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Why is there so much fuss about marketers having to be knowledgeable about value chain analysis? We could easily just go around using strong advertising strategies. That, however, is not all that is required for a sound business strategy.

The more knowledge you have about the interaction of your product or service with potential customers the easier it will be for you to pair up company potential with customer requirement. If you are a winner at that, you are a winner at marketing!

Michael Porter in his book, “Competitive Advantage”, clearly explains how important the value chain is for a company, and how value is created within the organization ^[1] is better explained here as well. For the most part, companies would consider value chain analysis as an essential part of their business strategy.

Senior management is responsible for organizing managers in the Operations, Sales and Customer services to identify the different areas connecting Company value chain to Customer value chain. This will help to discover what the consumer requirements really are.

The phrases involved in a value chain analysis

A proper value chain analysis for your company can considerably improve your company’s efficiency and effectiveness in meeting your customer requirements.

The main factors involved are the following:

Logistics

This refers to the coordination of information flow and goods coming in and going out of your business organization. A sound analysis of inbound logistics enables the identification of options to lower supplier costs as well as strengthen relationships with potential suppliers. Outbound logistics, gives you an insight relating to the flow of goods and required information to your buyers, is considered to be a crucial distribution and service factor.

Operations

This stage in the value chain involves a variety of procedures, equipment, and workers employed in production, purchase and sale of inventory to customers. Manufacturers aim to produce top-quality products at reduced costs by identifying ways to optimize manpower and equipment costs and getting rid of wasteful production steps. An example of this is by using Platform.ly ^[2], where marketing is made in automation to achieve lossless tracking and also runs your whole back-end business. Resellers’ operations are further analyzed to further determine ways to improve inventory management and the ability to efficiently merchandise it to buyers.

Front-end Activities

Porter stresses on marketing, sales and support being core front-end value chain activities. Businesses have to repeatedly review and improve marketing research, promotional activities as well as customer support. Effective research aids in getting to know more about your present and future customers. Promotions such as advertising and sales serve to gain consumer attention. Prominent companies are in the constant habit of reviewing their on-going promotional strategies in search of improvement opportunities. Customer retention is essential to long-term success.

Supporting Factors

Porter implies that a value chain has four supporting factors:

Infrastructure
Technology development
Human resources
Procurement

Infrastructure and technology development refer to the construction as well as the development of buildings, supplies, equipment and technology needed to assist current business activities. A thorough analysis of your infrastructure and technology contributes to discovering ways to enhance your structure in order to support customers. Human resources concentrate on the attraction, retention, and motivation of top employees. Procurement is how the purchasing departments focus on routinely reviewing opportunities for getting reduced costs from suppliers or favorable transactions.

What can value chain analysis give us?

Value chain analysis does have important advantages to be considered, such as:

a very crucial role in determining important organizational, tactical as well as strategic issues connected to the business.
a very valuable tool in that it helps businesses to fully exploit all possible sources of competitive advantage.
applicable to all types of businesses no matter what the industry or business size.

How is value chain analysis insufficient?

As is typical of any theoretical framework, the value chain is not completely flawless. These can be considered as follows:

assumed that it is feasible to split company operations into two different categories: primary and support activities.^[3] If we were to take a realist viewpoint, this may very well prove to be contrary when considering the many complexities of business operations today.
time-consuming for practical application. After all, we are talking about a thorough analysis of all business operations involved.
may not be possible to attain all the adequate information needed for the proper conducting of a value chain analysis.

When is it suitable to apply value chain analysis?

There are many different ways of adapting value chain analysis in various industries, some examples are:

Delivery Service

In order to enhance market share as well as brand loyalty, FedEx’s value chain clearly identifies the importance of employee development by using proper human resources plans and improvements in infrastructure.

Food and Beverage

Properly choosing and locating top-quality coffee beans, enhancing trustworthiness by providing top-grade consumer service, and successfully marketing their brands were the most important elements in Starbucks value chain. PizzaHut managed to defeat its competitors by efficiently delivering a cheaper product than just concentrating on premium pricing.

Retail

Walmart is known to use value chain analysis in order to maintain low prices for their customers. By constantly identifying suppliers, comparing in-store as well as online shopping, and developing innovations have contributed to Walmart’s commitment to making it easier for people to increase their savings.