188.8.131.52. Engaging End Market Buyers
The end-market buyers who provide valuable input for developing a value chain’s competitiveness strategy may not be its most suitable clients. When conducting market research, for example, it is important to refrain from filtering out those deemed inappropriate as prospective clients. While a discount retailer may not seem the ideal customer for a particular producer group, its buyers likely possess uncommon knowledge about promising niche markets or competitive threats that can significantly impact the outcome of a project. Informants of all types can play an important role in confirming and updating secondary research, localizing trend information, explaining requirements, and providing referrals, including to often unseen actors such as merchandising assistants and specialized intermediaries.
Identifying the right prospective customers for a value chain is more challenging, requiring industry experience in the target market and an in-depth assessment of the products and supply chain. Guided by a strategy for improved competitiveness, success typically depends on matching the value proposition (unique set of benefits on offer) of a supplier with the requirements of prospective buyers in terms of design, quality, price, quantity, delivery, etc. A discount retailer may pay a higher price than a high-end wholesaler by virtue of having eliminated layers of middlemen. However, disinterest in visiting a supplier’s country (or proxy location if safety is a concern), delayed responses, and a singular fixation on low prices to the exclusion of other attributes often signify a poor match. Arduous contract terms or a track record of penalties and delayed payments can also be red flags.
As a prospective customer, the ideal end-market buyer exhibits the following attributes:
- Comprehensive knowledge of the marketplace and pertinent opportunities and threats
- Proven ability to sell the product or service offered by a value chain
- Insights on the strengths and weaknesses of a particular product or service, and the value chain that brings it to market
- Demand and supply are well matched in terms of design, quality, price, quantity, delivery, packaging, communications, etc.
- Experience working with suppliers with similar constraints
- History of developing long-term commercial relationships
- A degree of flexibility and understanding without being lenient and overly sympathetic
- Clarity in level of investment and embedded services offered
- Financial and human resources to meet commitments, and authority to make those commitments
- Genuine interest in the country of origin, distinctive aspects of a product or service, and the people involved
- Intellectual curiosity about the objectives and approach of a value chain development project
- Responsiveness to clear, uncomplicated specifications and delivery requirements without onerous penalties
Finding end-market buyers that exhibit a majority of these attributes is notably a challenge. But this list can serve as a starting point for identifying those that are best suited as prospective customers of a value chain. And as with any enterprise, it is important to reduce risk by engaging multiple clients. Tangible results from investments and gains made by a value chain should not rest on the success or failure of any a single relationship.
There are a number of approaches to engaging end-market buyers. Much depends on the industry, location (trade fair, country visit, email/website, catalog, etc.) and type of request (market information, product feedback, purchase order). Not surprisingly, the simplest approach is to rely on pre-existing relationships. However, this tact not only limits who can initiate and maintain contact, but also risks an incomplete and misleading picture of the marketplace, or neglects prospective customers that may be a more suitable match.
Given that successful buyers are often inundated with requests, the key to eliciting a response is standing out from the crowd. What makes a request relevant and interesting for a buyer? How might the buyer gain from responding? Experience suggests that many end-market buyers initially welcome the opportunity to contribute to a good cause and willingly share their knowledge with development practitioners, especially if the time commitment is reasonable, communicated in advance, and adaptable to their schedules.
Beyond sharing knowledge, buyers for large companies tend to be less responsive to the suggestion of a potential commercial relationship, whereas smaller firms are more likely to view a request for their input as a possible business opportunity. Buyers for smaller firms are also more likely to respond to financial incentives, such as a subsidized trip to meet producers (in the tourism industry free travel is standard fare for engaging agents and operators). In all cases, thorough research and preparation is essential for piquing a buyer’s interest and extracting high value information. Familiarity with the marketplace, global trends and a buyer’s specific business helps avoid squandering time on topics considered common knowledge within the sector.
Progressing beyond an initial survey, interview or country visit entails identifying legitimate value for a buyer’s business. Since companies focus their time and resources where there is a potential for profit, practitioners are increasingly employing a commercial approach to engaging end-market buyers. What will bring them to the table in a way that supports an industry’s strategy for long-term competitiveness? An important lesson learned is to avoid appealing for compassion and generosity, an approach that more often leads to a one-time “sympathy purchase” than a test order with intent to build a new relationship.
The challenges to conducting business where development projects typically operate include organizing production, communicating specifications, meeting quality requirements, access to financing, reliable delivery, sufficient responsiveness, protecting intellectual rights, and navigating local regulations. Technical assistance to upgrade the skills and capacity of value chain actors has proven effective at reducing many of the barriers that quickly fatigue buyers, particularly those accustomed to highly proficient supply chains. Without such technical assistance, however, most buyers are unwilling to enter into relationships when such challenges exist. While many will consider an opportunity if a reasonable return on investment can be demonstrated, few are interested in a proposition where the financial risks outweigh potential rewards. Success often depends on helping to mitigate those risks.
Managing expectations on both sides is also crucial. The horizon for establishing a viable relationship is usually expressed in years, not months. While the swift completion of small transactions can help build trust on both sides and provide incentive for greater commitments, obtaining sizeable, recurring orders typically requires time and patience. It is not uncommon to find a buyer taking several years to fully engage a supplier after countless exchanges, or a value chain needing several years of upgrades to become sufficiently reliable and competitive. Such extended time-frames are encountered by producers in developed economies as well.
The foundation of enduring commercial relationships is profitability for all partners. Given the nature of global competition, this translates into the need for continuous improvements in design, quality, efficiency and service. In addition to competitive pricing and reliable delivery, the marketplace demands constant innovation – a key part of any strategy for competitiveness. For many value chains, particularly those based on small enterprises, this is perhaps the most difficult aspect of sustaining buyer engagement. Identifying and integrating trends in distant markets, generating new ideas, producing and shipping numerous samples, accepting that few designs will go into production – these challenges are far easier for larger companies to confront. In many industries, building the capacity of MSMEs to similarly innovate is essential to sustaining buyer interest.
Experience also underscores the importance of hassle-free transactions. The basic tenets of good business apply equally to all sources of products and services: respond promptly to inquiries, communicate problems early, promise only what can be delivered, meet your obligations, be honest, and whenever possible, exceed expectations. In today’s international markets, suppliers also need to be able to communicate effectively online (email, files, images, etc.) in the language of a buyer. Globalization has intensified competition in the marketplace, but more often than not, a reliable partner still trumps a modest reduction in price. It also helps to offer one-stop capability that includes high quality labeling and packaging – a service that has contributed to China’s manufacturing success.
Thus projects can greatly impact the durability of new market linkages by promoting good business practices and inter-firm cooperation throughout a value chain, as well as government policies that reduce barriers to trade. Most importantly, practitioners emphasize the need for a clear exit strategy that leaves behind a well functioning value chain. The dependency of one or more key actors on external support can place an entire network of linkages at risk.
Needless to say, not all buyers are equal. Where one might steer a value chain toward an opportunity that is mutually rewarding, another can unintentionally lead it down a path of increasing competition and dwindling profit margins. Information and advice from any single source requires verification through additional research. Ideally, the viewpoints of both demand- and supply-side actors, as well as industry experts, are obtained through a comprehensive value chain analysis, from which emerge optimal market positioning and a strategy for achieving and sustaining competitiveness.
More than arduous payment and delivery terms, or exceedingly complex specifications, the action deemed most detrimental to value chain development is a broken promise. End-market buyers who renege on commitments to purchase or provide assistance not only disrupt project plans, but also weaken stakeholder buy-in. By working with multiple buyers in multiple market channels, and performing due diligence prior to engagement, projects can diminish the occurrence and impact of failed linkages.To read about the role of public-private partnerships in value chain development and poverty alleviation, click here.