User talk:Nrjimenez

VALUE CREATION

- The more value customers place on a firm's products, the higher the price the firm can charge for those products.

- A firm has high profits when it creates more value for its customers and does so at a lower cost.

Price < Perceived Value

Price a firm charges for a good or service is typically less than the value placed on that good or service by the customer.

Consumer Surplus - the difference between the price the firm can charge for their products and the value they put on those products becuase of COMPETITION.

Customer's Reservation Price - individual's assessment of the value of a product

V Consumer Value P Market Price C Cost of Production

Consumer Surplus = V-P
 * In part determined by the intensity of competitive pressure in the market place.

Profit Margin = P-C

Value Added = V-C
 * Value Creation - a company creates value by converting inputs that cost C into a product on which consumers place a value of V.

Create Value: 1. Lowering production costs 2. Making the product more attractive - Superior design - Functionality - Features - Quality

2 Basic strategies for creating value and attaining a competitive advantage in an industry: 1. Low Cost Strategy - strategy that focuses primarily on lowering production costs. 2. Differentiation Strategy - strategy that focuses primarily on increasing the attractiveness of a product

Efficiency Frontier - all the different positions that a firm can adopt with regard to value creation and low cost

It is very important for management to decide whether the company wants to be positioned with regard to value (V) and cost (C), to configure operations accordingly, and to manage them efficiently to make sure the firm is operatingon the efficiency frontier.

The Firm as a Value Chain Value Chain - series of distinct value creation activities

Primary Activities 1. Research and Development (R&D) - concerned with the design of products and production processes. - Increases the functionality of products, which makes them more attractive to consumers - Efficient production processes, thereby cutting production costs 2. Production - concerned with the creation of a good or service. - Performing activities efficiently that lower costs - Performing activities in a way that more reliable and higher quality product is produced 3. Marketing and Sales - discovering consumer needs and communicating them back to the R&D function of the company, which can then design products that better match those needs. 4. Service - provide after-sale service and support

Support Activities 1. Materials Management (Logistics) - control the transmission of physical materials through the value chain, from procurement through production and into distribution. 2. Human Resources - ensures that the company has the right mix of skilled people to perform its value creation activities effectively. - Ensures that people are adequately trained, motivated and compensated to perform their value creation task. 3. Information systems - refer to the electronic systems for managing inventory, tracking sales, pricing products, selling products, dealing with customer service inquiries and so on. 4. Company infrastructure - includes the organizatinal structure, control systems and culture of the firm.

PROFITING FROM GLOBAL EXPANSION

Firms that operate internationally: 1. Realize location economies by dispersing value creation activities to those locations around the globe where they can be performed most efficiently and effectively. 2.Realize greater cost economies from experience effects by serving an expanded global market from a central location, thereby reducing the costs of value creation. 3. Earn a greater return from the firm's distinctive skills or core competencies by leveraging those skills and applying them to new geographic markets. 4. Earn a greater return by leveraging any valuable skills developed in foreign operations and transferring them to other entities within the firm's global network of operations.

Constrain on profitting from global expansion: IMPERATIVE OF LOCALIZATION Need to customize: - Product offering - Marketing strategy - Business strategy to differing national conditions

LOCATION ECONOMIES - A strategy where the economies that arise from performing a value creation activity in the optimal location for that activity, wherever in the world it might be (TRANSPORTATION COSTS & TRADE BARRIERS Permitting) - It can lower the costs of value creation and help the firm to achieve a low cost position - It can enable a firm to differentiate its product offering from those of competitors

CREATING A GLOBAL WEB - Strategy where different stages of the value chain are being dispersed to those locations around the globe where perceived value is maximized or where the costs of value creation are minimized