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A detailed toolkit on Value Chain End-market Research, a crucial step in formulating a competitiveness strategy. It outlines the objectives, structure, and user profile of the toolkit, followed by guidelines and components of End-market Research. The toolkit includes various tools such as the Value Chain Waterfall Chart, Market Map, Trends Analysis, and Surveys, among others. Real-life case studies are also provided to illustrate the application of these tools. This resource is essential for Value Chain stakeholders seeking to identify the best market segments and understand customer needs to serve them better than competitors.
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END MARKET RESEARCH TOOLKIT
UPGRADING VALUE CHAIN COMPETITIVENESS
WITH INFORMED CHOICE
The author’s views expressed in this publication do not necessarily reflect the view of the United States Agency for International Development or the United States Government.
Table of Contents
Objectives 1 Structure 1 User Profile 1
Seven Guidelines for End-market Research 2 Why do we start with value chain End-market Research 3 Where does End-market Research fit within Value Chain development cycle? 3 Traditional market research versus value chain End-market Research 4 What timeframe can End-market Research be conducted in? 4 Components of End-market Research 5 Phase I & Phase II: Secondary and Primary End-market Research 5 The Six Cs 6
Dried Fruits & Nuts value chain in Afghanistan 8
Diamond of Competitive Advantage 14 Five Forces Analysis 16 Value Chain Waterfall Chart 18 CHANNELS 21 Market Map 22 Seasonality Analysis 24 CUSTOMERS 27 Boston Consulting Group Matrix - Importers (Customers) 28 Trends Analysis 30 COMPETITION 33 Boston Consulting Group Matrix - Exporters (Competition) 34 CHOICES ......... 37 Shaded Grid Analysis 38 COMMUNICATIONS 41 Double Loop Learning 42
HOW TO USE THIS TOOLKIT
Objectives of the Toolkit
This toolkit informs implementers on the process and value of End-market Research efforts for Value Chain development, provides a portfolio of tools, and grounds these tools through case studies of their practical application.
Structure of the Toolkit
To give practitioners a solid but manageable intellectual base to understand the different components of market research and their importance to the process, the toolkit is structured into two broad sections in line with common practices in market research: Phase I: Secondary End-market Research , and Phase II: Primary End-market Research.
The actual analysis to facilitate decision- making is structured around Six Cs (Choice, Context, Channels, Customers, Competitors, and Communication.) Linear progression through the Two Phases and Six Cs provides a clear roadmap for designing and implementing an effective and efficient End-market Research effort.
To provide context and texture to the End-market Research tools in this toolkit, the Afghan Dried Fruits & Nuts sector is used as a Case Study to ground the analysis and show how the various tools were used to inform a comprehensive Value Chain upgrading strategy.
The toolkit provides additional Guidelines to assist when implementing selected Phase I and Phase II tools. These include a Question Guide to one of the Phase I tools , and Guidelines for designing surveys, conducting interviews and conducting focus groups to support Phase II.
User Profile for the Toolkit
The toolkit is targeted at USAID CTOs who are managing Value Chain development projects, USAID imple- menting partners, in-country consulting or market research firms, and independent consultants.
END-MARKET RESEARCH
Seven guidelines for End-market Research
The success of private firms is only the beginning of successful Value Chain development. Successful Value Chain development involves the creation of a vibrant Value Chain where all stakeholders are focused on the needs of the market and create collaborative business models that promote equitable growth. Achieving this vision of broad-based economic growth is the ultimate goal of Value Chain development. End-market Research should be the first step in designing a competitiveness strategy that creates a roadmap for identifying and serving the best customers in the world for the products and services that developing country value chains are able to sell.
Before implementing an End-market Research effort, practitioners should keep the following guidelines in mind:
The Primary End-market Research should be used as a foundation for the Competitiveness Strategy to upgrade the Value Chain to build products and services for which clearly defined customer segments will pay premium prices.
In the case where End-market Research is done as a standalone engagement for a particular Value Chain, the two phases would be sequential. Phase I: Secondary End-market Research would serve as a generally low cost and relatively easy way to gather readily available data on the Value Chain. This data would serve as a foundation for developing a full research plan and the specific tools required by Phase II: Primary End-market Research.
Traditional market research versus Value Chain End-market Research
An understanding of customer needs as the basis for corporate strategy has been best practice for decades. The use of End-market Research for Value Chain strategy is less common and its goals diverge slightly from firm specific studies.
1. Prosperity versus profits: Value chain market research fosters prosperity maximization (equitable business models), while corporate market research fosters profit maximization (shareholder value). 2. Barriers to growth versus entry: Value chain market research is about identifying barriers to growth that all stakeholders would generally agree should be addressed, while corporate market research is about identifying strategic barriers to entry for competitors that should be strengthened and exploited. 3. Channels versus end consumers: Value chain market research is often more about “customer research” across the entire Value Chain whereas corporate market research is often more about “end consumer research” of the particular buyers of that company’s products. This distinction between the end users of a product versus a broader look at all of the channel partners (intermediaries) between core Value Chain clients and the end consumer has important implications for the objectives and design of Value Chain End-market Research engagements.
What timeframe can End-market Research be conducted in?
A thorough market analysis for a Value Chain can take up to three months of dedicated effort.
This timeframe assumes three conditions are in place:
Alternatively, an overarching, high-level understanding of how global markets for a Value Chain’s products and services operate and where attractive customers may be located can be reached in a matter of weeks.
Components of End-market Research
In line with common practices in market research, research can be divided into: Phase I: Secondary End-market Research , and Phase II: Primary End-market Research.
Phase I & Phase II: Secondary and Primary End-market Research
Phase 1 Phase 2
Secondary Research
Primary Research
- Phase I: Secondary End-market Research is comprised mainly of reviews of relatively low-cost and accessible secondary market research with the goal of identifying target customer segments where Value Chain clients should focus their sales and marketing efforts. - Phase II: Primary End-market Research is dominated by higher cost, but absolutely critical primary market research that invests in understanding the needs of these customers and how to serve their needs better than competitors.
Goal: Identify target customer segments where Value Chain clients focus their sales and marketing efforts.
Phase I: Secondary research methods:
1. Collect secondary data (via reports and databases, supplemented by interviews with local stakeholders and international industry experts) 2. Populate general strategic frameworks (e.g. Porter’s Five Forces or a modified version of the Boston Consulting Group matrix) 3. Synthesize and analyze data (work from a common and shared understanding of current strategic position) 4. Make informed choices about which customer segments are most interesting to study in the Phase II primary research efforts.
The Six Cs of Effective End-market Research
- Competitors: Once the selected customer segments have been analyzed, it becomes important to understand the firms and countries with which the Value Chain is competing for market share. Competitor understanding is important for two reasons: 1) to benchmark performance and 2) to predict the competitors’ response to strategic moves into the markets they serve. - Choices: Strategy is often defined as deciding what NOT to do—it is the decision to focus both risk and effort in the hope of greater reward. The overarching goal of looking at the four Cs above should be to gather the minimum amount of information required to make informed choices about which markets or segments to serve. Market researchers love data and will often gather as much of it as possible with no regards for its ultimate utility as an input into the strategy formulation process. As strategists,Value Chain practitioners need to identify what is needed to prove or disprove something so that a decision can be made (the burden-of-proof) and then decide how to get that information. - Communication: Good strategy has two components: informed choice and timely actions. The informed choice comes from the five Cs above. A critical driver of timely action in the form of new investments and/or behavior on the part of Value Chain stakeholders is the ability of a facilitator to effectively communicate with and involve these stakeholders in the design and sometimes implementa- tion of the research process. Activities in this category can range from testing survey questions with key partners to structuring trade fair attendance to learn about potential competitors and customers through one-on-one contact with the market. Effective industry facilitation and participation ensure that market research is appropriate and that the research is not left “gathering dust on a shelf” after it is completed.
CASE STUDY
This case study walks through the process that the On The Frontier (OTF) Group used in collaboration with its Value Chain clients to identify high-potential market segments, define the needs of these segments, and facilitate the process by which the Afghan Dried Fruits & Nuts value chain transformed this data into insight and action. Moving beyond Afghanistan, this approach can be used in almost any environment to create a Value Chain upgrading strategy that is based on data and insight, not hearsay and anecdotes. This Case Study is referred to throughout the Toolkit, providing practical examples of how the various Tools were used in Afghanistan.
Dried Fruits & Nuts value chain in Afghanistan
When the On The Frontier (OTF) team met Haji Hassan in 2004, he was typical of the Afghanistan Competitiveness Project’s^1 (ACP) core private-sector clients in the Dried Fruits & Nuts value chain. In business for decades and well respected in the business community, he procured dried fruits and nuts from individual farmers or community groups. Processing was done by hand, mainly by women in a small dusty compound in the old market district of Kabul. For sales and marketing, he had a handful of Pakistani and Indian middlemen to whom he sold his product. Although he was unclear on exactly how his product made the journey from Kabul to the end consumer, he did know that the Indian market highly appreciated his (and all Afghan) dried fruits and nuts. Like all good businessmen, he was always looking for new and attractive markets and customers. One market that he knew from the pre-Soviet era was the UK market (the UK was once a strong trading partner of Afghanistan)—but this was a market from which the Afghan business community had been cut off for decades.
Haji Hassan and the hundreds of other exporters are a critical link between the important domestic Dried Fruits & Nuts value chain in Afghanistan and potentially lucrative export markets. Dried fruits and nuts are big business and a passion in Afghanistan. In 2006, they accounted for approximately 25 percent of total non-opium exports, and nearly two-thirds of all production was consumed by Afghans domestically. This “sophisticated local demand” ultimately benefits the industry by putting pressure on sellers to maintain and improve quality and by creating a short-feedback loop whereby sellers have direct insight into the preferences of the actual consumer.
Hundreds of thousands of Afghans are employed in the sector and nearly all Afghans allocate a part of their land to horticulture products that comprise this Value Chain. Many dried fruits and nuts products have the potential to produce higher cash flow per hectare than opium for producers.^2 The opportunity to divert land from this debilitating crop to legitimate high-value production is one that could not be ignored. One key constraint to this replacement strategy was time; opium can be planted and harvested in one year, even multiple times, while most of the potential dried fruits and nuts products took at least three years to come into production. This tension necessitated that the market research conducted as part of the Value Chain upgrading strategy identify short- and long-term strategies for success to provide viable, licit options to opium cultivation.
1 The USAID-funded Afghanistan Competitiveness Project (ACP) was a two-year mutli-Value Chain project implemented by the On the Frontier (OTF) Group from 2004 to 2006. The project developed strategies for three export sectors (carpets, dried fruits & nuts and marble), and two cross-cutting sectors (finance and trade facilitation), and established a national competitiveness council. 2 At historical prices (1990 – 2000), opium only earned $320 / hectare. In 2003 and 2004, record opium prices pushed per hectare earnings to $14,100. Most analysts believe that prices would drop back closer to historical levels. To put this in context, a hectare of grapes / raisins could earn $3,840 assuming proper marketing and sales of the product. (Source: Altai Consulting Horticulture and Feasibility Plans, Summer 2004, UNDP.)
END MARKET RESEARCH TOOLS
This section provides a concise introduction to some of the key tools that can be used in Value Chain analysis. The tables are designed to provide a quick reference list to the material that follows, which are discussed in more detail and with references to specific case study examples.
Phase I: SECONDARY End-market Research Tool Context Customers Channels Competition Choices Communications
Phase I:
Secondary End-market Research
This section both describes appropriate tools to use and how they were applied in the case of the Afghan Dried Fruits & Nuts value chain strategy development process.
Goal:
An in-depth End-market Research effort can take months to complete. However, there are many situations where a preliminary assessment of market opportunities must be made in a much shorter timeframe to accommodate project or budget constraints. In addition, a rapid assessment, such as the one described in this section, can be used as part of a sector selection exercise for a larger Value Chain effort.
General Steps:
CONTEXT
Given the focus here on the end-market component of research, this section focuses on a few key frameworks that provide insights into the current competitiveness of an industry and potential for long-term growth.
Although End-market Research is focused on understanding markets, practitioners must have a basic understanding of challenges facing the non End-market actors in the Value Chain.
An audit of stakeholders in a Value Chain and its operating environment are not part of an End-market Research effort, but they do provide a valuable frame of reference for practitioners to ensure that recommendations fit the capabilities of the Value Chain. In addition, this basic understanding of firms in the Value Chain builds credibility with industry stakeholders during all phases of the research.
Phase I: Secondary End-market Research Tools
Phase I: SECONDARY End-market Research Tool Context Customers Channels Competition Choices Communications
Phase I: SECONDARY End-market Research Tool Context Customers Channels Competition Choices Communications
Diamond of Competitive Advantage
END-MARKET RESEARCH TOOL
Michael Porter’s Diamond of Competitive Advantage is an excellent way to gain a quick strategic view on the status of an industry.
The Diamond of Competitive Advantage recognizes that companies achieve international success through new technologies or finding better ways of doing things. Ultimately, their success is due to a strong, dynamic, and forward-looking domestic environment. There are four determinants of international competitiveness:
1. Factor Conditions : The natural resources, human capital, infrastructure, capital, and other attributes of a society that provide a competitive advantage. 2. Demand Conditions : Strong domestic competition spurs innovation by forcing companies to identify early buying habits and how to meet changing needs. This increases substantially when domestic trends are pushing international habits. 3. Related and Supporting Industries (Cluster) : Other local, key industries provide easier communication that often spurs innovation. 4. Firm Strategy, Structure, and Rivalry : “Nations tend to be competitive in activities that people admire or depend on – the activities from which the nation’s heroes emerge.” Additionally, strong local rivals provide a stimulus for creating a sustainable competitive advantage.
The four components of the diamond can be used to analyze the current domestic industry and identify areas of relative strength and weakness relative to similar industries in other countries. Each section of the diamond works as a system and reinforces the inputs from the other attributes. When researching each topic, both positive and negative interactions between the different components should be noted. These may serve as the foundation from which to begin building up a competitive industry. This type of analysis can be done in a few days, but provides excellent insight and a compre- hensive view of the strengths and weaknesses of any Value Chain.
“The Competitive Advantage of Nations”. Michael E. Porter, Harvard Business Review, March/April
