Page 69 - DMGT308_CUSTOMER_RELATIONSHIP_MANAGEMENT

Customer Relationship Management

Notes Value chain analysis can help an institution determine which type of competitive advantage to
pursue, and how to pursue it. There are two components of value chain analysis: the industry
value chain and the organization’s internal value chain. The industry value chain is composed of
all the value-creating activities within the industry, beginning with the first step in the course
development process, and ending with the completed delivery of courses and related services to
the learner. Porter (1985) identified five competitive forces interacting within a given industry:
the intensity of rivalry among existing competitors, the barriers to entry for new competitors,
the threat of substitute products and services, the bargaining power of suppliers, and the
bargaining power of buyers (see Figure 3.3). Analyzing these forces will reveal the industry’s
fundamental attractiveness, expose the underlying drivers of average industry profitability,
and provide insight into how profitability will evolve in the future, given different changes
among suppliers, channels, substitutes, competitors, or technology.

Figure 3.3: Industry Competitive Forces

Source: Shank and Govindarajan (1993, p. 58).
The structural attractiveness of the distance education industry is also determined by the same
five underlying forces. In 2001, Porter argued that, while the Internet has helped distance education
to expand impressively, it has only changed the front end of the industry process

The concepts of fixed and variable costs are central to cost analysis, in particular to understanding
the behaviour of costs, and to cost/volume/profit (CVP) analysis.
CVP analysis is concerned with how profit is determined by sales volume, sales price, variable
expenses, and fixed expenses. A major application of CVP is in breakeven analysis, which
provides a concise presentation of the relationship between cost and volume changes, and their
effect on profit. The breakeven point is the point where total revenue equals total expenses,
resulting in neither a profit nor a loss. Once “breakeven” is achieved, net income will increase
by the contribution margin per unit for each additional unit sold. From a managerial perspective,
fixed costs increase the risk to the company because they cannot be altered once incurred;
therefore, online learning increases the risk to the institution. This kind of cost structure creates
greater pressure for managers to engage in destructive price competition.

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