Class 1 - Introduction to Strategy & Value Creation Flashcards
What is a successful strategy?
Effective Implementation:
A. Clear, consistent long term goals
B. Profound understanding of the competetive environment
C. Objective appraisal of resources
Rumelt: What is a bad strategy?
- Failure to face the problem
- Mistaking goals for strategy
- Bad strategic objectives
- Fluff
What makes a company successful?
WTP willigness to pay - Customer value (created)
Price - your profit (value captured)
Cost - suppliers value (profit)
SOC suppliers opportunity costs
What is a competetive advantage?
Competitive Advantage = (WTP – SOC)you – (WTP – SOC)rival
Competitive Advantage = (WTPyou – WTPrival) – (SOCyou – SOCrival)
What drives competetive advantage?
Do your offerings create more VALUE than competing offerings for a given product/market segment?
How can we configure our ACTIVITIES in such a way as to enable value creation?
Which RESOURCES and CAPABILITIES do we need to pursue our intended activities? And how will these resources evolve over time?
WTP
Willingness to pay is the highest price a customer is willing to pay for your product or service. Customers are more likely to make a purchase when companies charge any amount up to that threshold.
The difference between the price and the WTP is the value created for the customer = The level of goodwill, loyalty, and brand enthusiasm the customer feels after making a purchase.
Price
Price refers to the final price a company charges when it sells a product or service. It can be set at any point between a firm’s cost of production and its customers’ willingness to pay.
Price - Cost = value captured = the firms profit
Customers receive the difference between their willingness to pay and the actual price, while the company gets the difference between the price it charges and the costs associated with creating the product.
Cost
Cost refers to how much money goes into producing a product or service, including all of its components.
The lower a firm’s cost, the higher the value it can share with its target customers. This creates competition between a firm and its suppliers that work to drive the price up to maximize value.
SOC
The lowest price a firm’s suppliers are willing to accept in exchange for the raw materials needed to create products. Their SOC represents the lowest point they’re willing to drop before it no longer makes sense to pursue a sale.
The difference between the suppliers’ willingness to sell and what they charge the firm is known as suppliers value / profit and represents the value captured from a sale at the firm’s expense.
