Class Teacher: Keith Postler
Value Creation in a Value Chain: An Analysis
The Facts for Blasters The Blue Jeans Producers
Blasters sells to 3 types of customers:
1. It sells to independent wholesalers its own-brand name label jeans (which it supports through extensive advertizing and product promotion. These wholesalers distribute these jeans to retailers.
2. It sells and distributes directly to retailers its labeled blue jeans through its in-house capabilities.
3. Finally it sells unlabeled jeans to manufacturers that attach their own labels and sell the jeans as own house brands.
The Value Chain of Blasters
Their chain consists of the 3 main activities: manufacturing, brand management, and distribution.
a Manufacturing creates value by changing raw materials into finished jeans.
b Brand management—inclusive of the marketing to support the brand (Blasters)—creates value by changing otherwise no-name jeans into branded ones with a superior image.
c Distribution creates value by distributing jeans that Blasters otherwise would sell to wholesalers.
The Figures: Volume, Price (£), Cost (£) for the blue jeans firm
Total quantity of blue jeans manufactured 110,000 pair per yr
Labeled jeans sold to wholesalers 70,000 pair per yr
Labeled jeans, self-distributed 15,000 pair per yr
Selling price, labeled jeans sold to wholesalers 14.00 per pair
Selling price, labeled jeans, self-distributed 18.00 per pair
Production cost per unit, labeled jeans 2.55 per pair
Unlabeled jeans sold to private labelers (manufacturers) 25,000 pair per yr
Selling price, unlabeled jeans 4.00 per pair
Production cost per unit, unlabeled jeans 2.50 per pair
Distribution cost per unit 1.80 per pair
Total brand promotion and advertizing expenses 800,000 per yr
The Questions
· What is the incremental profit each of these activities create in Blasters’ Value Chain?
· What activities are most / least profitable: from what does the highest / lowest total value added come?
· What does the analysis of profit reveal?
· What strategic management decision do you make on behalf of the firm on the basis of this information alone?
Critical Perspective
What does this analysis and the attendant strategic management decision overlook?
source: figures adapted from Economics of Strategy by David Besanko et. al.