How important is Industry Value Chain Analysis in Market Research?

What is Industry Value Chain?

Every stage of the product’s existence, from raw material procurement and manufacture to manufacturing and the features of the final sale to consumers, is included in the value chain.

Each node in a product’s value chain is analyzed during a value chain analysis (VCA). Sources of raw materials, production and distribution costs, as well as qualities that influence customer willingness to pay for the end product, are just a few of the nodes that have been explored. Each node has a direct impact on the end product’s cost and profit margins.

Using VCA, companies can find new ways to make money by reducing costs, adjusting prices, improving product positioning, and expanding distribution channels. Throughout the value chain, market participants are making a variety of decisions that directly affect their profit margins at every step.

When is Industry Value Chain Analysis Important?

#1- Integration

• You need to know the characteristics of your market’s value chain, whether you’re looking to acquire a competitor or explore backward integration up the supply chain.
• The costs of raw material supply may be unpredictable or sensitive to market fluctuations in the value chain’s upstream nodes (trade tensions, unforeseen weather events, plant closures, etc).
• Examining what drives production costs can help determine the potential benefits of mergers, especially if the goal is to profit from economies of scale.
• When the complete value chain is assessed, these market characteristics, which are frequently unknown to downstream firms, might be disclosed.

#2- Entering the Market for the First Time

• A thorough grasp of the value chain of a potential market is vital before expanding a product line or entering a new market entirely.
• New market rules, concentration levels, and typical gross profit margins are just a few of the variables that can affect the predicted earnings connected with a new market.
• Realized earnings in the potential new market are expected to be driven by the full value chain (from raw material acquisitions through final sales to end-users).
• A competitor’s value chain can also help you estimate average market margins and common supply chain behaviors.

#3- Intelligence about the competition

• VCA can assist in assessing the competitive stance, including current estimates of industry margins.
• Competitive intelligence that focuses on value chains can disclose more cost-effective supply networks and profitable pricing methods, which can be quite useful.
• It’s possible to enhance current margins to industry averages by examining the value chain behavior of important competitors.
• The VCA can also shed light on the elements that drive margins at the end-user node and advise product modifications that best promote future profits.
• VCA Finally, VCA can disclose the extent of supply chain integration and the actions of big rivals to control production costs.

#4- Maximizing the profit margin

• Changing trade patterns, industry competitive landscapes, and geopolitical influences can all have an effect on supply chains.
• Strategic decisions can be made based on a thorough grasp of your current value chain dynamics.
• Trade policies and tariffs, for example, can prompt a company to look for new supply lines to feed its production process.
• In addition, when faced with shifting global trade patterns, VCA can determine how vital it is to respond to trade policy given the current supply chains of other competitors.
• New supply chain or distribution methods can be tested in circumstances where value chains are very complex.

How does market research help?

Financial disclosures, annual reports, or searchable databases may make certain nodes along the value chain open to the public. The complexity of value chains can be difficult to understand even in cases when there is a lot of publicly available secondary information. As a result, it might be difficult to determine how the materials are acquired and manufactured, as well as sold.

Market research that focuses on primary research and competitive intelligence may light the value chain at each node of interest, and provide estimates for the costs, pricing, and margins.

Contracting with outside custom research businesses ensures impartial, third-party estimations and suggestions, which might be vital for new market entrance evaluations or acquisitions.