Company Value Chain Analysis
Read the overview below and complete the activities that follow.
Until recently, premium linens have largely been sold in retail stores and are often offshoots of fashion labels (such as Calvin Klein) that license their names to home products. Layers of licensing fees, distributors, and retail markups help boost the price to consumers. A set of sheets that cost less than $100 to make may carry a retail price of $450 or more.
Boll & Branch luxury linens, which claim to be of the highest-grade long-staple organic cotton, cost $250, delivered directly to your door. It arrives in a gift box and nestled in bags of sheeting fabric and layers of tissue paper. You can't buy them in a store, and there are limited choices for patterns, colors, and packages. All sheets are sold in sets that include pillowcases.
It costs Boll & Branch about $68.46 to make a set of its sheets, before shipping, packaging, and warehousing. That includes fees to the mill and the raw materials. The company buys cotton raw, seeds and all, in India. While "made in Italy" is a typical luxury boast, Boll & Branch notes its organic cotton is fair trade, as is its factory in India.
The founders had misgivings about workers' treatment in the textile industries which led them to research sources of raw cotton and working conditions in factories. They rejected a number of European factories because they couldn't verify the cotton sources. They donate $5 of each sheet set sold, (or about 10% of actual profits) to Not For Sale, an anti-human-trafficking group.
In this activity you will be asked to evaluate the value chain for Boll & Branch, a maker of luxury linens and bedding sold directly to consumers online. Review the information on value chain in Chapter 4.
Review the information in Illustration Capsule 4.1 (also included below) concerning Boll & Branch’s average costs of producing and selling a king-size set of sheets, and compare this with the representative value chain depicted in Figure 4.3. Then answer the following questions.
Boll & Branch A king-size set of sheets from Boll & Branch is made from 6 meters of fabric, requiring 11 kilograms of raw cotton S 28.16 12.00 9.50 3.00 15.80 Raw Cotton Spinning/Weaving Dyeing utting Sewing Finishing Material Transportation Factory Fee S 68.46 Cost of Goods Inspection Fees Ocean FreightInsurance Import Duties Warehouse Packaging Customer Shipping Promotions/Donations Total Cost Boll & Branch Markup Boll & Branch Retail Price Gross Margin 5.48 4.55 8.22 8.50 15.15 14.00 30.00 Packing S 154.38 About 60% S250.00 S 95.62 Source: Adapted from Christina Brinkley, What Goes into the Price of Lucury Sheets? The Wall Street Jownail, March 29, 2014, si.covaricles SB10001 424052 702303 725404579461953 672838 672 (accessed February 16, 2016).
1. Which of Boll & Branch’s costs correspond to the primary activities depicted in Figure 4.3?
2. Which of Boll & Branch’s costs correspond to the secondary activities depicted in Figure 4.3?
3. What value chain activities might be important in securing or maintaining Boll & Branch’s competitive advantage? Explain.