Hello and welcome to Marketing91.com. In this video, we are going to cover the topic on Porter's value chain. Before we proceed any further, please do note that we publish three marketing videos daily on YouTube. So please don't forget to subscribe to our channel.
Now let's start with what is Porter's value chain? A chain of activities that a business running in a particular industry executes to produce a valuable product that may be a good or service for the market is known as value chain. The value chain, also called as a Porter's value chain analysis, is a concept under business management introduced by Michael Porter. Michael Porter released a book called Competitive Advantage in 1985, where he described value chain as a collection of activities that a business carries out to create value for its customers. It builds additional value.
This gives the business a competitive advantage. Eventually, this added value brings the business higher profit. Moving on to the diagram of Porter's value chain, the diagram entails two main activities. primary and secondary. Primary activities entail inbound logistics, operations, outbound logistics, marketing and sales, and service.
Whereas support activities for these primary activities are firm infrastructure, human resource management, technology, and procurement. As we can see in the diagram, primary activities and support activities together entail higher margins. Now let's look at each of these activities briefly, starting with first, primary activities. Primary activities immediately impact on sales, support, production and maintenance of the product or services which will be supplied.
These actions are made up of five elements. The first one being inbound logistics. This deals with organizing the inbound movement of parts, materials and finished inventory that come from suppliers. These are delivered to retail stores, warehouses, assembly or manufacturing plants. Example, tyre manufacturers have their manufacturing plants in Thailand due to rubber plantations.
On the other hand, Starbucks has a tie-up with 300,000 farmers worldwide to access the best of coffee. Next, operations. This deals with the management of the process that turns the input into output.
Energy, labor and raw material are inputs. The outputs are services and goods. Example, Tesla manufacturing electric cars and Apple gets iPhone assembled in India and China.
Third, outbound logistics. It is a method of storing and moving the final product along with related information. It moves these from production's line to the end user.
Example, Amazon delivery options provided to customers and the upcoming Amazon Prime Air drone delivery service. Next, marketing and sales. This involves product sales and various processes.
This process involves exchanging, delivering, communicating and creating offerings. These offerings add value to partners, clients, customers and society in general. Burger King is famous for its marketing activities involving making fun of McDonald's.
GoPro is heavily bent on user-generated content. And Red Bull. promoting daredevil activities around the globe. Next, service. This involves the processes that come in after a product is sold and delivered.
They are needed to keep a product working soundly. Businesses can gain a competitive advantage at either one of the five value chain activities. The example in this case is Tesla, which owns showrooms for good and seamless experience for customers. That brings an end to the primary activities in TOTA's value chain. Next, we move on to the support activities.
Primary activities can be more efficient with the use of support activities. An increase in any of the four support activities aids at least one primary activity to work more productively. The first support activity is infrastructure.
This involves processes like assurance, quality, public relation, control, finance, legal, accounting and strategic general management. The next support activity is technological development. It involves everything that is used to turn inputs into outputs by the business. In comprises of technical knowledge, procedures, software, hardware and equipment. The inputs are raw materials and the outputs are finished products.
The example in this case could be Tesla developing battery in-house in order to reduce their over-dependence on external suppliers. And the other example of technological development comes from Amazon by launching Amazon Go cashier-less stores. Next, human resource management.
This is made up of many activities such as compensating, developing, training, hiring and recruiting. If needed, it involves laying off or dismissing employees. The best example in this case is Ritz-Carlton empowering its staff and the other one wherein Apple providing amazing perks for its employees. Next, procurement.
Acquisition of goods, services and works from an exterior source procurement. Decisions pertaining to purchases are also made under this field. Example, McDonald's procures from McLean, Tesla procures battery from Panasonic and Facebook profited by buying Jiffy which would be used in Instagram. Thus, the support activities also support the entire value chain.
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