Competitive Advantages through Value Chain Analysis of The Estee Lauder

۳. Competitive Advantages through Value Chain Analysis of The Estee Lauder Companies Inc

It is important for The Estee Lauder Companies Inc to base its competitive advantage on activities in which it has access to the rare or scare resources. It may include- intellectual capital, assets, skills or distribution network. The Value Chain Analysis can help The Estee Lauder Companies Inc identify those activities and develop those areas to get a strong competitive edge over rivals. There are many examples (like Toshiba and Sharp) that consider Value Chain Analysis as a tool to get a competitive advantage and invest heavily in research and development activities within their value chain network. Porter’s generic strategies for achieving the competitive advantage and value chain model can be used together to set strong competitive advantage basis.

Following diagram shows Porter’s competitive advantage model:

The analysis of the value chain activities can be done to understand the competitive advantage sources. The Estee Lauder Companies Inc can either use the operations, marketing and other relevant value chain activities to avail the cost advantages or it can use the human resource, technology, infrastructure, service or other relevant activities to set the strong differentiation basis. Broadly, the competitive advantage sources can be grouped into two types- cost and differentiation. The Estee Lauder Companies Inc can obtain a competitive advantage from one or both sources, depending on the depth and breadth of its Value Chain Analysis. Next parts of the article present in detail how The Estee Lauder Companies Inc can configure primary and/or secondary value chain activities to achieve the desired cost and differentiation objectives.
4. Cost Advantage of The Estee Lauder Companies Inc
4.۱ Cost advantage through Value Chain Analysis of The Estee Lauder Companies Inc

The Estee Lauder Companies Inc can avail the cost advantages by reducing the costs associated with the value chain activities. However, it requires the company to firstly map the activities and then associate costs to make necessary adjustments. The connection between the value chain and cost leadership strategy reflects a parallel focus on the low cost operational activities. If The Estee Lauder Companies Inc aims to obtain cost advantage, it needs to identify each element within the value chain can be optimised to get the whole effect

A Value Chain Analysis Example for The Estee Lauder Companies Inc is that it can use the analysis as a tool to negotiate the best prices and maximise the in-bound and out-bound transportation processes.
Another Value Chain Analysis Example is using the value chain information to make modest advertising budget that can reduce marketing costs and offer the product at an affordable cost.

If The Estee Lauder Companies Inc aims for the low-cost, the Value Chain Analysis can optimise the profitability. If product differentiation is the aim of The Estee Lauder Companies Inc, Value Chain Analysis will help the company in maximising the efficiency and enhancing the product quality by improving processes.
4.۲ Cost drivers of The Estee Lauder Companies Inc Value Chain Analysis

The Estee Lauder Companies Inc can control following drivers to add value, set differentiation basis and enhance efficiency.

Organisational policies
Integration
Timing
Economies of scale
Linkages
Interrelationships
Capacity utilisation
Learning and Spillover

However, it is important to note that costs can be reduced only to some extent. The Estee Lauder Companies Inc Value Chain Analysis must also consider the customers’ perceived value that may justify the higher price charged by the company compared to competitors.
5. Company Differentiation Advantage

The Estee Lauder Companies Inc can obtain the differentiation advantage by analysing different value chain activities. For instance, a company can procure the unique and valuable inputs that are not easily available to competitors. The Estee Lauder Companies Inc can either reconfigure the whole value chain or change individual entities to set the differentiation basis. The cost drivers (such as timing, interrelationships, linkages, scaling and integration) can also be altered to develop uniqueness.

Some examples of differentiation through analysis of value chain are:

Forward integration or backward integration to exercise better control over inputs
Utilisation of new channels of distribution
Implementation of innovative process technologies.

۵.۱ Differentiation through primary value chain activities

The Estee Lauder Companies Inc can individually analyse the primary activities from all aspects and create differentiation basis by identifying the following sources:

Inbound logistics: possible differentiation basis for The Estee Lauder Companies Inc are:
Procure high quality inputs to offer high quality finished product
Effective incoming input handling to reduce damage
Operations: possible differentiation basis for The Estee Lauder Companies Inc are:
Flexible manufacturing system
Wide product range
Improved product appearance
Prevention of product pre-mature failure
Quick response to unique specifications
Improved customer satisfaction through lower defect rate
Improved product performance due to conformance to technical specifications
Outbound logistics: possible differentiation basis for The Estee Lauder Companies Inc are:
Effective handling and better shipping to reduce product damage
Timely product delivery
Flexible delivery capabilities
Effective order processing procedure
Marketing and sales: possible differentiation basis for The Estee Lauder Companies Inc are:
Improved relationships with suppliers and customers
Enhanced communication with customers by offering high quality information.
Brand awareness, reputation and image development due to extensive and effective advertising.
Effective coordination among product, research and marketing departments.
Wider sales force coverage.
Services: possible differentiation basis for The Estee Lauder Companies Inc are:
Superior service quality
High quality technical assistance
Reliable and quick repair/maintenance service

۵.۲ Differentiation through secondary value chain activities

The Estee Lauder Companies Inc can also analyse the secondary value chain activities to set differentiation basis:

Firm Infrastructure: The Estee Lauder Companies Inc can set differentiation basis through:
Extensive database development for effective marketing
Advanced information system to get deeper customer insights.
Human Resource Management- The Estee Lauder Companies Inc can set differentiation basis through:
Attractive rewards to encourage creativity and maximise productivity
Personnel training for effective interaction and superior customer service
Technological development- The Estee Lauder Companies Inc can set differentiation basis through:
Quick new product development
Innovation integration in product designing
Innovative product features with patented technology
Procurement- The Estee Lauder Companies Inc can set differentiation basis through:
Reliable transportation to ensure quick delivery
Procure high quality raw material and replacement parts.

۶. Value Chain Analysis Example

Value Chain Analysis of the The Estee Lauder Companies Inc can be better understood with the help of some examples.

By using Value Chain Analysis, The Estee Lauder Companies Inc can select and source premium quality raw material and develop customer loyalty on the basis of it. It can also use Value Chain Analysis to develop brand identity.
Starbucks provides a good Value Chain Analysis Example. The organisation created a strong brand identity and set a strong competitive advantage basis through aggressive marketing and strengthening coordination between marketing and product development department.
The Estee Lauder Companies Inc can also achieve competitive differentiation by speeding up the delivery of offered products to the final customers.
Pizza Hut provides another successful Value Chain Analysis Example where organisation outpaced competitors by re-configuring value chain activities to ensure quick delivery.
The Value Chain Analysis can also be used by The Estee Lauder Companies Inc to improve its human resource practices.
FedEx is a good Value Chain Analysis Example to understand how The Estee Lauder Companies Inc can achieve competitive advantage through analysis of its human resource activities.
FedEx emphasised over its value chain support activities, invested heavily on employee development, took excellent human resource initiatives and made visible infrastructure improvements, resulting into visible increase in brand loyalty and market share.
The Estee Lauder Companies Inc can analyse value chain activities to reduce the costs, find better deals with suppliers and offer high quality products at affordable prices.
A relevant Value Chain Analysis Example is provided by Walmart that continuously analyses its value chain activities to remain innovative, minimise operational costs and offer low-cost yet reliable services.
The Estee Lauder Companies Inc can analyse the support value chain activities to offer superior customer support. It can also analyse the operational activities to expand the presence in geographically dispersed areas.
It can be understood with the help of another Value Chain Analysis Example. Starbucks places high importance to analysing value chain activities and has successfully opened direct stores in more than 50 countries.
The Estee Lauder Companies Inc can also use the Value Chain Analysis as a tool to do backward integration. It can be done by merging or purchasing the suppliers to ensure timely raw material availability.
Apple provides a relevant Value Chain Analysis Example in this regard. The company is known for its efficient value chain and successfully controls the product and parts.
The Value Chain Analysis can also be done by The Estee Lauder Companies Inc to maximise the operational efficiency, reduce waste and integrate sustainability in business operations.
Intel is a good Value Chain Analysis Example that has reduced the waste and negative impact on the environment by analysing its value chain operational activities. The company has received appreciation for its waste reduction efforts.
The Estee Lauder Companies Inc can learn from value chain practices of Dow AgroSciences. Dow has used Value Chain Analysis to explore the unique marketing opportunities and extracted value from generic commodity market. The company has also used Value Chain to manage the risks at different product lifecycle phases.

The above-stated examples show how The Estee Lauder Companies Inc can benefit from conducting a detailed Value Chain Analysis. However, it is also important to note that the Porter Value Chain model application depends on the unique contextual variables that must be considered when assigning the weightage to primary and secondary value chain activities.
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