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We market researchers are in the business of facts and statistics and so it was quite shocking to read this article in today’s Financial Times explaining how the statistic on Gross Domestic Product is manipulated beyond belief. The basis of the article is the huge contribution made to the economy by the service industry (business services account for 40% of GDP today and manufacturing just 14%). However, the service element of our GDP is inflated by 8% by sleight of hand. Apparently a huge slug of £83 billion is put into the GDP as an adjustment for the rent we would pay if we were renting our houses that we own! All this to make sure that we don’t fall out of kilter with Germany where more people rent their houses; and to ensure that our GDP is on a like for like basis. Talk about kidding ourselves. That is nearly one fake £1 of earnings for every £10 that is shown in our GDP.

The message is always look deep into your statistics.

Lies, damn lies and befuddlement
By Chris Giles
July 27 2007

Alistair Darling says the output of the City of London is “absolutely critical”. The chancellor is spot on.

China’s economy inspires awe owing to its industrial muscle, but the British economy is still almost as large as China’s. Our strength comes from the services sector, enabling goods to be designed, built, financed, transported and sold. We are especially good at business services, whose growth since 1992 has been stunning. Then, the Office for National Statistics says, the sector accounted for just under a quarter of the economy. By 2004, it accounted for a third. The share of manufacturing dropped from 21 per cent to 14 per cent over the same period.
Even more impressive is the expectation that the share of business services will exceed 40 per cent of the economy by the end of the decade. Its contribution has risen by an average of 1 percentage point a year since 1997 and next year the ONS will include in the national accounts a proper estimate of the value of banking services. Alone, that will add roughly 1.7 per cent to gross domestic product.

But, for all the undoubted importance of lawyers, accountants, estate agents, architects, bankers and other employees of business services companies, we do not really know with any certainty what is going on.

The statistics on business services are rather like a cheap sausage; alluring on the outside, but the more you delve into the ingredients, the more queasy you feel. Start with the cash figures for output. A quarter of the recorded output of business services, 8 per cent of GDP, is “letting of dwellings”. Anyone thinking that this is a reflection of the buy-to-let phenomenon would be wrong. Most of the £83bn contribution to the UK economy in 2004 is the ONS’s estimate of how much it would cost property owners to rent their own homes.

The reason that notional rents are included in GDP is to stop international economic comparisons being distorted by patterns of home ownership. Without the adjustment, Germany would appear richer and more productive than the UK simply because most people there rent their homes from others with a recorded cash transaction. But in estimating this huge adjustment, the ONS has to guess the notional private sector rental value of every UK home using some heroic assumptions. The upshot is that if planning restrictions damage the UK economy and force rents up, measured GDP increases, improving Britain’s apparent productivity performance relative to other countries. Rental inflation also allows the government to borrow more, since one of its borrowing rules limits debt to 40 per cent of national income. This is perverse. And at 8 per cent of GDP, it matters.

New research by Professor Jonathan Haskel of Queen Mary College, London* casts further doubt on how far we should take the statistics at face value. International rules on what counts as business investment are outdated in a service economy, he argues. Correctly measuring things such as research and development or development of new financial products as investment - because the expenditure has a future value - would raise Britain’s GDP by 13 per cent, his research suggests.

If these two examples suggest the measurement of the output of business services is difficult, even bigger problems lie in differentiating real growth from changes in prices.

The soon-to-be-introduced better measurement of financial services is a huge step forward for the ONS. But it also has the worrying aspect that measured real GDP will often go up when interest rates rise. The reason: banks have traditionally used interest rate rises to improve margins by jacking up interest rates on loans by more than on deposits. This is clearly inflation, but the measurement of inflation-adjusted interest rate spreads are so difficult that under the ONS’s chosen methodology, it will be recorded as an increase in banking activity and productivity.
Or take lawyers. A survey in Legal Week recently found that law firms had increased their hourly rates by 6 to 10 per cent. That is inflation. But it will appear as increased output in the index of services, because data shortages force the ONS to adjust law firms’ turnover for inflation using an index of the wages of estate agents, among others. In other words, pay a lawyer 10 per cent more and Britain’s output and productivity rises. But pay a doctor 10 per cent more and it is inflation, because output in health services is measured by the amount doctors do.

I have no idea whether the real growth of business services is bigger or smaller than it appears in the national accounts. But I am sure it is not as it seems and, at 40 per cent of GDP, any errors in business services can paint a highly misleading picture of the economy. The ONS is aware of the problems and is working on improvements. We should give them enough money to do the job well. In the meantime, sensible people should not treat the national accounts as gospel. It is no wonder the Bank of England’s Monetary Policy Committee is increasingly falling out and its members form their views from impressionistic surveys of businesses as much as from the official data.

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Findings from business-to-business market research specialists B2B International show manufacturers and suppliers the importance of installers in the decision-making process of showers.

Knowledge is power in any market, but gathering this information can be difficult. This is especially so in building and construction, where distribution chains are extended and producers have little contact with the professions and trades who influence the final choice. Keeping ahead demands timely knowledge from opinion formers, such as the installers, who play a pivotal role in equipment choice.

To meet this information need for shower manufacturers, business research specialist, B2B International, runs a twice-yearly Shower Brand Preference Monitor. Showers are one of the most dynamic sectors in the plumbing industry and this survey canvases the opinions of 500 installers throughout the country. It has around 40 questions, some open ended and some nominated by manufacturers.

This monitor provides information on the UK shower market to help a shower manufacturer grow their business and is extremely useful to indicate where suppliers need a deeper understanding of market dynamics and to establish how trade and professional intermediaries influence product selection.

B2B director Matthew Harrison explains “In many branches of construction and industrial marketing, there are key trades and professionals who play a critical role in directing the choice of materials, fittings and components. Our research shows that installers (plumbers) are the key to the shower market, having three quarters of the influence on the brands of showers that are installed. In the two years that we have been running the survey, we have seen how brand preferences have moved and how new developments such as the emergence of digital showers have impacted on the market.”

The subscribers to the survey include the three leading UK brands, which account for around 75 percent of the market. The survey looks at all types of showers and provides feedback on the pivotal issues that affect the installers’ recommendations.

The shower market is highly fragmented (electric, standard mixer and power shower) but three brands continue to dominate – Mira is the installers’ favourite with Aqualisa and Triton as the next favourite brands. Reasons for choice of shower have changed since the previous Monitor in 2006 from recommendation, reliability and performance to good availability and aftersales.

Installers remain relatively positive about the future, with the move away from baths to showers seen as the key reason. Consumer preference for showers is attributed to current contracts and installer advertising, conservation of water, and home-owners spending more on their existing properties. The recommendations installers would make to improve showers would be ease of installation, better looking showers and price. Installers continue to receive most information about showers from merchants and less from trade journals and literature from manufacturers.

Research shows the typical profile of an installer: 77% are proprietors or partners in their businesses, a typical plumber is aged 45-54 with only 6% of plumbers aged below 35, 71% are CORGI registered, 85% of showers installed are for domestic properties, and typically they install 18 electric showers, 22 standard mixers and 8 integrated power showers per annum.

B2B believe the same panel can provide key data on other major plumbing decisions, such as boilers, fires and bathrooms. Matthew observes that such monitors can be useful for other areas of building and construction. “Wherever suppliers have a common need for deeper understanding of market dynamics and the detail behind the issues that direct product choice, monitors provide a means of tracking opinions and understanding the pivotal issues.”

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In the annual Superbrands survey, Microsoft has once again been voted the number one brand by consumers. The survey results are based on responses from 3,000 completed surveys with British consumers. The rest of the top five consists of Coca-Cola, Google, the BBC and BP.

Interestingly, the results differ quite significantly when we look at what media and marketing experts say – they rank Google as their number one Superbrand, followed by Apple, iPod, Mini and eBay.

Who do you think is right? And why is there such as difference between the two top-fives? Leave a comment below to have your say.

For more info on the article above click here.

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How Well Do Westerners Get Their Message Across?

It can therefore be seen that the means by which Westerners seek to communicate with potential Chinese customers leaves room for improvement. Perhaps more important is the question of the messages Western companies actually convey, and how well these correspond to what the target market wants to hear.

There are a number of messages that most Western companies communicate extremely effectively, and others where the correct message is not being heard. On the positive side, Western companies are seen as synonymous with high quality and professionalism, something which is exemplified not only in the products and services being bought, but throughout every aspect of the organisation. Conversely, Western companies are seen as inflexible in a number of ways, ranging from the product or service specification through to negotiations and procurement procedures.

High Quality Products and Professionalism

Most Chinese buyers start from the position that the offering will be high quality when they begin to evaluate a Western company, and that usually turns out to be the case. In other words, it would appear that Western companies are doing a good job overall in terms of meeting their clients’ product and service requirements. A typical comment by a Chinese buyer in our survey was as follows:

“We are discussing with British company, we feel its service is better and more normal than local providers.”

General professionalism is seen as a key distinguishing factor between Western and local Chinese companies. This manifests in many ways, ranging from the product itself, through to company literature, appearance and knowledge of staff, and paperwork. Many Chinese buyers and business owners describe Western companies as more systematic and organised than their Chinese counterparts:

“German companies are extremely polite, professional and systematic. The paperwork is always in order and the products are well made and durable. They work seriously with strict principles.”

Poor Ability To Listen

An inability to listen is a common criticism of Western companies amongst Chinese buyers. The importance of this cannot be overstated, and this relates partly to the need to show respect to any potential customer. Most importantly, only by studying customers’ requirements and how they evolve in China, can any company hope to engage with and meet the needs of Chinese companies.

In general, the process leading up to the sale of a product or service in Western markets is clearly structured (see Figure 7 below). It begins within a department inside the ‘customer’ company, where the need for a particular product or service is identified and then broadly scoped. This typically gives rise to the construction of a briefing document or ‘spec’, in which the broad requirement is more closely defined. Thirdly, potential suppliers are searched for, and the ‘spec’ discussed with or sent to a number of them. This may lead to some fine-tuning of the spec. Proposals are then prepared, there is sometimes a little more scoping and negotiating, and then the decision is made.

Figure 7 – Decision Making In The West

Within Chinese companies each stage of this process runs more or less concurrently. Typically, the initial contact with potential suppliers happens at a relatively early stage, when the definition of the customer’s need is still developing. It may not even be certain that the product or service in question is actually needed. The potential supplier therefore becomes a participant not only in the definition of how the need can be met, but also in the definition of the need itself. Briefing documents are rare, as are structured tender procedures. Indeed, there is a huge opportunity for the company that successfully assists the Chinese business in the definition of its need, in that there is a high likelihood that the same company will be asked to meet the need it has just defined.

Figure 8 – Decision Making In China

Of course, there are a number of unknowns. The Chinese buyer may well be speaking to a number of other potential suppliers, who will be defining the customer’s need in entirely different ways, meaning that the nature and extent of the ‘competition’ will remain something of a mystery.

The role of suppliers as definers of their potential customers’ needs is one reason for the longer sales process in China and other Asian markets. Almost by definition, the initial enquiry to the supplier is rather vague, meaning that a number of interactions between supplier and buyer will be necessary before it has even been decided what the customer requires. This in turn elevates further the importance of trust and an ability to establish a strong and trusting relationship with the potential customer. All of this means that the successful sales person will be the person who listens to and takes account of the client’s constantly evolving requirements, rather than the person who ‘dives in’ by specifying a solution and writing a proposal as soon as an enquiry has been received.

“Many Western companies don’t know our requirement; indeed they promote their product blindly. Of course, we want the machinery with comprehensive and precise function as much as possible. However, they always emphasise that their products are good looking. As for low prices, we care for it definitely, but quality is the most important for us”

Therefore, Western companies are prone not to communicating their message in the wrong way; rather they tend to make a far more basic mistake: they refuse to listen, and therefore communicate completely the wrong message.

Tendency Towards Exaggeration

Whilst the quality of Western companies’ marketing communications and the knowledge of their salespeople is seen as a real strength, there is a feeling amongst Chinese buyers that this can lead to a tendency to exaggerate the qualities of the company, product or service in question. This can damage trust, something which usually proves fatal to any attempt to sell to a Chinese business.

Chinese businesses are now experienced at dealing with Western companies, who have been contacting them as potential suppliers or customers for a number of years. This has led Chinese companies to look out for early signs of potential problems, and many are particularly wary of new entrants from the West whose infrastructure or product offering may not yet to be established in, or tailored to, the Chinese market. Chinese buyers are particularly adept at asking questions that get to the core of exactly what a supplier’s offering is, and equally good at picking up exaggeration, something which is seen as symptomatic of a new entrant desperate for a sale.

Unwillingness To Negotiate

Linked to Western companies’ perceived unwillingness or inability to listen is a similar ill disposition towards negotiation. This may well relate to the fact (already discussed) that definition of the customer’s needs and definition of how to meet those needs tend to happen concurrently rather sequentially in China. This can make Western companies feel unsure of exactly what they are negotiating about, something they tend to try to resolve by insisting on more structured negotiations.

Western companies are also prone to showing a sheer unwillingness (rather than inability) to negotiate, even walking away when ‘the going gets tough’, wrongly assuming that all differences are irreconcilable. This is absolutely the wrong approach in China, where negotiations are extensive and the opening price is almost never the price the customer ends up paying.

“Their attitude to working is active, but they always make the same mistake that our disagreement can’t be resolved in time, and walk away.”

Rigid purchasing procedures are a frequent complaint, as is a tendency for companies to regard certain issues as simply ‘out of bounds’ at the negotiating table. Payment terms is one example of this, but so, surprisingly, are many aspects of product or service specification. Too many Western companies are unwilling to make their offerings sufficiently bespoke to the Chinese market.

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Chinese Buyers’ Experience Of Western Companies

It is clear that Western companies are doing their utmost to market themselves to Chinese businesses. Over half of all companies included in our study state that they have been targeted by ‘20 or more’ Western businesses within the last year alone. 41% of companies maintain that they are targeted by Western companies at least as frequently as they are by Chinese companies. Whatever the views we arrive at in terms of the execution of Western marketing and sales campaigns in China, the determination of Western companies is beyond doubt. Chinese businesses are now being targeted on a large scale not only as low-cost suppliers, but for their burgeoning purchasing power.

Means Of Communication – How Well Do Western Businesses Perform?

It is true to say that the most effective way of targeting a potential customer is not necessarily the way in which that potential customer asks to be targeted. Nevertheless, it is informative to compare the approach of Western companies with the preference of the Chinese target market. If nothing else, a company that perceives a supplier to be approaching him in a suitable fashion is more likely to be well-disposed towards that supplier, particularly when it is a supplier that has not been used before. Figure 6 shows how Western selling approaches correspond to the main means of communication desired by the target Chinese audience.

Figure 6 – How Well Do Western Companies Choose Their Marketing & Sales Approaches In China?

Strong Communication Through New Media

When comparing the communications approach of Western companies with the preference of the target Chinese businesses, it can be seen that Westerners’ strengths and weaknesses fall into two distinct areas. On the positive side, Western companies are seen as excellent in terms of their ability to communicate through new media. The efforts made by Western companies to communicate in Chinese are recognised, and above all Westerners are seen as presenting themselves extremely professionally and clearly.

A typical remark made by a Chinese businessperson in our study was “Western companies are excellent at using their websites to tell you exactly what they offer, and how it can benefit you. They get straight to the point. Chinese companies tell you about their people and what industry they are in but don’t really tell you what they do.” This view of Western businesses (and Westerners in general) as being extremely direct is widespread in China, and often not seen as a positive characteristic. However, in written business communications, absolute clarity is a distinct benefit and one which Western companies are using to their advantage.

Weak Interpersonal Communication

Perhaps unsurprisingly, Westerners’ abilities are seen as lacking in terms of interpersonal contact. This manifests itself in a perceived unwillingness to attend events or visit the client’s workplace, or even to make phone calls (of course linguistic limitations are part of the reason for this). Good as Westerners’ written communication is, complementing this with verbal and particularly face-to-face interpersonal contact is essential. One of the most commonly mentioned and extreme differences between supplier-client contact in Western companies, in comparison with China, is Westerners’ tendency to think that ‘work is work’ and that it is therefore limited to the workplace. In China, relationship building and often negotiations take place not only during the working day, but also at a restaurant afterwards. Taking a business guest for a meal is a basic common courtesy. The comment below is typical:

“The British don’t understand Chinese culture. Their technology and quality check system is mature and comprehensive, and they are professional in their field and everything they do. They are polite, but that is not enough. We’d like to invite them to join our supper after finishing working, but they can’t understand and will go back to the hotel directly.”

A particular area where Westerners place insufficient emphasis on interpersonal contact is in recognising the importance of exhibitions and similar events. The prominence of these has been seen; however many Western companies see insufficient tangible benefit in attending. Western companies must understand that the right exhibition in the right location can be more valuable than almost any other aspect of the promotional mix.

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