INMA_A01.QXD

Value can be created for the customer by reducing costs of providing goods and serv-

ices andadding benefits for customers:


within eachelement of the value chain such as procurement, manufacture, sales and

distribution;


at the interface betweenelements of the value chain such as between sales and distribution.

In equation form this is:

Value = (Benefit of each VC activity – its cost) +

(Benefit of each interface between VC activities – its cost)

Rayport and Sviokla (1996) contend that the Internet enables value to be created by

gathering, organising, selecting, synthesising and distributing information. They refer to

a separate parallelvirtual value chain mirroring the physical value chain. The virtual

value chain involves electronic commerce used to mediate traditional value chain activi-

ties such as market research, procurement, logistics, manufacture, marketing and

distributing. Michael Porter also stresses the importance of information:

because every [value chain] activity involves the creation, processing and communication

of information, information technology has a pervasive influence on the value chain.

Porter (2001)

Understanding how Internet technologies can be used to process, transfer and share

marketing-related information is vital to help Internet marketers evaluate and revise

value chain activities. For example, if a grocery retailer shares information electronically

with its suppliers about demand for its products, this can enhance the value chain of

both parties since the cycle time for ordering can be reduced, resulting in lower inven-

tory holding and hence lower costs for both. The retailer can also set up links between

its online product catalogues and all appropriate comparison intermediaries for products

using data transfer technologies such as XML. This is the mechanism used by shopping

comparison sites such as Kelkoo and Pricerunner, so it is important for online retailers to

CHAPTER 2· THE INTERNET MICRO-ENVIRONMENT

Figure 2.5Two alternative models of the value chain: (a) traditional value chain model,

(b) revised value chain model

Market

research

New

product

development

Market

products

Procure

materials

Inbound

logistics Production

Human resources

(a) Primary value chain activities

(b)

Secondary value chain activities

Finance

Information systems

Outbound

logistics

Sales

and

marketing

Procure

products

Manage

selling and

fulfilment