Upscale Market: Value Creation in a Mature Industry

[Chapter 7 Case Study]

Upscale Market: Value Creation in a Mature Industry

I. [context of case]

Upscale Markets was a seven-store local grocery chain located in Dallas, Texas and owned by Black Ives. Ives was interested in online grocery shopping and was inspired by the huge success of a virtual store by Tesco named Home Plus in Korea. The way online grocery shopping works is similar to online shopping for clothes, toys and etc. The products can be seen on a website and the website allows customers to purchase the grocery items and get them delivered to their homes or business. To get more insight about online grocery shopping, Ivers called his friend Cantera who did online grocery shopping with Rice Epicurean, located in Houston, Texas. Cantera explained that everything was done through a system called MWG. MWG is known for their quick start up time. Although online shopping seems easy like 1,2,3, it is for the customer but not for the company servicing the customer. For example, there is the potential issue of how to fit the taste of customers to gain customer satisfaction-ripe bananas or non-ripe bananas? Seems so trivial but could cause a problem for a customer who like to online shop but starts to go to an actual store because he is not receiving his bananas how he likes them. Customers who do online shopping believe that it provides flexibility and cost-time efficiency. Customer value is a very important topic in this case. The service that is provided must have enough power to increase the customers willingness to pay for online service rather than going to an actual store.

II. [central issue]

Blake Ives, CERO of upscale markets was at a crossroad of whether to start building on online store to see future growing profit.

III. [theoretical framework]

[The Analysis of Added Value]

The analysis of added value is a formal mechanism that managers and analysts use to answer the questions and to evaluate how much of the value created the firm can appropriate in the form of profits. [When Ives called his friend to see how the online grocery store worked for him and how much profit can be made is an example of the analysis of added value.]

[Components of Value Created]

Firms Cost [FC]- Firm cost is the actual amount of money for firm disbursed to acquire the resources needed to create its product and service. [An example of this was Ives figuring how much is would cost for MWG to implement the online service.]

Customers Willingness to Pay[CWP]- Customers willingness to pay is the maximize amount of money the firm’s customers are ready to spend in order to obtain the firms product. [An example of this finding example of his friend who him and his wife just had a baby and they were willing to pay the extra fees in order to get their items delivered.]

Total Value Created [TVC]- Total value created in the transaction is computed as the difference between customers willingness to pay and supplies opportunity cost. [ the profit margin]

[Computing the Total Value Created]

Simply defined, value is the difference between customers willingness to pay and supplier opportunity cost that is valued is created when resources that in their next best use would be worth a given amount are transformed into something that a customer is willing to pay for.

[Value Appropriation]

Value appropriation is the process by which the total value created in the transaction is split among all entities who contributed to creating it.

[Added Value]

A firm’s