PVA Model

Product Market Domain

Product

What do we sell?

Come up with a framework to list the products that the company has, a sensible way to order them.

Buyer

Who is our buyer?

Who are these people? Warning: don’t list why they like the products. Who are they? (example: say “treehuggers” not “people who want to save the environment”)

Geography

Where do we sell?

Order in a sequence of where the product was made available

Value Proposition

Customer Value Proposition

Why will they buy (when they have other choices)?

There are lots of reasons a customer would buy, order them in order of importance to the customer. These ideas can be correlated, so figure out the unique thing that separates them.

Profit Value Proposition

Why will we make money (when they buy from us)?

What are the costs? What is the price? A normal company will have normal costs and normal prices. A premium company sells at high prices, so they can have high costs. A discount company needs to have low costs, so they can sell at low prices.

Activity Set

How? The set of actions to deliver the chosen value prop to the chosen product market.

What to write:

1. Things that are distinctive (different from what others do)
2. Things that affect revenues or costs.
3. Things that are substantive (large in magnitude)
4. Be unstructured before structured. First list these things, then revise them to impose a structure.

General Business Structure

Parts of a Business:
1. Procurement
2. Logistics
3. Operations
4. Finance
5. General Management
6. HR
7. Marketing
8. Sales
9. After Sales Service

Porter's Five Forces

i.e. Structural Analysis

Benefits of Structural Analysis:

• Provides a comprehensive structural mapping of the opportunities and threats in the external environment
• Provides an understanding of the opportunities and threats of power distribution in an industry
• Helps to formulate strategies to reinforce the postive attributes of an industry and neutralize the negatives.
• Helps to understand when/whether to enter/exit an industry
• Helps to understand when/whether to enter/exit a segment

This analysis address how to capture value in an industry, but it does not address how to create value.

Industry Rivalry

Effects profit through revenue.

Number and concentration of competitors

Highly concetrated firms will be more disciplined about pricing ("tacit collusion," "oligopolist restraint"). Large amount of firms makes it harder to retaliate to a single firm for pricing changes. The number is determined by how many can satisfy a single order, not simple the addition of all firms that exist.

Rate of growth

If the industry has a high rate of growth, then firms will not have to compete on price to grab a share of the growing market. If the industry has a low rate, firms will need to compete on prices to grab market.

Nature of product

Commodity:

1. Few attributes of distinction
2. Distinctive attributes you can measure
3. Buyer's value calculation is simple

Specialty:

1. Many attributes of distinction
2. Distinctive attributes are immeasurable
3. Buyer's value calculation is complex

Cost structure

What is the incidence of fixed costs versus variable costs? If the industry has high fixed costs, then the industry has a discounting dynamic.

Supplier Power

Effects profit through costs.

Number and concentration of suppliers

Highly concentrated suppliers will be more disciplined about pricing.

Alternatives Available

A firm has less power if they rely on few suppliers, but those suppliers have many customers.

Threat of Vertical Integration

If the threat is high, then suppliers can negotiate harder. In this case, your suppliers would be your competitors. By being in the same business, they'd have more information about your costs.

Switching Costs

If switching costs to the firm are high, the supplier power is also high.

Buyer Power

Effect profit through revenue.

Number and Concetration of Buyers

Highly concetrated buyers will be more disciplined about pricing.

Alternatives Available

Whoever has more options has more power.

Threat of Vertical Integration

Some firms do tapered integration, so they're partially integrated. By having insight into the business, they have more information about the firm's costs. This is a credible threat only when it's efficient and effective.

Nature of Buying Process

Is it more scientific or emotional?

Switching Costs

If switching costs to the buyer is high, the power for the firm is high.

Proportion of the Cost that is the Firm

If the firm's product is a high proportion of the buyer's costs, then they'll be more likely to negotiate.

Threat of Substitutes

Effects profit through quantity sold.

Attribute comparison

For a product and all of its substitutes, list attributes in order of priority to the customer, with price at the bottom. Use this to compare how each substitute ranks. Firms can be competitive by finding market segments that dont care about their low-ranked attributes.

Price is the equilibrator element. After all attributes are evaluated, if a product is ranked low, the firm would need to offer low price to compete.

Barriers to Entry

Capital required to enter a business

High costs are a high barrier. Some firms will try to invest in suppliers to mitigate this barrier (so their suppliers have more competition, less power).

Economies of Scale

These would increase the amount of capital required to start a business. Look at the TAM and access how much capital it would require to have a scale efficient business. (In CC&S, canning companies only needed to capture 0.4%)

Product Differentiation

Highly unique products are a barrier to entry.

Accumulated Investments

Expert knowledge, patents, protected IP.

Preemptive Investments

Switching costs.

DuPont Analysis

Return on Equity = Net Income / Total Equity

This is a simplified form of

Return on Equity = (Net Income / Sales) x (Sales / Assets) x (Assets / Total Equity)

Value Creation

Value is created when somebody buys and uses something producers made.

The value stick

Willingness to Pay (WTP) (consumer surplus = WTP-R) Revenue (R) Cost (C) (supplier surplus = WTS-C) Willingness to Sell (WTS)

Value Creation = WTP - WTS

Willingness to Pay

WTP = fn[Added value, Irrational factors]

Key aspects:

• Changes across time and space (ex. tech gets better but people pay the same amount; a $6 coffee would have been weird before starbucks)
• Habits can be irrational
• WTP > R; or else no one would want it

How to Monetize WTP

> Quantity

Put an item on sale so that customers will buy more. If you're in a high FC business, doing this lets you amortize the FC.

> Revenue

Offer a promotion to encourage customers to come use a product, like a fun atmosphere so that the dinner is of value to the customer.

Drivers of WTP

in order of ability to manipulate

1. Product-Need fit
2. Availability of Complements
3. Availability of Substitutes
4. Economic (income), Social (my friends have it), Psychological (habits) anchors
5. Need Criticality

Product-Need Fit

A business needs to discover the preference structure of its customer: subneeds, relative importance, level the need is to be satisfied.

Steps to discover Need Dimensions:

1. Identify the need to be addressed
2. Identify alternatives to addressing this need
3. Identify the pros and cons
4. Collate the results across all alternatives. Consolidate the ones that are very close or opposites of each other
5. Articulation of Attributes & Evalutation of Alternatives. In a table, list the attributes in a column in order of priority/weight, list the products in row, and fill in the level at which each alternative addresses each attribute.

Complements

A complement increases the value or expands the market for the focal product.

When people are evaluating a product, they're evaluating the joint experience -- the product + its complements.

> Bundling

When products are bunlded by the consumer, they're complements. When products are bundled by the firm, they're inputs.

> Profit

Complements increase the quantity and decrease revenue. Consumers have a finite WTP on a joint experience, so a complement can increase demand for the that but the revenue is now shared between the product + complement.

> Frameworks to Identify Complements

Enabling v. Enhancing

Enabling Complements: Your product has no value without them.

Enhancing Complements: Your product is enhanced with the complement but it's not critical.

Fragmented v. Concentrated

Fragmented Complements: Many firms provide the complement.

Concentrated: Few firms provide the complement.

Generic v. Specific

Generic: The complement is provided for many product categories (ex. banks provide financial services for lots of things)

Specific: The complement is provided for only one product category (ex. apple phone case only fits that specific phone)

Private v. Public

Private: The complement is for only one brand within the product category (ex. lightning charger for iPhone)

Public: The complement is for all brands within the product category (ex. USB-C charger)

> Strategic Implications of Complement Relationships

Complements are critical to developing your industry. Your complements are your natural allies against your substitutes. Friends in quantity, enemies in price Private complements can be a source of competitive advantage Complements can be used to recharge your market

Some Nice Advice

Rule 1

Be specific and detailed

Rule 2

Organize Information along some dimension (for example: with Tesla, we ordered the cars by time of entry in the market)

Rule 3

Find the relevant counterfactuals. Apply rule 1 to what did not happen by looking at competitor’s moves. (for example: with Tesla, we compared to how other car companies added EVs to their product mix)