MGT 247 Exam 2

net profits/invested capital
- ratio measures how effectively a company uses its total invested capital

superior performance relative to other competitors in the same industry or the industry average

other firms are unable to duplicate the benefits of the focal firm's strategy

they tend to be reflected in stock price, thus determining the firm's market valuation

stock price reflects the firm's past, current, and expected future performance (external and forward looking measure) (more profitable and faster growing)

increases, decreases

difference between buyer's willingness (v) to pay and firm's total cost to produce (c)

having a superior product (V increase) and a relative cost advantage over rivals (c decrease)

it is divided between consumer and firm

-affects the consumer's purchase decision
-consumers typically purchase product w/ highest consumer surplus (not lowest price)

-charge higher prices to increase profit
-charge same price as competitors and gain market share

not simple to figure out, value of good in consumers eye can change, basically an estimization

accounting profitability, shareholder value, economic value

assess the performance of the firm accurately using acc. data, compare their firm's performance to other competitors in the same industry or against the industry average

Generally Accepted Accounting Principles (GAAP), Financial Accounting Standards Board (FASB),

enhance the data's usefulness for comparative analysis

ROIC: return on investment capital
ROE: Return on equity
ROA: Return on assets
ROR: Return on revenue

value, decrease value

how much of the firm's sales is converted into profits

it's historical and thus backward looking, doesn't consider off balance sheet items, focuses mainly on tangible assets,

1. razor-razorblades
2. subscription
3. pay as you go
4. freemium
5. wholesale
6. agency
7. bundling

the initial product is often sold @ a loss or given away for free, helps drive demand, $ made primarily on replacement parts

users pay for access to a product or service (traditionally used for print media)

users pay for only the services they consume

(free + premium), provides basic features free of charge, users pay for premium services

products sold @ fixed price to retailers, retailers mark up prices to make a profit

producer relies on an agent or retailer to sell the product, producer may also control price

products/services for which demand is negatively correlated at a discount, can create a barrier to entry (hard to enter industry if not bundling)

Analysis, Formulation, Implementation

performance is determined by value and cost positions relative to competitors

a tension between to choice to gain strategic positioning; increase WTP or keep costs in check
-> thus firms need to choose between a value or cost in most cases

"How will we compete to gain & sustain competitive advantage" (in a single product market)
--> strategic position & competitive scope

strategic business units; standalone divisions of a larger conglomerate w/ a single product

the size (narrow or broad) of the market in which a firm chooses to compete

-through differentiation (doing something different from competitors that increase customers' willingness to pay)
-cost leadership: doing something different from competitors that decreases the cost product or service

product (or service) features, customer service, complements

economies of scale, learning curve, experience curve, lower input costs, technology, product design, policy choices

decrease in cost per unit as output increases

learning by doing; through trial and error
experience: process innovation

the successful introduction of a new product or process

-new sources of competitive advantage
-renewing current sources of competitive advantage

idea, invention, innovation, imitation

introduction, growth, shakeout, maturity, decline

market size is small, slow and uncertain growth, only a few firms

market size is increasing rapidly, competitive rivalry is low (high demand growth), a common set of standard emerge

demand growth decreases, # of firms decreasing, price competition becomes important, process innovation further increases

market has reached it's max size, few large firms remain, competitive intensity is high, very little new entrants

demand falls, strong pressure on prices, 4 options: exit, harvest, maintain, consolidate

architectural, radical, incremental, disruptive

lower probability of success but creates more value, built on new/existing technology and established knowledge

creates a new market

-scale more efficiently
-unlock new sources of value creation
-benefit from community feedback
-success occurs when positive network effects are realized

direct positive effects that one user has on the value of a product for other users
-direct: value increases with # of users
-indirect: buyer _ sellers connected via a platform