2.1. End Markets


End markets are the starting point of value chain analysis. End markets are people, not a location. They determine the characteristics—including price, quality, quantity and timing—of a successful product or service.

Review basic information on end markets.

End-Market Analysis

Depending on the complexity of the value chain, a thorough market analysis can take up to three months of dedicated effort, but a high-level understanding of how global markets for a product or service operate and where attractive customers may be located can often be reached in a matter of weeks. In line with common practices in market research, end-market analysis can be divided into two broad categories—Phase 1 and Phase 2.

Phase 1 comprises mainly 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 2 is dominated by higher-cost, but critical primary market research (e.g., interviews and focus groups) that invests in understanding the needs of these customers and how to serve their needs better than competitors.

See detailed instructions for how to conduct an end-market analysis.

Risks Associated with Lack of End-Market Intelligence

Market intelligence is the process of gathering, analyzing, conveying and utilizing information (quantitative and qualitative) about a particular market. The aim is to assess opportunities and constraints with regard to buyers, competitors, suppliers, service providers, market trends, and regulatory environments – all elements relevant to making business decisions.

For an individual business, a lack of intelligence about a target end market translates into a higher risk of failure. If a trend emerges that makes a current product design obsolete, lack of awareness of this market shift can lead to inventory surplus, falling margins and misplaced investments in production. Similarly, value chains (and entire industries) need the capacity to develop market intelligence on a regular basis. Often a single actor plays this role, identifying opportunities and making decisions that impact other actors in the same value chain. Ideally, however, multiple actors possess the resources, skills and access to information needed to develop reliable, actionable end-market intelligence. This reduces the risks associated with depending on the decision-making expertise of any single entity.

Thus, market intelligence is essential to maintaining market orientation (understanding what buyers want) and minimizing investment risks. A lack of end-market intelligence can lead to a failure to recognize:

  • evolving buyer preferences
  • emerging and fading trends
  • new threats and opportunities
  • potential competitive advantages to exploit and disadvantages to address
  • key areas requiring investments in upgrading
  • expanding and contracting markets for a particular product or service
  • rising niche markets requiring improved market positioning
  • shifts in messaging (marketing approaches that currently resonate with buyers)
  • changes in a target market’s regulatory environment (e.g., tariff schedules, banned materials)

End Markets in Value Chain Analysis

Projects often focus on supply-side actors (producers, input suppliers, exporters, service providers, etc.). End markets may be researched in the early phases, but as implementation proceeds and investments are made, tracking changes in the marketplace becomes challenging. Markets closer to the target beneficiaries are engaged, but distant markets at the apex of a value chain may be reexamined only intermittently as resources allow. Yet end markets should be under constant scrutiny. Opportunities and threats can quickly shift as new trends emerge, end-market buyers alter direction, and the competitive landscape relentlessly evolves.

Similarly, value chain analyses often focus on supply-side constraints. This can result in a failure to identify key emerging opportunities and threats that are often only visible from the perspective of the end market. While it is essential to start with an understanding of a value chain’s characteristics (products, raw materials, skill sets, recent transactions, target markets, principal actors, major constraints, etc.), a comprehensive analysis ideally begins with an end-market study that informs the chain analysis, which in turn guides further research of end markets. It is a dynamic and iterative process that seeks to create a complete picture of a value chain’s strengths, weaknesses, opportunities and threats (known as a SWOT analysis). This comprehensive assessment helps determine current and optimal market positioning which forms the basis of a competitiveness strategy.

More specifically, an end-market study should identify the market’s perspective on the following attributes of a value chain, which then can be confirmed and expanded upon by an equally robust chain analysis:

  • Strengths: resources and capabilities that form a basis for developing a value chain’s competitive advantages, such as access to a rare raw material, proximity to a marketplace, or unique skill set.
  • Weaknesses: the absence of key resources and/or capabilities that give competitors an advantage over a value chain, such as high labor costs, limited production capacity, or remote location.
  • Opportunities: elements external to the value chain that represent potential opportunities for profit and growth, such as a competitor’s demise, advantageous legislation, or an emerging trend in an end market.
  • Threats: elements external to the value chain that represent a threat to profits and growth, such as the rise of a competing value chain, increase in freight costs, or buyer’s shift to more local sourcing.
  • Priorities: which strengths, weaknesses, opportunities and threats are viewed as priorities by the marketplace, based on a global perspective of future supply and demand. Prioritizing where and how a value chain invests in upgrading is a crucial step in developing a competitiveness strategy.

Recommended Good Practices and Lessons from the Field

The following recommended good practices are drawn in part from the reference sources listed below:

  • Facilitate linkages to specific market segments rather than general end markets. This requires identifying and enhancing a value chain’s competitive advantages, positioning its products/services in the marketplace to leverage those advantages, and possessing sufficient market knowledge to successfully target prospective buyers.
  • Thoroughly explore all existing and potential local, national, regional and global end markets to determine which offer the greatest opportunities and risks for each value chain actor. An evaluation is based on multiple factors that may include proximity, profitability, production volume and regularity of orders, competition, quantity of prospective buyers, flexibility with terms and specifications, required investments, durability of relationships, available embedded services, language and culture, or a market specific segment that matches a value chain’s competitive advantages.
  • Local, national and regional end markets are often more accessible and less demanding than global markets. Practitioners have noted that building capacity to meet the requirements of these markets can lead to the upgrading necessary to enter more sophisticated global markets.
  • Engage end-market buyers throughout the development program cycle, from value chain selection and analysis to strategy, implementation and impact assessment.
  • Target multiple buyers in multiple end markets; reliance on too few linkages significantly increases risk of failure. Tangible results from investments and gains made by a value chain should not rest on the success or failure of any a single relationship. If a single buyer dominates production capacity, value chain actors should seek ways to maintain other customer relationships as well.
  • Encourage value chain analysis as an iterative process whereby the end-market study and chain analysis inform one another. The value chain analysis will be strengthened by a more comprehensive and better-prioritized list of opportunities and constraints, and the result will be a more focused competitiveness strategy.
  • A comprehensive end-market study should seek to tap the input of a variety of end-market buyers, sales agents and other industry experts. Identifying the key strengths, weaknesses, opportunities and threats of a particular value chain is often a matter of perspective and opinion based on individual experience. It is also very dependent on how current one’s information is. Building a consensus across a diverse group of end-market informants is a necessary and critical step in facilitating value chain development.
  • When conducting market research, refrain from filtering out those deemed inappropriate as prospective clients. The end-market buyers who provide valuable input for developing a value chain’s competitiveness strategy may not be its most suitable clients.
  • In an end-market study, guide interviewees to identify and prioritize the strengths, weaknesses, opportunities and threats related to a particular value chain, or in the absence of familiarity with that value chain, to an industry and its potential end markets. Also, seek to obtain an overview of relevant trends.
  • Carefully weigh the combined perspective of end-market buyers against that of supply-side actors, who may be less aware of emerging opportunities and shifts in the competitive landscape, and thus can unknowingly lead a value chain astray.
  • Use multiple tactics to reach end-market buyers. Relying on pre-existing relationships to identify and engage end-market buyers not only limits who in a value chain can initiate contact, but also risks an incomplete and misleading picture of the marketplace, or neglects prospective customers that may be a more suitable match.
  • Requests of end-market buyers should focus on what is relevant and appealing them, and how he or she might gain from responding. Thorough research and preparation prior to contacting an end-market buyer is essential for piquing 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.
  • The ideal end-market buyer for a value chain’s products/services typically exhibits the following attributes: comprehensive knowledge of the marketplace, proven ability to sell a similar product/service, insights on the strengths and weaknesses of a product/service and its value chain, experience working with suppliers with similar constraints, demand and supply are well matched (design, quality, price, quantity, delivery, etc.), a history of long-term commercial relationships, uncomplicated specifications and terms without onerous penalties, embedded services offered, sufficient financial and human resources to meet commitments, responsive to communications, some flexibility but not overly lenient, and a genuine interest in the producers and their country. 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 between a value chain and prospective buyer. Arduous contract terms or a track record of penalties and delayed payments can also be red flags.
  • Focus technical assistance on reducing the barriers that quickly fatigue buyers, such as defective samples, burdensome regulations, and slow responsiveness. Most end-market buyers are unwilling to enter into relationships where significant obstacles exist, particularly if they are accustomed to highly proficient supply chains. 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. While globalization has intensified competition in the marketplace, more often than not, a reliable partner still trumps a modest reduction in price. An appeal for compassion and generosity when seeking a commercial relationship more often leads to a one-time “sympathy purchase” than a test order with intent to build a new relationship.
  • Facilitating embedded services from end-market buyers is best accomplished by demonstrating a clear win-win outcome from their investment and/or increased risk. Among the many potential benefits should be a direct or indirect link to financial gain.
  • Promote the principle of demand driving supply among all value chain actors – a culture of producing what can be sold rather than locating markets for what can be produced. Linkages alone are not enough; the key is matching a value chain’s strengths with a target market, and then adapting the product/service to meet the needs of this market.
  • More than one value chain actor should keep target end markets under constant scrutiny. Upgrading multiple actors’ research skills and access to information, and emphasizing the importance of this activity when faced with other pressing needs, is a challenging but vital task of enterprise development projects. Opportunities and threats can quickly shift as new trends emerge, end-market buyers are prone to alter direction, and competitive landscapes continuously evolve as existing competitors fade and new ones arise. As well, other markets that influence a value chain’s target end markets should be monitored to identify potential trends.
  • Focus on building the capacity of MSEs to constantly innovate. This is essential to sustaining buyer interest and maintaining competitiveness – the marketplace demands constant innovation and continuous improvements in design, quality, efficiency and service. At the same time, projects should convey to value chain actors the risks involved in investing in product development and market access so that beneficiaries do not overextend themselves. Buyers can be fickle, and success in business can be fleeting.
  • Rather than encouraging suppliers to circumvent intermediaries, projects can constructively engage beneficial ones to achieve more sustainable results. While some intermediaries may hinder value chain development by impeding information flows and a limiting competition, others play an important role in value chains by providing consolidation, production management and market access functions while accepting financial risk.
  • Managing expectations is crucial to success. 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 sizable, 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.
  • Practitioners should 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.