Study Guide 2.docx - Competitive Advantage and Firm...

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Competitive Advantage and Firm Performance: Accounting Profitability o Compare and benchmark o Standardized o Profitability Ratios But it can only look backwards, doesn’t consider off balance-sheet items, and focuses mostly on tangible assets (Assets are increasingly intangible) Economic Value Creation – Buyers willingness to pay minus cost (V-C) - Consumer surplus = V-P - Producer surplus = P-C Limitations are that determining consumer value is not simple, value of goods change in customers eyes, to measure firm-level competitive advantage we must estimate value of all products and services Profitability Ratios: - ROI – Return on investment - ROE - Return on equity - ROA - Return on assets - ROR – Return on revenue Business Model: - Details competitive tactics and initiatives - Explains how firm intends to make money - Shows how firm conducts business (buyers, suppliers, partners) **Examples are razorblade, subscription, pay as you go, freemium, wholesale, agency, bundling Business Level Strategy: Goal directed actions managers take to achieve competitive advantage
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