The Value Chain Michael Porter’s Value Chain identifies nine strategically relevant activities that create value and costs (five primary and four support activities). Primary activities: 1.Inbound logistics (material procurement). 2.Operations (turn into final product). 3.Outbound logistics (shipping and warehousing). 4.Marketing (marketing and sales). 5.Servicing (service after the sale). Support activities: 1.Procurement. 2.Technology development. 3.Human resource management. 4.Firm infrastructure.

Value creation and delivery consists of three parts: – Choosing the value (segment the market, define target market, develop “offering”). – Providing the value (product features, prices, and distribution channels). – Communicating the value (sales force, advertising, and promotional tools).

– Core business processes: » The market sensing process (marketing intelligence). » The new offering realization process (research and development). » The customer acquisition process (defining target markets and consumers). » The customer relationship management process (deeper understanding of consumers). » The fulfillment management process (receiving, shipping, and collecting payments).

Product Life Cycle Time Product Development Introduction Profits Sales GrowthMaturityDecline Losses/ Investments ($) Sales and Profits ($) Sales and Profits Over the Product’s Life From Introduction to Decline

Introduction Stage of the PLC Summary of Characteristics, Objectives, & Strategies Sales Costs Profits Marketing Objectives Product Price Low sales High cost per customer Negative Create product awareness and trial Create product awareness and trial Offer a basic product Use cost-plus Distribution Build selective distribution Advertising Build product awareness among early adopters and dealers

Growth Stage of the PLC Summary of Characteristics, Objectives, & Strategies Sales Costs Profits Marketing Objectives Product Price Rapidly rising sales Average cost per customer Rising profits Maximize market share Offer product extensions, service, warranty Price to penetrate market Distribution Build intensive distribution Advertising Build awareness and interest in the mass market

Maturity Stage of the PLC Summary of Characteristics, Objectives, & Strategies Sales Costs Profits Marketing Objectives Product Price Peak sales Low cost per customer High profits Maximize profit while defending market share Maximize profit while defending market share Diversify brand and models Price to match or best competitors Distribution Build more intensive distribution Advertising Stress brand differences and benefits

Decline Stage of the PLC Summary of Characteristics, Objectives, & Strategies Sales Costs Profits Marketing Objectives Product Price Declining sales Low cost per customer Declining profits Reduce expenditure and milk the brand Phase out weak items Cut price Distribution Go selective: phase out unprofitable outlets Advertising Reduce to level needed to retain hard-core loyal customers Reduce to level needed to retain hard-core loyal customers