## Value Creation
### What is Value?
Value is measured by a product's features, quality, availability, durability, and performance — essentially what customers are willing to pay for.
### Three Foundational Concepts
| Concept | Meaning |
|---|---|
| Utility | Satisfaction/happiness gained from consuming or owning the product |
| Price | What the customer pays |
| Value | Utility as perceived by the customer |
> Utility is what customers get; price is what they pay. These must not be confused.
### Three Determinants of a Company's Profitability
1. The value customers place on the company's products
2. The price charged for the products
3. The costs of creating those products
### Value and Competitive Advantage
- Michael Porter argues companies can generate competitive advantage through differentiation or cost advantage.
- Value creation leads to competitive advantage → which leads to above-average profits.
- Many businesses now focus on value creation for both:
- Customers — better products and services
- Stakeholders — returns for investors, meaningful work for employees