Lesson 5 of 7 · 14 min
Value proposition, value chain and profitability
The value proposition is why customers choose the firm at its price; the value chain is how the firm is organised to deliver it; and the profit logic shows how prices and volumes cover fixed and variable costs, now or at greater scale.
In short
- Value proposition: the attributes customers value that make them prefer the firm's offering at its relative price; it combines who, what, where and how much.
- It draws on the product itself, the service and support behind it, the sale process and the price relative to rivals.
- The how: which labour, capital, relationships, intellectual property and capabilities the firm needs, and whether to own or contract for them; dependence on key suppliers is a risk.
- Value chain: the activities within one firm that create value for customers. Supply chain: every step to produce and deliver a product, inside and outside the firm.
- Porter's value chain has five primary activities and four support activities (procurement, HR management, technology development, firm infrastructure).
- Profit logic: margins, break-even and unit economics (revenue and cost per unit); with high fixed costs, unit costs fall as volume grows.
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