Value Creation

Value refers to either low cost or differentiation. Firms create low cost value by making their products for a lower cost than any other firm in their industry. Firms create differentiation value by making products with distinctive characteristics that consumers want (when customers value differentiation, they must be willing to pay a premium price).

When competing, firms need to address the question of how to create value so customers can buy its products. A framework developed to discuss how firms can create value is called value chain analysis.

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