Question

What is Steve's opportunity cost of producing a basket of pineapples? Of a producing a fish? What is Craig's opportunity cost of producing a basket of pineapples? Of a producing a fish?

Answer 1

ANSWER :- A value chain is used to describe all the business activities it takes to create a product from start to finish (e.g., design, production, distribution, etc.). And a value chain analysis gives businesses a visual model of these activities. With this analysis, you can take steps to create a competitive advantage, improve efficiency, and increase profit margins. Let's take a deeper look into value chain analysis and learn how you can analyze your business activities.

For Example :- Trader Joe's grocery store, which also has received much press about its tremendous value and competitive edge. Because the company is privately held, however, there are many aspects of its strategy that we don't know. However, when you enter a Trader Joe's store, you can readily observe instances of Trader Joe's business that reflect the five primary activities of the value chain.

1. Inbound logistics. Unlike traditional supermarkets, Trader Joe's does all of its receiving, shelving, and inventory-taking during regular store hours. Although potentially maddening for shoppers, this system creates a ton of cost savings in terms of employee wages alone. Moreover, the logistics of having this work take place while customers are still shopping sends the strategic message that "we're all in this together."

2. Operations. Here's an example of how a company could apply the value chain creatively. In primary activity number two above, "converting raw materials into finished product" is cited as an "operations" activity. However, because converting raw materials is not an aspect of the supermarket industry, we can use operations to mean any other regular grocery store function. So, let's substitute "product development," as that operation is critical for Trader Joe's.

The company selects its products carefully, featuring items that you generally can't find elsewhere. Its private-label products account for at least 70 percent of its offerings, which often have the highest profit margins, too, as Trader Joe's can source them efficiently in volume. Another vital piece of product development for Trader Joe's is its taste-testing and chef-partnership programs, which ensure high quality and continuous product refinement.

3. Outbound logistics. Many supermarkets offer home delivery, but Trader Joe's does not. Yet here, we can apply the activity of outbound logistics to mean the range of amenities that shoppers encounter once they are inside a Trader Joe's store. The company has thought carefully about the kind of experience it wants us to have when we visit its stores.

Among Trader Joe's many tactical logistics are its in-store tastings. Usually, there are a few product tastings happening simultaneously, which create a lively atmosphere, and often coincide with the seasons and holidays. The tasting stations feature both new and familiar items that are prepared and served by staff.

4. Marketing and sales. Compared to its competitors, Trader Joe's barely does any traditional marketing. However, its entire in-store experience is a form of marketing. The company's copywriters craft product labels to appeal specifically to its customer base. Trader Joe's' unique branding and innovative culture indicate that the company knows its customers well—which it should, as the firm has actually chosen the type of customers it prefers and has not deviated from that model.

Via this indirect marketing of style and image, Trader Joe's has succeeded in differentiating itself in the marketplace, thus sharpening its competitive edge.

5. Service. Customer service is paramount for Trader Joe's. Generally, you see twice as many employees as shoppers in their stores. Whatever work they are doing at the moment, the friendly, knowledgeable, and articulate staff are there primarily for you. Employees welcome shoppers' interruptions and will instantly rush to find your item or answer your question. In addition, the company has always employed a no-questions-asked refund program. You don't like it, you get your money back—period.

This list could go on and on before ever reaching the four support activities cited above, as Trader Joe's is a wildly successful example of applying value-chain theory to its business.