Developed by Porter, value chain analysis is aimed at identifying potential competitive advantages. Porter suggested that the activities of a company can be broken down into nine ‘value activities’, five being primary and four secondary. These value activities collectively comprise those activities involved in designing, manufacturing, marketing and delivering the organization’s products and services.
The value chain
Primary activities comprise activities associated with the input, throughput and output of goods and services in the organization, and include the following:
Support activities comprise those activities which facilitate primary activities in the physical creation of the product and its sales and transfer to buyer and including:
Although the broad categories of value activities, both primary and secondary, are common to most organizations, individual components of value activities will tend to be company specific. The basic idea of the value chain concept is that each activity can be categorized and analysed with a view to securing competitive advantage. Specifically, a company should analyse all its activities with a view to determining how these contribute to the value the customer receives. They should also be analysed with respect to cost and competitor margins. the difference between total value and the cost of performing all the value activities. In simple terms by looking at both value activities and the cost of performing them compared to the competition, it is suggested that an organization can seek competitive advantage either by cutting the cost of performing the value activities while simultaneously maintaining the value, or by increasing the value of the activities to the customer. Two further points about value chain analysis are worthy of note.
Similarly, distributors can influence value. For example, a distributor may undertake to offer after-sales service for the manufacturers’ brands it supplies, thereby potentially adding value to these brands for the customer. Porter refers to these as ‘vertical linkages’.
This is a brief introduction to the concept of value chains. In fact, the uses of value chain analyses are complex and multifaceted. Porter has developed the concept and techniques of value chain analysis to enable the company to look for ways of securing competitive advantage. In the context of assessing strengths and weaknesses, value chain analysis has four distinct benefits:
Value chain analysis describes the activities within and around an organization and relates them to an analysis of the competitive strengths of the organization or its ability to provide ‘value for money’ products or services.
Analysis of value chain activities enables us to assess what are truly ‘strengths’ and what are truly ‘weaknesses’.
From its highly successful American base, the US retailer Walmart then expanded into Europe. The company acquired the ASDA group of supermarkets in the UK and has overtaken Sainsbury’s to become the second most powerful retailer in the UK after Tesco. Walmart built its strategy for success around offering good value products with low prices, while maintaining good quality. This strategy is built upon effective value chain management and in particular the efficient use of vertical links with suppliers. Walmart has been able to reduce its costs throughout the supply chain, thereby being able to pass these cost savings onto its customers. To compete successfully against this, Walmart’s competitors have had to better secure and manage their own vertical links in the value chain as effectively and efficiently as Walmart have done.
Next, are our competitors stronger or weaker than ourselves? This consideration in evaluating strengths and weaknesses takes us back to the importance of competitor analysis. Once we have identified what are key strengths and weaknesses, and where our distinctive competences lie, we need also to assess the extent to which we have a competitive advantage with respect to these competences.
In the same way that we cannot evaluate what constitutes a ‘strength’ or a ‘weakness’ without assessing the extent to which customers value these competences, so too we should not proceed to develop marketing strategies and plans based on these without also assessing how strong or weak our competitors are in these areas. The perspective that needs to be taken is from the market to the company, and not from the company to the market, which is, after all, the essence of marketing orientation.
The importance of assessing strengths and weaknesses in relation to competition, as well as to needs of customers, stems from the fact that a key reason for assessment of strengths and weaknesses is, as we have seen, to help in the delineation and selection of competitive marketing strategies. For example, the company might have distinctive strengths in the areas of quality and after-sales service, and these might be strengths which the customer values, and hence are key factors for success in these areas. Stronger, weaker or equal; it simply does not make sense to evaluate our strengths and weaknesses without comparing ourselves to the competition.
We can see from our discussion that the issues which arise in the process of evaluating strengths and weaknesses are complex. It might be said that weaknesses are easier to understand than strengths. Essentially weaknesses are constraints, but as with strengths we need to assess them in the context of customer and market needs and of the competition. A weakness in terms of aftersales service would matter less if this factor were unimportant to business success and if our competitors were even weaker. Again, as with strengths, we also need to assess if our weaknesses are major or minor.
A useful approach to the evaluation of both strengths and weaknesses relative to the competition is the use of a strengths and weaknesses profile.
Marketing Management Related Tutorials
|Consumer Behaviour Tutorial||Marketing Strategy Tutorial|
|Marketing Research Tutorial||Principles of service marketing management Tutorial|
|Advertising Management Tutorial|
Marketing Management Related Interview Questions
|Consumer Behaviour Interview Questions||Marketing Strategy Interview Questions|
|Marketing Concepts Interview Questions||Marketing Research Interview Questions|
|Principles of service marketing management Interview Questions||Advertising Management Interview Questions|
|Brand Management Interview Questions||Marketing Interview Questions|
Marketing Management Related Practice Tests
|Consumer Behaviour Practice Tests||Marketing Strategy Practice Tests|
|Marketing Concepts Practice Tests||Marketing Research Practice Tests|
|Principles of service marketing management Practice Tests||Advertising Management Practice Tests|
|Brand Management Practice Tests|
Marketing Management Tutorial
Development Of A Strategic Approach To Marketing: Its Culture; Internal Macro- And External Micro-environmental Issues
Markets And Customers: Consumer And Organizational Buyer Behaviour And Marketing Strategy
Markets And Customers: Market Boundaries; Target Marketing
Product And Innovation Strategies
Channels Of Distribution And Logistics
Customer Care And Relationship Marketing
Marketing Information Systems And Research
Analysing The Environment: (opportunities And Threats) And Appraising Resources (strengths And Weaknesses)
Evaluating And Controlling Strategic Marketing
Strategic Marketing Planning Tools
Services Marketing And Not-for-profit Marketing
All rights reserved © 2018 Wisdom IT Services India Pvt. Ltd
Wisdomjobs.com is one of the best job search sites in India.