Components of value creation per unit:
I. Value (Utility) to consumer - V
II. Price - P
III. Cost of production - C
IV. Consumer surplus - (V – P)
V. Profit margin (P-C)
Competitive Advantage is a condition or circumstance that directs a company to achieve greater than average profitability of firms in its industry. It puts a company favorable and superior business condition. Proper value creation increase company 's profitability.
A company has many functions, such as production, marketing, product development, service, information systems, materials management, and human resource. All these functions have a role in lowering the cost structure and increasing the value of products through differentiation. Value chain is an idea that a company is a chain of activities (all functions) for transforming inputs into outputs that customers value.
A business is simply transforming input to output. Inputs are basic factors of production, such as labor, land, capital, management, and technological know-how. Outputs are the goods and services that the business produces. Efficiency is the quantity of inputs that it takes to produce a given output,
efficiency = outputs/inputs.
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... relation. Customer have the power or ability to increase product value in the market. So, to sustain competitive advantage companies should keep good relation with customers.
Value creation is a business term. Company create value to facilitate the customers of goods or services and also for the owner of the business to raise profitability. Profitability of a company depends on three factors:
1. The value customers place on the company’s products
2. The price that a company charges for its products
3. The costs of creating those products.
When a company raise its products value, it can increase the product price to reflect the value or reduce the price to attract more customers to purchase its products. Thus good customer relation help value creation, and have strong effect on its components (Price. Cost of production, Consumer surplus, Profit margin)
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