Exercise 5
Mining the Value Chain – Defining the “White Space”1
Your opportunity must be placed in the context of both a competitive environment and an
existing value chain that you believe can be improved upon or altered in a way that creates value.
In addition to tracing the movement of physical goods, you should also map the flow of
information and the resultant margins that “flow” to channel players. Please provide:

An assessment of how your product or service will be positioned in the market, including:
-
A statement of any proprietary protection, such as patents, copyrights, or trade secrets, and
what this means in the way of competitive advantage:
-
An assessment of any competitive advantages you can achieve in the level of quality,
service, and so forth, including an objective description of any strengths (and weaknesses) of
the product or service:
\
-
An assessment of your pricing strategy versus those of competitors:
________
“White space” refers to those gaps in an industry or market into which your opportunity falls. When you complete the value chain exercise –
looking at the flow of physical, informational, and financial margins – you will be able to see the market anomalies (positive or negative) that
create space for your opportunity
-
An assessment of your pricing strategy versus those of competitors:
Highest Price
Pricing Strategy
Average Price
Lowest Price
Retail
Wholesale
Distributor
Internet
Manufacturing
Other Channel
______
2 Consider
the opportunity recognition process that led to the rotary electric toothbrush venture described in the previous chapter
-
An assessment of the competitors in your industry or market niche in terms of price versus
performance / benefits / value added:3
Highest
Price
Average
Lowest
Lowest
Average
Highest
Performance/Benefits/Value Added
-
An indication of how you plan to distribute and sell your product or services (e.g., through
direct sales, mail order, manufacturer’s representatives, etc.) and the likely sales, marketing,
and advertising/trade promotion costs:
-
A distribution plan for your product(s) or service(s), including any special requirements,
such as refrigeration, and how much distribution costs will be as a percentage of sales and of
total costs:
_____
3
Note: If there is a 10 to 30 times (or more) spread among competitive products, there is an opportunity lurking.

Complete this chart of the three flows (physical, informational, and margin) to find the
value chain for your product or service. Following the physical flow, map how your
product or service will get to the end-user or consumer, the portion of the final selling
price realized in each step, and the dollar and percentage markup and the dollar and
percentage gross margin per unit. This exercise will help identify the market anomalies
(positive and negative) that can identify spaces in which you can create your opportunity.
The value chain formed in these flows is constructed for a generalized consumer product
and needs to be modified for your particular product, service, industry, or region.
Informational
Flow
Margin Flow
Physical Flow
Mining the Value Chain
Components
Materials & Labor
Raw Materials
Price/Unit:
Dollars
Percent
Markup/Unit:
Dollar
Percent
Gross Margin:
Dollar
Percent
Manufacturer
or Service
Provider
Price/Unit:
Dollars
Percent
Markup/Unit:
Dollar
Percent
Gross Margin:
Dollar
Percent
Distributor
Price/Unit:
Dollars
Percent
Markup/Unit:
Dollar
Percent
Gross Margin:
Dollar
Percent
Wholesaler
Price/Unit:
Dollars
Percent
Markup/Unit:
Dollar
Percent
Gross Margin:
Dollar
Percent
End-User or
Customer
Price/Unit:
Dollars
Percent
Markup/Unit:
Dollar
Percent
Gross Margin:
Dollar
Percent
Key
Data
Key
Data
Key
Data
Key
Data
Key
Data
Mean of Data Transfer
Mean of Data
Transfer
Mean of Data
Transfer
Mean of Data
Transfer
Mean of Data
Transfer