CH 8 Value Process Framework (VPF) • Measure effectiveness of strategy • Bring together Value Chain analysis & Five Forces • Main elements – Value creation – Value capture Value created = Perceived use value – Cost Perceived use value – The price that a customer is prepared to pay for the product if there is a single source of supply – Subjective – Categories for creation of value use: – Quality – functionality, durability, reliability – Speed – how fast a company can deliver a product – Brand – trust, emotional benefit Exhibit 8.3 Producers completely capture the value created in a (quasi-) monopolistic environment Value capturing Value creation € Price = Willingness to pay Perceived Value use value created Costs Value created = Producer surplus Cost – Cost of resources – labour, materials, information, capital – Cost of production, marketing, delivery – Selling costs Value creation: First necessary condition for building competitive advantage Value created must be larger than that of its competitors, imperfectly imitable and substitutable Not sufficient – does not talk about distribution from producers to consumers Select an industry Be prepared to discuss how at least 5 different companies in that industry create and capture value. - Value drivers - Cost Drivers
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