Value Chain Analysis Overview

Value Chain Analysis

• Value chain represents a firm's internal activities when transforming inputs into outputs.
• Value Chain Analysis (VCA) identifies and capitalizes on primary and support activities to reduce costs or increase differentiation.
• Primary Activities:
  • Inbound logistics: raw materials handling & warehousing
  • Operations: machining, assembling, and testing
  • Outbound logistics: warehousing & distribution of finished products
  • Marketing & sales: advertising, promotion, pricing, and channel relations
  • Service: installation, repair, and parts
• Secondary Activities
  • Firm infrastructure: general management, accounting, finance, and strategic planning
  • Human resource management: recruiting, training, and development
  • Technology development: research and development, product or process improvement
  • Procurement: purchasing raw materials, machines, and supplies

Growth

• Marketing drives growth in sales and revenue for a company.
• Good marketing can induce trial and promote word of mouth & diffusion.
• Growing the core involves focusing on the most successful existing products and markets.
• Growing the core can be less risky than expanding into new product categories.
• Growing the core strengthens a brand’s credentials as a source of authority and credibility and yields economies of scale.
• Growing the core through improved revenues and lower costs can lead to greater profits.

Growth Strategies

• Make the core of the brand as distinctive as possible.
• Drive distribution through both existing and new channels.
• Offer the core product in new formats or versions.

Competitive Strategies for Market Leaders

• Market Leader: largest market share, leads in price changes, new product introductions, distribution coverage and promotional intensity.
• To stay number one, the firm must:
  • Expand Total Market Demand: look for new customers or more usage from existing customers.
  • Protect Market Share:
    • Continuous innovation in product, service, distribution, and cost-cutting.
    • Achieve broad market envelopment signaling competitors not to attack.
    • Counteroffensive defense: meet the attacker frontally and hit its flank, launch a pincer movement, and exercise economic or political clout.
    • Mobile defense: stretch its domain over new territories through market broadening and market diversification.
    • Contraction defense: giving up weaker markets and reassign resources to stronger ones.
  • Increasing Market Share:
    • Consider antitrust action, economic cost, pursuing the wrong marketing activities and the effect of increased market share on quality.
    • Companies successfully gaining share typically outperform competitors in new-product activity, relative product quality, and marketing expenditures.

Other Competitive Strategies

• Challenger: Firms adopt one of two postures:
  • Frontal attack: matching the competitor's product, price, distribution, and advertising.
  • Flank attack: attacking a competitor's weak spots.
• Follower:
  • Imitates the competitor's product and marketing strategies, but usually with less investment.
• Nicher:
  • Serves a particular segment of the market, usually focusing on a specific geographic area or customer type.
• Other Strategies
  • Encirclement Attack: Capture a wide slice of territory by launching a grand offensive on several fronts.
  • Bypass Attack: Bypass the enemy altogether by diversifying into: unrelated products, new geographical markets, and leapfrogging into new technologies.
  • Guerrilla Attack: Small, intermittent attacks to harass the opponent and eventually secure permanent footholds.