is essentially a fact-finding exercise.