Where in the World (1,824 words)
By Richard Miller
How to determine the best market for your product or service
Where in the world is Carmen Sandiego? As you may know, that was the name of a delightful children's television program on PBS.
Using a huge map of the world (without country names) painted on the floor, the young contestants vied with one another to plant themselves on the correct spot when a country name was called. The kids had fun, and it was fun to watch.
But as an international direct marketer, you may not be having as much fun trying to guess where in the world your company should be expanding.
Huge Advances in Research Tools
Identifying new overseas markets used to involve much guess work. But with the immense amount of information available today, researching a new market is more apt to produce information overload. There are literally thousands of informational sources and Web sites. The question then concerns selectivity. To narrow our focus, we need to reduce the quest to the essential factors that indicate whether a market truly shows potential.
Working with data developed by the U.S. Postal Service (USPS) International Business Unit, UPU Direct Mail Advisory Board and Donnelley Marketing, my company recently finished an 18-month study of 189 countries and territories to assess their viability for the direct marketing industry. The project was underwritten by the Universal Postal Union, a United Nations agency responsible for regulating postal services. Following are a few of the things we learned.
Boiling it Down
Market research for each country under consideration can be boiled down to the 10 primary international market indicators listed below. Some subjective judgment is required, of course. Depending on your company culture and product profile, you'll probably give more weight to some factors than others. With your own goals in mind, we recommend using a score of zero to five for each indicator, five being the highest. This means any given country can receive a maximum score of 50 points. Let's examine the indicators:
A. Population. If your target country has a large population but not much monetary wealth (e.g., Ethiopia), be cautious of how much weight you give that large population. But if it's the reverse, such as Singapore, where there's a small population (3.5 million) but a high per capita GDP, consider giving population a higher ranking. Perhaps the most important consideration is the size of the population segments that meet your historic target profile.
B. Political Stability. This is extremely important if you're going to set up within the country. For instance, your marketing strategy may call for in-country service support and income stream, or you may be dealing with a product or service that's sensitive to political winds. Dramatic shifts in power also will affect foreign exchange rates and tariffs.
C. GDP/Inflation. Gross Domestic Product and purchasing power are closely related. And both are dramatically affected by inflation rates. Look for year-to-year trends going back at least five years.
D. Distribution of Wealth. Follow the money trail. In some countries, 10 percent of the population holds less than 2 percent of the wealth, while the top 10 percent holds more than 50 percent of the wealth. If your product or service is aimed at the wealthy, then fine. But if you're selling something closer to a commodity, you may not have a viable market if the wealth isn't more equitably distributed.
E. Age Distribution. This should include longevity as well as distribution by age bracket. You might be amazed by the number of countries with longevity peaking at age 50. Also see if there are viable numbers in the age brackets fitting your target profile.
F. Currency & Collection. This should include convertibility and ease of exchange, inflation rates, long term trends and credit card penetration. There is little rationale for expanding into a country if you can't count on a stable currency and a choice of collection systems, particularly credit cards and bank (or postal) debit systems.
G. Tariffs & Taxes. This takes patience and perseverance. Of particular importance is the country's reputation for cross-border facilitation, an item at the top of the priority list of the World Customs Organization. Many countries have a reputation for making things difficult (and expensive) at the border.
H. Computer Ownership. This index also can be used to roughly estimate Internet use. Obviously, it can also be a sign of education, sophistication and wealth in a given country. It may be helpful to get a handle on TV penetration, which is the primary source of mass communication in developing countries.
I. Direct Marketing Infrastructure. Look for answers to the following four questions in your target country:
1. Is there a direct marketing association? While this is not essential, it may be an indicator of direct marketing growth and local initiative.
2. Is there a tangible direct marketing industry? In other words, can you locate at least minimal list sources, telemarketing operations and fulfillment systems?
3. Is there reasonably good credit card penetration or a bank debit system? Obviously, viable payment and collection systems are critical.
4. Is there an established pattern of mail order buying? In some countries there's absolutely no culture in this regard; in others, there may be some examples of tentative steps. And in still other countries, mail order flourishes. The importance of this will largely depend on whether you're selling to consumers or businesses. Although a country may have no recognizable pattern of consumer direct marketing purchase, there already may be an active set of international business consumers buying, for instance, periodicals and computer products. Look at the local media; do the press pages include local mail order ads? This is a prime indicator, just as it is and was in the early development of direct marketing in the United States, United Kingdom and Germany.
J. Postal/Delivery Services. This category includes both the postal and private delivery infrastructure. You generally need some basic services in both postal and private. Many U.S. marketers of outbound direct mail rely on the USPS, which offers excellent one-stop shopping for international delivery. But in some cases you're going to be looking at the services within the target countries. The most developed countries (e.g., U.K., Germany, Japan, Australia) have excellent—if sometimes expensive—direct marking support products. And in other countries, you may have good international parcel delivery services, but a poor domestic mail service.
As you look beyond the more highly developed countries, you'll find that few posts have a reliable database of delivery points, and even fewer have a usable change-of-address database. Following are some questions to ask before giving this a score:
1. Does the post deliver mail and/or parcels to a home address? A number of developing countries have no (or very little) delivery to homes.
2. Do they have an up-to-date change-of-address system available to marketers? This is one of the most obvious deficiencies in many countries' postal systems.
3. Are there volume discounts?
4. Is there a parcel COD system? If so, how quickly and efficiently are accounts settled with marketers?
5. Is there a track and trace system for parcels?
6. Is there a good postcode system, and what is the format?
To be sure, few countries are going to rank well in all indicators; most will require trade-offs, and many will fail to pass muster. Although this is arguable, I think in most cases a country should show a score of at least 30 in order to be a viable market.
Whatever your expansion plans, now is a good time to get started. Somewhere out there you'll find your Carmen Sandiego.
Richard Miller is managing partner of Market Response International, an international research and consulting firm, and the author of "Multinational Direct Marketing: The Methods & The Markets" (McGraw-Hill). He also is co-editor of "The World Guide to Direct Mail Marketing," published by the UPU and executive director of the International Mailer's Action Group, a task force of large cross-border mailers and vendors, www.the-imag.org. He can be reached at firstname.lastname@example.org.
Reduce your quest to the essential factors that
indicate whether a market truly shows potential
Test the Formula
To give this research formula relevance, let's put ourselves in the place of the director of market development for a medium-sized catalog company selling sports equipment. We need a market with discretionary income and in the 20-to-50 age bracket. After initial tests, we need to see the potential for a penetration of at least 1 million catalogs annually to achieve profitability. Our preliminary research has identified Chile as a possibility. Let's take a closer look, using the indicators we discussed earlier.
A Look at Chile
A. Population: About 15 million—approximately the size of Florida's population. That's a fairly good size. Score- 4
B. Political Stability: There have been big improvements in the last decade. Chile has a forward-thinking president and democratic institutions.
C. GDP Per Capita: $12,500 (1999), which indicates the discretionary income we need for our catalog. Score- 5
D. Distribution of Wealth: About 46 percent of the income goes to the top 10 percent of the population, with 1.5 percent going to the lowest 10 percent. That tilts quite a bit to the privileged class, but it may work for our catalog. Score- 3
E. Age Distribution: About 65 percent of the country's population is in the 15-to-64 age bracket. Only 7 percent are older than 65. This is an example of where to use your judgment, depending on your products. It's great for the prime middle years, but you may want to think twice about the senior citizen market. However, it fits our catalog profile. Score- 4
F. Currency & Collection: The currency appears stable. Inflation in 1999 was 4.5 percent. Credit card penetration is increasing. Score- 3
G. Tariffs & Taxes: On balance, Chile has a reasonable tariff structure, with rates tending downward. It's a member of Mercosur (the
South American Trade group), and when trading with some of its country partners, tariffs are extremely favorable. At 18 percent, the VAT (value-added tax on goods) is typical for the region. Score- 3
H. Computer Ownership: In 1999, there were about 35 computers per 1,000 people, the largest rate in South America. Score- 3
I. Direct Marketing Infrastructure: Chile has an active direct marketing association, a good telephone system and a growing telemarketing business. The list industry is slowly developing, with many direct marketers, including U.S. companies, operating in the country. The potential to build on local lists needs to be shown. Score- 3
J. Postal/Delivery: Chile has a good post office with services designed to support the direct marketing industry, such as volume discounts, worksharing, barcoding, and track and trace. There's also an active private delivery industry, both local and international. So it looks as if we have a good support system for promotion and product delivery. Score- 4
TOTAL INDICATOR SCORE 36
This is not a bad score overall, so it's probably well worth testing.