1. Economic Value Creation
B189

2. Agenda
The model
Value
Cost
Price

3. V-P-C model
Three elements
Value
Price
Cost
Value
Price
Cost

4. V-P-C model Three elements Value Price Cost Value Price Firm Profit

5. V-P-C model Three elements Value Price Cost Value Consumer surplus
Firm Profit
Cost

6. Target products at specific segments Marketing
Value
Innovation
Create new products that do ‘more’ or do things better
Target products at specific segments
Differentiation/segmentation
Marketing
Raise demand / desirability

7. Economies of scale and learning
Cost
Economies of scale and learning
Better deals from suppliers
Bargaining power with buyers
Functional specialization
Off-shoring
Automation
Process innovation

8. Industry concentration Differentiation Switching costs
Price
Industry concentration
Horizontal integration
Differentiation
Quasi-monopoly
Switching costs
Customer retention programs

9. Firm profitability depends on three things:
Summary
Firm profitability depends on three things:
The value it creates
The cost it incurs in doing so
And the proportion of the added value it has created that it can appropriate by raising price