Procurement Market Research — Explained + Examples

What is Market Research in Procurement?

Market research in procurement is the process of gathering, analyzing, and interpreting data to understand the market condition, supplier capabilities, and industry trends relevant to procurement activities.

Unlike general market research, which focuses on consumer behavior and industry trends, procurement market research focuses on identifying reliable suppliers, evaluating product and service quality, and assessing pricing structures to support informed decision-making in the procurement process.

The primary objective of procurement market research is to ensure that organizations have access to high-quality goods and services while minimizing risks and optimizing costs.

That is why data from a variety of sources, such as supplier databases, industrial reports, trade periodicals, and online and in-person communication with suppliers, are collected within the framework of procurement market research.

Subsequently, this information is analyzed and applied to develop a procurement strategy and selection process for suppliers.

Market research on procurement plays a critical role in the decision-making process. It enables organizations to anticipate supply chain challenges, improve supplier negotiations, and enhance overall procurement efficiency.

As a fundamental step in the procurement cycle. this research ensures that sourcing strategies are data-driven, cost-effective, and aligned with business objectives. 

Types of Market Research

Below are different types of market research:

1. Market Segmentation

It means that factors such as needs, wants or preferences are used to divide the market into smaller sections. It is more convenient to target certain products and services in order to satisfy these needs once this has been done.

For example, during my time as a procurement manager, I had to segment the market for office supplies to optimize our supplier strategy. After analyzing internal purchase patterns, I identified three distinct groups within our company: administrative staff, IT personnel, and remote workers. 

The administrative staff primarily needed standard office supplies such as pens, notebooks, and staplers, while the IT department required specialized accessories like ergonomic keyboards and docking stations. On the other hand, remote workers, preferred portable and wireless equipment, including noise-canceling headsets and compact desks. 

By segmenting the market this way, I was able to negotiate bulk purchase agreements tailored to each group’s specific needs, ultimately reducing procurement costs by 15% while improving employee satisfaction. 

2. Market Sizing

This is used to determine the size and potential market for a particular product or service. To that end, it may be carried out by looking at similar products or services from the past and taking a valuation of how much sales they have made, and using this figure as their current share in the market.

I remember when our company considered launching a new line of eco-friendly packaging materials, I was responsible for determining the market size. To estimate the potential demand, I analyzed past sales data for similar sustainable products, benchmarked competitors’ market shares, and reviewed industry reports predicting a 20% annual growth in sustainable packaging. Additionally, I assessed government regulations encouraging eco-friendly alternatives, which further supported market expansion. 

Based on this research, I projected a $50 million potential market within five years. This analysis helped leadership make an informed decision to invest in product development and prioritize sustainability in our procurement strategy. 

3. Market Forecast

This indicates what is going to happen in a given industry or sector. It’s how they determine the demand for products or services, which ones are falling out of favor.

A good example of this would be: When I was at Ahold, I had to conduct a market forecast to assess the impact of inflation on grocery prices and consumer behavior. Rising food costs and supply chain disruptions were causing shifts in purchasing trends, and we needed to anticipate changes in customer demand. By analyzing historical pricing data, supplier cost projections, and economic indicators, I identified that price-sensitive customers were shifting towards private-label products instead of branded items. 

Additionally, demand for bulk and frozen goods was increasing as shoppers looked for ways to stretch their grocery budgets. My forecast projected a 10% rise in private-label sales over the next year, which led us to prioritize supplier negotiations for cost-effective sourcing and adjust inventory levels accordingly. This proactive approach helped Ahold maintain strong profit margins while meeting evolving consumer needs. 

4. SWOT Analysis

The purpose is to analyze strengths, weaknesses, possibilities, and threats faced by a company or organization. It will allow the organization to plan for future growth and development more accurately when it understands these factors.

For instance, while evaluating a new logistics supplier, I conducted a SWOT analysis to assess potential risks and benefits.  One of the supplier’s key strengths was its extensive distribution network and advanced tracking technology, which would improve our shipment visibility. However, their high initial costs and limited experience in handling fragile goods presented significant weaknesses. 

On the opportunity side, the rise in e-commerce demand meant an increased need for reliable logistics partners and the supplier’s investment in automation had the potential to drive long-term cost savings, Nonetheless, rising fuel prices and competition from larger logistics firms posed threats to their pricing stability and market position. 

Based on this analysis, I recommended negotiating better pricing terms and implementing strict quality control measures before finalizing the contract, ensuring we maximized benefits while minimizing risks. 

Pro Tip: Don’t treat market research as a one-time box to check—make it a living part of your procurement strategy. Market segmentation, sizing, forecasting, and SWOT aren’t just buzzwords; they’re your GPS in a shifting supplier landscape.

⭢ In our Annual Procurement Strategy Course, we show you how to turn research into action—so you’re not just reacting to the market, you’re shaping your position in it.

How to Conduct Market Research?

In the area of procurement, there are a number of ways in which market research is carried out. Surveying, measuring market shares, and analyzing competitors’ pricing are some of the methods used. To collect information on customers’ needs, preferences, and purchasing behavior, surveys may be used.

A percentage of a particular type of product or service that is bought by one company or organization can be used to determine market share. To identify how many competitors charge for similar services or products, a comparison pricing analysis can be carried out.

When to Conduct Market Research?

Generally, an organization will carry out market research where the product or service has a high level of expenditure, is exposed to fluctuations in availability or costs as a result of volatility in the markets, which would require large-scale procurements, involve unknown risks, and are crucial for the performance of the organization.

A sufficient resource should be made available and an appropriate level of market analysis, which corresponds with the risk, complexity, and cost of procurement, shall be carried out by the organization.

For products or services that are more readily available but involve significant expenditure, less extensive analysis may be carried out. In the case of products and services that can be easily obtained and are relatively low in costs or risks, an organization usually does not need to carry out an analysis.

Goals of Market Research

Finding potentially profitable supply sources that can satisfy an organization’s business needs is one of the objectives of market research. These resources enable a procurement professional to evaluate different products and services, in order to guide the design of competitive bids which are not biased against one source or that do not limit the number of possible participants who may be able to meet agency requirements.

A procurement professional should conduct market research with the goal of assessing market factors, cost, and risk that impacts procurement strategies and processes. These goals are important to know how to start and where to focus your market research.

Here are other goals of market research:

• Identify a variety of suitable suppliers to obtain a product or service.
• Analyze the organization’s spending patterns in order to assess current and future demands and expenditures.
• Mitigate risks
• Formulate an objective process for decision making
• Identify gaps in pre-existing contracts
• Gather information for the development of a procurement strategy.

Once these goals are understood, the procurement professional, either individually or in collaboration with a procurement team, shall start the process of market research with a focus aligned with the goals.

In starting the market research, a few factors should be considered such as:

• What is the budget?
• What is the target product or service?
• Who are the major suppliers of the product or service?
• How do competitors contract for the products or services?
• How do partners contract for the products or services?
• How much did other organizations spend in procuring such products and services similar to the scope of your target?

Importance of Procurement Market Research

Market research can provide a number of benefits to your organization that make it one of the most important phases in the procurement process.

Here are a few key benefits that come along with market research:

1. Supplier Identification

Supplier identification is about identifying potential suppliers in the market who can meet the organization’s specific requirements and standards.

2. Supplier Evaluation

This is where the evaluation of the potential suppliers on a range of criteria, including product quality, prices, reputation, past performance, financial stability, and capacity to meet demand takes place.

3. Cost Analysis

The purpose of cost analysis is to determine which options are most cost-efficient. To conduct this, an analysis shall be carried out of the cost structure and prices of products and services provided by various suppliers.

4. Market Trends

Monitoring market trends, supply and demand, and industry developments is beneficial as it impacts procurement decisions.

5. Product and Service

This allows procurement managers to identify the best products and services in line with an organization’s needs as well as quality standards.

6. Risk assessments

Identifies potential risks associated with suppliers, such as disruptions in the supply chain, financial instability, or compliance issues, as well as ensuring that suppliers meet legal and regulatory requirements.

Conclusion

Market research plays a pivotal role in shaping the procurement process. Procurement professionals must understand the nuances of procurement market research, focusing on specific goals to optimize decision-making.

The process involves various types of research methods, including segmentation, sizing, forecasting, and SWOT analysis.

The importance of market research is highlighted through its ability to identify suppliers, evaluate costs, monitor trends, and assess risks, contributing significantly to the success of procurement strategies.

I have created a free-to-download editable procurement strategy template. It’s a PowerPoint file that can help you when conducting market research in procurement. I even created a video where I’ll explain how you can use this template.