Competitive Intelligence

1. Competitive Intelligence Week 9 Competitive Advantage And Value

2. Value = Quality / Price* *Perceived quality and Perceived price

3. Value Creation and Profitability • Consumer surplus: • maximum that consumer is willing to pay (monetary value of the perceived benefit) • MINUS the price • Value created: • consumer surplus + producer’s profit

4. P, Lower consumer surplus Price indifference curve Product D Product A Product C Product B Higher consumer surplus q, quality The Value Map

5. Price Indifference Curves q, quality

6. Value Created and Economic Profits Value created = Consumer surplus + Producer surplus = (B - P) + (P - C) = B - C If (B-C) is not positive the product will not be viable. Where B = Benefit, P = Price, and C = Cost

7. Value Creation(Aluminum cans) Sharing of value Creation of value

8. Increasing Consumer Surplus • Increasing the perceived benefit • Selling at a lower price • Reducing the cost of using the product • Reducing the transactions costs

9. Michael Porter’s Value Chain VALUE Price, Service, Quality, Reliability, Safety, Prestige, No problems Convenience, And More Adapted from Michael Porter, Competitive Advantage, Free Press, New York, 1985, p. 46

10. Value Chain • Defining value for a given market segment • Each activity: • Can potentially add to perceived benefits • Adds to costs • Value Creation, Resources and Capabilities • Configure its value chain differently from competitors (business model) • Perform the activities more effectively than rivals (with more resources* and capabilities**) * Patents, Brands, Reputation, Culture ** Business functions, skills

11. P, C, Price, unit cost indifference curve E PE F PF CE DC Dq CF q, quality qF qE The Strategic Logic of Cost Leadership DP Consumer surplus parity in F CE – CF > PE – PF PF – CF > PE – CE Higher consumer surplus Where F refers to cost leadership and E to other industry players

12. P, C, Price, unit cost indifference curve F PF E PE CF DC CE Dq q, quality qF qE The Strategic Logic of Benefit Leadership DP Consumer surplus parity in F PF – PE > CF – CE PF – CF > PE – CE Higher consumer surplus Where F refers to differentiated producer and E to other industry players

13. Framework for Competitive Advantage

14. Conditions Suitable for Cost or Benefit Advantage Cost Advantage • Nature of product doesn’t allow benefit enhancement • Consumers are price sensitive • Search good rather than experience good Benefit Advantage • Willingness to pay a premium for benefit enhancements • If economies of scale & learning already exploited, differentiation is the best route • Product is an experience good

15. Competitive advantage through pricing

16. Competitive dynamic EfficiencyFrontier P, C, indifference curves Pa Pb Pc q, quality qa qb qc

17. Efficiency Frontier & ROA

18. Regression toward the mean High ROA ROA Low ROA Years

19. Limited Sales Increases Limited Profits Focus on Costs Almost a Zero-Sum Game

26. A manga adventure through the world of wine

28. In Tokyo, wine sellers monitor his weekly pronouncements before adjusting their stocks accordingly. In newer markets like Taiwan and urban China, his recommendations are turning the newly affluent into wine converts. And in Seoul, South Koreans now hold forth on “terroir” and how a bottle “marries” with a particular dish without blinking.