Chapter 2 Continue

CHAPTER 2

THE CONCEPT OF THE VALUE CHAIN

AND ITS RELATION TO MARKETING
 INTRODUCTION
 Within these some common principles that have become accepted as business truths.
These principles help guide many of the strategies adopted by businesses to succeed in
their competitive business environments.
 These principles include the following:
• The main driver of profitability for a business is the value the customer sees
themselves getting.
• To increase the returns of a business, the business must make sure it has high levels of
productivity.
• Most businesses need to be able to show growth or the potential for growth to be seen
as an attractive business to invest in.
• The only way to keep generating good value, great productivity and sustainable steady
growth is through innovation in the business.
• Good management teams or individuals in small or large businesses need to be
performing in all these areas.
 THE VALUE CHAIN

The value chain describes the set of activities that an organisation follows in
order to design, produce, market, deliver and support its products and/or
services in the marketplace where it competes.

• The aim is to deliver value to the customer through a chain of interlinked

activities.

• Most businesses today have the delivery of value to their customers as a

main aspect of either their mission or their objectives.
 COMPETITIVE ADVANTAGE AND VALUE CHAIN

 Porter’s view was that one cannot understand competitive advantage by just
looking at a business as a whole.

 The definition of a competitive advantage according to Porter is something the

business does (notice, it’s about actions and activities) better than its
competitors and that counts for its customers.

 Porter emphasised looking at the many specific activities that a business

performs in the business it undertakes – such as designing, producing,
marketing, delivering, and supporting its products/services.
A VALUE SYSTEM
 THE DIFFERENT TYPES OF ACTIVITIES

Porter identified two types of activities that a business designs and manages to drive value to
its customers: Primary and support activities
Primary activities
• Support activities
• Inbound logistics
• Procurement
• Operations
• Technology development
• Outbound logistics
• Marketing and sales • Human resource management
• Service • Firm infrastructure
A GENERIC VALUE CHAIN
 1. Inbound Logistics: Sourcing Raw Materials
• Marketing’s Role: At the inbound logistics stage, raw materials are sourced from suppliers, and the quality of these
materials is essential for the final product. Marketing’s role here is to communicate consumer demand trends and provide
insights on the preferences of the target market. This influences supplier selection and the raw materials needed for
production.

• Example: Woolworths’ Sourcing of Local Produce Woolworths, a popular retail brand in South Africa, places a strong
emphasis on sourcing local, sustainable produce. Marketing research shows that South African consumers are
increasingly looking for locally grown, organic products. As a result, Woolworths works closely with farmers to ensure the
supply of fresh produce that aligns with these values, enhancing their brand’s appeal to health-conscious, eco-friendly
consumers.

• Marketing Influence: Woolworths’ marketing team communicates the growing consumer preference for local and
sustainable produce. This shapes sourcing decisions, ensuring the supply chain reflects the demands of consumers,
reinforcing the brand’s positioning as a premium, environmentally responsible retailer.
 Operations: Food Production and Processing
• Marketing’s Role: At the production and processing stage, marketing helps define the product
specifications, quality standards, and product differentiation that appeal to the target market.
Marketing ensures that the product's features, such as taste, packaging, and health benefits, are in line
with consumer expectations.

• Example: South African Breweries (SAB) – Craft Beers South African Breweries (SAB) has embraced
the growing trend of craft beers. The marketing team played a vital role in the development of craft beer
lines by identifying consumer preferences for bold, unique flavours.

• Marketing Influence: Marketing teams help define which flavours and styles will resonate with
consumers by analyzing regional trends and consumer behaviour. For example, they identified the rise in
flavoured beers among younger South African drinkers, influencing SAB to introduce more fruit-infused
beer options, catering to this demand.
 Outbound Logistics: Distribution Channels
• Marketing’s Role: The outbound logistics phase involves distributing the finished product to retailers and other
points of sale. Marketing plays an essential role in identifying the best distribution channels to reach the target
market. Marketing also works with retailers to develop strategies that optimize product placement, ensuring the
product reaches the consumer in the most effective way possible.

• Example: Nando’s Nando’s, the beloved South African fast-food chain, uses strategic distribution through their
franchise model. While their restaurants are the core distribution channel, Nando’s also has a growing presence in
supermarkets where they sell their famous sauces and marinades. The marketing team helps drive both physical
and online distribution strategies, ensuring their products are available in convenient locations.

• Marketing Influence: Marketing helps identify the most convenient and profitable distribution channels for
Nando’s sauces. With more consumers shopping online, the marketing team also focuses on creating a strong e-
commerce presence to sell sauces directly to consumers, helping the brand grow beyond its restaurant model.
 Marketing and Sales: Communicating the Brand and Creating
Demand
• Marketing’s Role: At the marketing and sales stage, the core function of marketing is to communicate the brand’s
value proposition and create demand for the product. This is where most of the marketing effort takes place, from
advertising campaigns and social media promotions to in-store experiences.

• Example: Checkers “Xtra Savings” Campaign Checkers, a major South African supermarket chain, used an
aggressive marketing campaign to promote their Xtra Savings card. They launched targeted TV ads, radio spots,
and social media content to emphasize the savings consumers could gain by using the card for discounts and
special offers.

• Marketing Influence: Marketing directly influences consumer purchasing decisions by creating awareness and
incentivizing purchases through promotions. Checkers’ cross-channel marketing strategy increased sales and
customer loyalty by ensuring the message of savings reached consumers through their preferred channels.
 Service: After-Sales Support and Customer Loyalty
• Marketing’s Role: In the service stage, marketing is responsible for creating customer loyalty and
ensuring that the customer experience meets expectations. This includes customer feedback, loyalty
programs, and post-purchase communication.

• Example: Woolworths’ Customer Experience Program Woolworths offers an extensive loyalty

program through their WRewards system. This program not only rewards customers for purchases but
also provides personalized offers based on past shopping behaviour. Woolworths invests heavily in
customer service to ensure that consumers have a positive experience, whether shopping in-store or
online.

• Marketing Influence: Marketing drives the development of loyalty programs that keep customers
engaged long after their initial purchase. Woolworths’ personalized approach enhances the shopping
experience and ensures customers feel valued, leading to higher repeat business and long-term loyalty.
 Firm Infrastructure: Brand Strategy and Corporate Culture
• Marketing’s Role: At the firm infrastructure level, marketing aligns the company’s corporate culture with the overall

brand strategy. This includes internal branding, corporate social responsibility (CSR), and the development of the

company’s public image.

• Example: Spur Steak Ranches’ CSR Initiatives Spur Steak Ranches, a well-known South African restaurant chain, has

a strong corporate social responsibility (CSR) focus. They have numerous campaigns promoting youth

empowerment and local community support, which are reflected in their brand messaging. Spur’s marketing ensures

that these CSR initiatives are prominently featured in their advertising and brand communications.

• Marketing Influence: Marketing ensures that CSR activities are not only aligned with the company’s mission but are

also effectively communicated to consumers. This helps build a brand that resonates with socially conscious

consumers.
 THE ROLE OF MARKETING IN THE VALUE CHAIN

Overall aim of marketing: generate interest and

facilitate sales.

The strategic role

 The functional role
 The integrative role
1. Strategic role
• Marketing should be closest to customers and competition, two
important inputs of the strategic direction of the business.
• Marketing must analyse the trend affecting these two
components.
• This will aid management in deciding who the business will target
and to whom it competes.
• These are strategic decisions.
2. Functioning role

Perform activities related to marketing function.

Planning, implementation and control.

Target market selection, positioning of the business, managing

marketing mix.
 THE INTEGRATIVE ROLE OF MARKETING
3. Integrative role
• Marketing integrates all the necessary components to be able to achieve
objectives of marketing and sales.
• Marketing management must have good cooperation and coordination skills
all their activities deliver value to customers
ensure alignment within the business to ensure success with customers
 MARKETING AND PORTER’S COMPETITIVE
STRATEGIES
 Michael Porter introduced the three strategies that he felt drove
success in a market sector.
 Each had its own advantages and disadvantages, and over time
these three strategies have become generally accepted options
in terms of how a business competes.
 These three strategies were the
• differentiation strategy,
• the low-cost strategy, and
• the focus strategy.
 THE DIFFERENTIATION STRATEGY
 Differentiation – making the product/service physically or
perceptually different from competing offers.
 This strategy capitalizes on the brand’s uniqueness.
 Conduct SWOT analysis to differentiate offerings.

 An attempt at differentiation should have three characteristics:

1. It should generate customer value.
2. It should provide perceived value.
3. It should be difficult to copy.
 DIFFERENTIATION STRATEGIES

 Differentiation on quality
 Differentiation by brand
 Differentiation by unique product characteristics
 Differentiation by distribution – speedy delivery and distribution
 Differentiation by marketing communication
 Price differentiation
 Differentiation based on consumer orientation
 DIFFERENTIATING FACTORS
A broad competitive scope can lead to differentiating factors:
 The ability to serve buyer needs anywhere
 Simplified maintenance if designs are common for a wide line
 A single point at which a buyer can purchase
 A single point for customer service
 Superior compatibility among products
 HOW TO SUSTAIN THE DIFFERENTIATION

 The business’s sources of uniqueness have barriers to competitors.

 Innovative or first to market – difficult to copy – sustained uniqueness.
 The business has a cost advantage.
 If cost advantage is sustainable, differentiation more sustainable.
 There are multiple sources of differentiation.
 Ease to copy the source of differentiation – more sources of value activities - more
difficult to copy.
 The business creates switching costs while it differentiates.
 Buyer will be reluctant to change suppliers because of switching cost.
 PITFALLS OF DIFFERENTIATION
 Uniqueness that is not valuable.
 Too much differentiation.
 Too big a price premium.
 Ignoring the need to signal value.
 Not knowing the cost of differentiation.
 Focus on the product instead of the whole value chain.
 Failure to recognise buyer segments.
 THE LOW-COST STRATEGY

 This strategy is adopted when in a niche market.

 Lower margins/higher share – Low-cost producers usually earn lower profit margins than
differentiated marketers, but they gain a higher share of the market. They may lower prices
and thus attain small margins, but they gain on the volumes that they sell.

 Lower costs/higher margins – In this case, the low-cost producer tries to lower costs faster
than prices. This results in higher profit margins rather than a higher share of the market.
 THE COST ADVANTAGE
 Two ways of gaining a cost advantage:

1. control the cost drivers - improve efficiency and control costs.

2. reconfigure the value chain – develop and adopt more efficient ways of
designing, producing, distributing or marketing the product.
PITFALLS OF A LOW-COST STRATEGY
• Focusing only on manufacturing costs
• Ignoring the purchasing or procurement function
• Overlooking smaller activities
• False perception of cost drivers
• Failure to exploit linkages
• Contradictory cost-reduction activities
• Entry of lower-cost competitors
• Reduced flexibility
 THE FOCUS STRATEGY

 The objective of a focus strategy is to monopolise a

niche in the market.
• Focusing the product line
• Targeting a market segment
• Targeting low-share competitors
 ADVANTAGES OF A FOCUS STRATEGY

 Avoiding distraction or dilution of strategy

- focus on one goal.
 Allowing a business to make an impact with limited resources
- Focus on one goal with the resources available.
 Providing potential to bypass competitor assets and skills
- Compete on a basis you select, on your own terms.
 Providing a positioning device
- Business identify itself with a specific product line, segment of geographic area.
 Reducing competitive pressures
- Choose segment or market to compete in. Avoid competition and stand out in target market.
 Brings expertise
- This expertise creates a barrier for competitors.