Value Chain Portfolio

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1.0 Introduction

Porter (2004) established the concept of the value chain, the model broadly addresses the question as to where value is added to a product or service through both primary activities which physically add value to a product or service and secondary activities which support the primary activities as shown in the popular visualisation below:

The objective of this portfolio is to identify were value from both the product and customer perspective and then consider how these identified values have an impact on the value chain activities for the company and product in question. Conducting the research the portfolio will use a mixture of both primary and secondary research to establish the relevant information. Whilst the results of the research may be found in the relevant areas of the Pro-forma’s the detailed research methods may be found in the appendix at the end of the portfolio.

2.0 Product value – Pro-forma A

2.1 Name of company:

Apple is the manufacturer of the product in question, distribution ranges through a variety of third party retailers from high street electrical stores such as Curry’s through to online sales channels such as Amazon.

2.2 Name and description of product/service:

The product being considered for the purpose of this research is the Apple I-Pod. The I-Pod is a portable music playing devise and replaces older models of similar devise such as the Walkman and portable CD players. The fundamental difference between the I-Pod and pervious models of portable music player is that the I-Pod is digitally based relying on Apple’s I-Tunes system of music downloads rather than conventional formats such as a CD or Cassette (Lynch 2008 p 795-798).

2.3 Value of the product/service to the customer:

Value for the customer may be seen as falling into two key areas namely that of the physical features and benefits of the product and the intangible benefits associated with such marketing considerations as image. Both of these areas would appear to be supported both in the literature (Brassington and Pettitt 2007, Kottler et al 2009) as well as the results of the primary research.

Specifically research revealed that the key value of the I-Pod as a physical product was generated from firstly the user friendly nature of the product in comparison to other electronic “gadgets” this would be a pattern which is highlighted in the literature as one of Apple’s key success factors in the industry as a whole (Visionary Marketing 2008). Respondents also highlighted that the quality of the musical experience was also a key value especially when compared with previous non-digital versions. Durability was a repeated factor in interviewing with respondents raising the issue of poor experience with portable CD players due to scratches which the I-Pod has managed to eliminate. Finally from a physical perspective the small size and light weight nature of the product was seen as a key value for many especially for those who stated that they used there I-Pod or were intending to use such a devise in conjunction with another activity such as none team based sports.

From the perspective of intangible elements of value there were several considerations highlighted. In the first instance respondents stated that the I-Pod was seen as almost a fashion accessory as much as it was a music devise, owning an I-Pod is seen as a “cool” piece of technology to own rather than a more obscure and specialist product (Weisbein 2008). Secondly there was a high level of importance attached to the I-Tunes service which may be seen as an integral part of the product, here respondents stated that value was added from the wide range of music available and the instant availability. It was stated that in many cases searching for a track in a traditional format without the I-Pod may have taken a considerable amount of time, in addition there was also the consideration that value was added for the consumer due to the ability to buy single tracks rather than having to pay for a whole album as is often the case in traditional formats.

2.4 What are the key product and service attributes:

Light weight and small physical construction

Durability of both the product and the consumers music collection

High end digital music technology

Fully integrated download service in the form of I-Tunes

Instant availability of a wide range of music

Fashion value of product ownership

Ability to use the product in conjunction with other activities such as sports

2.5 Type of research undertake:

This project has undertaken both primary and secondary research in reaching the results as highlighted in the relevant pro-forma’s. Primary research has included a set of 50 questionnaires in order to gain largely quantitative data whilst the project has also benefited from a number of interviews which were conducted with actual or potential consumers of the product in order to gain in depth qualitative data. The specific methods and techniques used may be found in the appendix of research.

2.6 Purpose of research:

The purpose of the research undertaken is to establish firstly what adds value for the consumer in relation to Apple’s I-Pod offering. Secondly to consider how well Apple has managed to address the perceived values of the consumer in practise. The research should finally address the level of interaction between perceived values of both the product and the consumer and Apple’s internal value chain.

2.7 Post research review:

On the whole the research carried out has provided a valuable insight into the values of both the I-Pod as a product and the perceived values of the consumer in relation to the product thus making a valuable contribution in the field. If the researcher were to carry out the project again it is felt that it would be beneficial to spend a greater level of time researching Apple’s value chain in greater detail given the high level of research which has been spend on the consumer side of the project in this portfolio.

2.8 Conclusions:

There are many conclusions that may be drawn from the research conducted however the points may be surmised in the consideration that whilst the I-Pod as a physical product offers a portable music player this is not the sole value of the product. The value of the I-Pod may be seen as largely linked to the intangible benefits associated with the product which include a general consideration that the product doubles up as a fashion accessory as well as the way in which the product is integrated into Apple’s wider value chain including the I-Tunes concept which is key to the success of the product. As such one may consider that whilst the I-Pod in its self is a physical product much of the value added comes from the service and supporting activities of the value chain and that without these elements the product would not be a success.

3.0 Customer value – Pro-forma B

3.1 How customer value is understood and met by product/service provider

In many ways the success of Apple in general may be seen as owing to the company’s understanding and interpretation of consumer values in a way which is different to that of its competitors. In the first instance previous to the launch of the Apple I-Pod and I-Tunes service Apple had little experience in the music sector. At the same time incumbent players in the market may be seen as focusing on the wrong consumer values. For instance Lynch (2008) indicates those in the traditional recorded sector had focused on the protection of intellectual property and distribution through traditional outlets and distribution channels such as high street music stores. On the other hand those offering what may be seen as competitor products to the I-Pod in the form of the MP3 player also adopted a different interpretation of value to that of Apple. In this instance other producers of MP3 players interpreted consumer value as being associated with a reduction in price and improvements in quality (Weisbein 2008).

Apple on the other hand has taken a different approach to the interpretation of customer values, in the first instance apple has recognised that the consumer values the MP3 product only partially as a music offering and that a large proportion of the value derived for the consumer is due to the consideration of the product as a fashion accessory. In delivering on this core value Apple has constantly updated the product with frequent innovations from basic cosmetic alternations through to the ability to update software and applications (Frith 2007).

Another consideration in the way in which Apple has interpreted consumer value is to consider that of how the I-Pod fits into the wider value chain. Despite the fact that Apple was not the first company to offer an MP3 product there is the consideration that previous to the I-Pod and I-Tunes offering consumers had very few choices in obtaining digitally based music in a legal context (Lynch 2009). As such one of the key ways in which Apple has managed to interpret consumer values is to integrate the physical product the I-Pod with into the wider value chain which consists of the I-Tunes offering allowing the consumer to legally download a wide verity of music for instant consumption, elements which were considered as key value adding considerations for the consumer.

3.2 Is consumer value considered in product material/service elements?

This may be seen as the defining feature of the I-Pod over rival MP3 systems, whilst other companies such as Sony have introduced similar physical products in the from of the NWHD1 (BBC News 2004) which encompass may of the same consumer values in the physical product such as small size and durable shock resistant technology they have failed to consider the wider value chain which has a strong emphasis on the distribution channel which directly adds value to the physical product.

It is notable that were competitors have began to make progress the companies involved have tended to see the service and supporting elements associated with the distribution channel as the key success rather than the physical product such as in the case of the potential My Space offering and Microsoft’s rival “Zune” (Marketing Week 2008, Wray 2006).

3.3 Presentation

The presentation of the I-Pod may be seen as largely representative of the consumer values of the product. The I-Pod comes in a contemporary style white minimalistic style of box packaging which may be seen as communicating to the consumer both the contemporary nature of the product but also the simple user friendly nature. The box contains a limited amount of information on the technical specifications of the product however the consumer is not bombarded by a plethora or irrelevant technical jargon. See appendix for graphical representation fig 1.

3.4 Customer satisfaction measures and support

In gauging the overall level of customer satisfaction Apple has a number of mechanisms. According to those interviewed the I-Pod comes with a standardised customer satisfaction card with the option to register one view online. In addition users are able to register for a number of services on Apple’s main web site (Apple 2010) which offers an array of options aimed at enhancing customer satisfaction from the provision of advice and technical support through to repairs and bolt on sales designed to enhance the experience.

3.5 Considerations not met by the product/service

On of the key success factors of the I-Pod as has been highlighted is the distribution channel which the I-Pod is automatically linked into in the form of I-Tunes. Despite the success of the product in relation to this model the I-pod not only allows the consumer to use the I-Tunes offering but effectively locks the consumer into Apple’s distribution network. Whilst one can see the benefits of such a strategy there is also the consideration that such a lack of flexibility detracts from the value of the product as consumers value the flexibility of being able to purchase their music from multiple sources (Smith 2006).

Further more as with many successful products the company and its product often come under a higher level of scrutiny than less successful alternatives. Apple’s I-Pod despite its success may be seen as facing a wave of criticisms which detract from consumer value as highlighted by Prigg (2006) who points out that many consumers have criticised the product for poor physical quality in areas such as battery life and manufacturing conditions which use unethical practises in the Far-East. Finally there is the consideration that since the launch of the I-Pod Apple has since developed the I-Phone which combines the technology of both the mobile phone and the portable music player into a single devise. This development may suggest that the original I-Pod as discussed in this report did not address all of the elements of value considered by the consumer in the first instance. This view may be supported by the reported wide uptake of the I-Phone from telecoms companies (Frommer 2007, Lomas 2008).

4.0 Impact upon value chain activities – Pro-forma C

4.1 Sales

As a mass market consumer product sales of the I-Pod are driven through two main channels the traditional retail channel in high street chains such as Curry’s, PC World and HMV. Secondly Apple also markets through what may be seen as an alternative distribution channel in the form of the web (Jobber 2007), in such instances Apple uses established web marketers such as Amazon as well as offering its own direct sales via the companies online store apple.com. As such the company’s sales activities may be seen as largely those processes which are aimed at persuading retailers to give the product shelf space in greater proportion than is given to rival products (Sullivan and Adcock 2002).

4.2 Billing and accounts

In most instances the impact of the customer values on Apple in relation to billing and accounts are minimal given that a large volume of sales will go through retail chancels for which Apple will have standardised trade terms and conditions with the relevant retailer which may be a high street or online distributor. The exception to this comes firstly in the direct sales for which Apple engages from its online store for which the company must adapt to be able to make sales in single unit format thus having a fragmented cash collection system in relation to larger block retail sales. There is the consideration that such single unit sales add significant costs in banking and transactional costs (Business Link 2010) for Apple were such sales take place however this may be offset by the ability to charge at the full retail rather than a trade price.

In addition whilst this portfolio is specially concerned with the I-Pod as a product there has to be the recognition that the I-Tunes offering is an integral part of the product for which the impact of billing and accounts has a stronger direct link between Apple and the consumer. In relation to I-Tunes Apple has adapted its value chain to function on a pre-paid account basis. The consumer is able to set up an account directly with Apple online for which there are then a number of pre-paid options including uploading credit directly via a card or buy purchasing a pre-paid credit from a store which is then activated similarly to those used in the pre-paid phone market. Such a system may be seen as beneficial to both Apple and the consumer, in using such a pre-paid option Apple ensures a higher level of cash flow than the company might have otherwise experienced under another model. From a customer value perspective Apple’s deployment of a system similar to pre-paid mobile phone top ups gives the consumer a payment method for which they already have a great level of familiarity with this adding value in the form of reducing transactional complexity.

4.3 Customer information

Apple may be seen as facing a dilemma on the level of consumer information which the company needs to provide in relation to its product. As a technical product the I-Pod needs to give consumers a minimum level of information so as to ensure that the sale of a product meets their needs. Despite this need there is also the consideration that providing too much technical information could lead to an information overload for the consumer thus detracting value and ultimately losing Apple sales in the long run. As such Apple may be seen as managing the distribution of such information in a relatively effective way by issuing what may be seen as the minimum requirements on marketing materials such as the web store and packaging and then entering greater detailed information in the relevant product documents which accompany the product for those who need it.

4.4 Procurement and production

Procurement and production may be seen as one of the significant failings of the I-Pod in relation to the relationship between consumer values and Apple’s value chain. Whilst on the one hand consumers have demonstrated a desire for attributes in the product which are not related to price Apple has non the less used production and procurement techniques which are largely aimed at lowering the companies costs as far as possible. As such the company has been criticised for the use of overseas labour in unacceptable conditions (Business Week 2009) and the use of poor quality materials (MACNN 2006). As a product which is marketed as a premium product with high prices passed on to the consumer for contemporary theology this would appear to be a poor strategic decision on the behalf of Apple for which the only motive may be seen as the consideration of short term profits.

4.5 Customer support

As a high value purchase customer support may be seen as an integral part of any such offering so as to reduce the prospect of post purchase dissonance (Brassington and Pettitt 2007, Jobber 2007). Apple may be seen as offering support for the I-Pod product in a number of ways. In the first instance there company offers the traditional considerations associated with customer support, the Apple main web page offers access to a number of levels of support. At the first stage Apple offers what may be seen as “self service” support in which the consumer is able to access frequently asked questions, tutorials and download replacement manuals. At the next level of valued added support the company offers a telephone service which is charged at a standard call rate. Finally there are the full value adds support services and include extended warranties as well as exchange and repair possibilities.

Whilst customer support is often considered as having an association with problems be they related to problems with the actual product or the consumers technical inability to work the product there should also be a consideration of how a company supports a consumer in getting the most out of their product. A key value adding area when such levels of support are considered are the bolt on extras which come in the form of the I-Tunes system and downloadable upgrades thus adding significant value for the consumer from a support perspective.

Appendix of research

Research methods:

This section will now outline the research methods which were used in the project before going on to give the relevant samples.

Interviews:

A series of five interviews were used to gather highly qualitative data to be used in the project. The researcher is presented with a number of methods of interviewing ranging from the fully structured interview with a set series of questions to the informal interview with little structure. The advantages of the first method are that the researcher is assured of having answers to a predetermined set of questions at the end of the interview. Despite this is there is the consideration that such an approach is inflexible and does not allow the interviewer to explore areas of interest which may arise during the process. On the other hand the completely informal interview may be seen as having the opposite qualities, the advantage of such a method is the broad flexibility of approach which allows the interviewer and interviewee to explore any number of possibilities. Despite such flexibility there is the consideration that such a method may lead to the gathering of a large amount of irrelevant data thus creating a wasted opportunity for the researcher. As such the researcher in this case has opted for a hybrid method using the semi-structured interview, as such the interviewees were given a series of themes rather than questions to discuses thus allowing both flexibility but giving an overall structure to the interview.

The themes for the interviews were largely based upon the Pro-forma’s and consisted of the following discussions:

What is the nature of value for any product?

What are the physical attributes of value for a portable music player/I-pod?

What are the non-physical attributes of value for a portable music player/I-Pod? (Prompt brand, lifestyle etc if unsure)

The value of service/support

The value of business ethics on a product

General discussion about rival and substitute products and there values

Interviews were conducted in a public place and lasted around 15 minutes in duration each.

Questionnaires:

Questionnaires were used in this research project so as to ascertain information in a quantitative format, whilst qualitative data allows the researcher to explore a given area of interest at an in depth level quantitative data is much more useful in identifying statistical trends over a wider sample of people than could be achieved from the use of interviewing in the time scales involved. In constructing the questionnaires the relevant pro-former’s were used again as the basis for the division of the questions as this was the same method used in the analysis of the themes to be explored in the interview section the researcher has been able to validate the research further by comparing the results of both the questionnaires and the interviews which largely highlighted similar themes and trends in relation to consumer values. Each questioner was issued and completed on the spot by willing participants after confirming the qualification of either owning or intending to own an I-Pod or competitor product in the next 12 months.

Questionnaire example:

1. When considering “value” which of the following are important (pick up to 2):

Price Physical Attributes Reputation Brand Perception of others

2. When considering “value” in relation to a portable music devise what are the important factors (Tick all that apply):

Price Lightweight construction Durability User-friendly technology Storage capacity Street creditability Compatibility with other systems Ability to use as part of another activity eg running Customer support Other (Please state)______________

3. When considering “value” in relation specify to the I-Pod please indicate which elements you believe the product delivers value on (Tick all that apply):

4. When considering “value” in relation specify to the I-Pod please indicate which elements you believe the product fails to deliver value on (Tick all that apply):

5. Please give any other comments you feel relevant to the value for which you perceive in relation to either the I-Pod or a rival portable music product offering.

_________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Sampling techniques:

Having constructed the relevant questionnaires and interviews it is necessary to consider whom to distribute the questionnaires amongst and whom would be a relevant candidate for interviewing. As such those to be included in the research may be referred to as a sample, the fairest way to gain unbiased data may be to conduct a random sample. In a random sample is one in which a selection of the population at large is used for the purpose of the research method regardless of any qualification or demographic consideration such as age, gender or ethnic background. However since this project is specifically associated with a given product the I-Pod in this case there is the consideration that the data collected from such a wide proportion of the population including many who may have no interaction with the product may produce irrelevant data thus skewing the results further down the line. As such the researcher has decided to limit the sample using a random sample but with the qualification that the participant must either own an I-Pod or similar product or be considering the purchase of an I-Pod or similar product within the next 12 months. This method of sampling will be used for both the issue of the questionnaires as well as the selection of candidates for the interview process. In addition so as to aid the process of achieving a random sample the issue of questionnaires will be carried out at three different locations at three different times of day.

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Value Chain Portfolio

Value Chain Portfolio

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