Value Creation And The Components That Can Be Used Essay

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1. Define value creation and the components that can be used to determine value creation per unit. How is value creation related to competitive advantage?

Value creation is creating value for the customer. Being able to solve or meet the customer requirements. Value is created whenever an action is taken for which the benefit exceeds the cost.
Value creation per unit includes the following components:
• V-P = Consumer Surplus
• P-C = Profit margin
• V-C = Value created where o V = Value o P = Price o C = Cost of production
Value creation can lead to higher sales. In terms of competitive advantage, a product could offer more value to the customer for the same or lower cost. There are two ways this can be broken down: 1. Lower prices to generate demand in the market or 2. Increasing price to reflect higher value.
Higher value can attract more customers or increase the profit margin for the value add benefit.

2. What is a value chain? Why is efficiency so important in an organizations value chain?
Value chain is a set of activities a company performs in order to provide a valuable solution to their customer problem in their market space or industry. The value chain is made up of primary and support activities. Primary activities being research and development, production, marketing and sales and customer service. These are the primary steps that are required to get a product or service to market to solve the customer problems. Some of the secondary steps include company

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