How an Understanding of The Value Chain Help Explain The Emergence of The Business Models
The
term value chain describes the way of looking at a chain of activities that
transform inputs into outputs that customers value. It is called value chain
because at each stage of the value chain, value is added to the products or
service that enhances the quality, nature, taste, style, cost or some other
characteristics of the product.
The
purpose of the business model is to help firms realize its potential to earn
profits.
The
value chain consists of two activities:
- Primary activities
- Support activities
The
primary activities consists of a
group of interrelated activities such as the acquisition of inventory or raw
materials from suppliers, transformation of the raw materials into finished
goods, distribution or transfer of the finished goods to end users, advertising
or promoting the goods to attract customers, and lastly providing extra
services to customers (e.g. installation, warrantee, repairs, etc.) as a means
of gauging customer interest towards the goods.
The
support activities as the name
implies consists of those activities that render support to the firm’s primary
activities.
The
ability of a firm to spot those areas of the value chain which will add value
to its product will influence the firm’s capacity in gaining competitive
advantage and maximizing profit.
In
summary, the profit maximization and competitive advantage directly leads to
the importance and relevance of a business model.
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