The Value Chain

1
(No Transcript)
2
What is Marketing?

• Marketing is much more than advertising and
  selling
• For individual organizations, marketing is all
  decisions and activities involved in getting and
  keeping customers

3
The Scenario

• The Location
• Utopinasia
• The Characters
• David and Hugo
• David and Hugo make their own clothes
• The Props
• Shirts and Pants

4
Working Life in Utopinasia

• Hugo spends all his day making pants - 6 per day
• Hugo spends all his day making shirts - 10 per day

• David spends all his day making pants - 6 per day
• David spends all his day making shirts - 6 per
  day

5
If Hugo and David each spend half their time on
pants and half on shirts, and can produce half
the goods in half the time, they will produce
Shirts Pants Davids
production 3 3 Hugos production 5 3
Total Production
When Comparative Advantages in production exist,
total production will be higher if everyone
specializes in their areas of comparative
advantage.
6
Comparative Advantage The Basis for Exchange

• Absolute Advantage
• Hugo has absolute advantage in shirt production
  (10/6)
• Neither person has absolute advantage in pants
  production (6/6)

• Comparative Advantage
• David has comparative advantage in pants
  production
• David - ratio of pants to shirts (6/6) 1.0
• Hugo - ratio of pants to shirts (6/10) 0.6
• Hugo has comparative advantage in shirt
  production
• David -ratio of shirts to pants (6/6) 1.0
• Hugo - ratio of shirts to pants (10/6) 1.6

7
Total Production in Utopinasia

• If Hugo and David completely specialize in their
  area of comparative advantage, they will produce
• Shirts Pants
• Davids production 0 6
• Hugos production 10 0
• Total Production (2) 10 6

8
Principles of Economics Illustrated

• Comparative advantage in production motivates
  specialized production (to achieve higher total
  production)
• BUT .

9
Principles of Economics Illustrated

• Comparative advantage in production motivates
  specialized production (to achieve higher total
  production).
• Specialized production results in discrepancies
  of assortment which must be resolved through
  trade.

10
Comparative Advantage The Basis for Exchange
What will Hugo and David need to do for the
trade to take place?
11
Market-Making Activities

• Marketing Activities
• Communication
• Transportation
• Storage
• Negotiation

What factors affect the cost of these
activities? TRADING COSTS
12
Lets Put David and Hugo on Separate Islands

• How do the marketing activities change?
• What factors will have to be considered in
  trading shirts and pants between international
  markets?