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For a firm to capture value, it must first create that value and convey it to their consumers. “Value can be created in two ways: First, by producing an offering (a good or service) that is worth more to customers than its cost to produce; and second, by preventing the production of an offering that is worth less to the market than its production cost” (Myler, 2013). The value is destroyed if the firm is paying out more to produce a product than its actual market price.
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A very important first step to generate revenue is to create value. According to Chapters 6 and 7, “firms often can capture value if they exploit their market power. Sometimes firms can capture value, even without market power, if they employ superior factors of production that allow them to be more productive than their rivals” (Brickley, Smith, & Zimmerman, 2016, p. 283). To remain competitive, if the market price and demand decreased, some firms were still willing to produce products.
A firm that has been able to create value is Starbucks. Starbucks captured value by making sure that everything they do honors that connection—from their commitment to the highest quality coffee in the world, to the way they engage with their customers and communities to do business responsibly. They created the Starbucks Foundation to show their commitment to strengthen communities. In 1997, they funded literacy programs in both Canada and the United States. Now they are advocating communities all over the world. Starbucks is providing opportunities for youth, engaging in community service, supporting coffee, tea, and cocoa communities, and giving access to clean water. “The Starbucks Foundation gave $6.9 million in 2015, making 128 grants to nonprofit organizations. Grants included $3 million for Starbucks Opportunity for Youth Grants and $1.5 million in social development grants. The Starbucks Corporation gave $29 million in cash, including $14 million to the Starbucks Foundation. Corporate giving included funding for community-building programs – including the Global Fund through our partnership (RED) and other efforts – and $29.3 million in in-kind contributions” (Starbucks, 2017).
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A firm does not always capture value even though they have created value in their product or service. There are many ways a firm can create value in their product or service. A company can have a higher quality product or service as some people believe that Apple does with their products and services. “They also can increase the effective demand for their products—and thus total value created through transactions—by affecting variables such as expected product quality, prices of complements, or prices of substitutes” (Brickley, Smith, & Zimmerman, 2016, p. 262). Apple also has created value by having a large supply of complements to their main products they sell. Apple initially captured value by having a niche in the market with their iPod, iPhones, and iPads, they were the first in the market to create such devices and therefore gain superiority. “Sometimes firms can capture value, even without market power, if they employ superior factors of production that allow them to be more productive than their rivals” (Brickley, Smith, & Zimmerman, 2016, p. 269). Though their prices are higher, Apple is always inventing new products and services to create more value. “Inventing new products and services also creates value” (Brickley, Smith, & Zimmerman, 2016, p. 265). As competitors realized the market for such digital devices that Apple were producing, they found the means to produce similar products. Apple has been always working on capturing value by coming up with the next greatest product or service for their customers. “Given these changes, it is unlikely that any competitive advantage will last forever, unless the firm can find a succession of new value-increasing strategies” (Brickley, Smith, & Zimmerman, 2016, p. 280). Apple has worked hard on constantly creating value by being diverse with their products. Apple began with their computers and various hardware, moved into software and the early laptops, to iPods, iPhones, and iPads to create such a diverse company in digital computing technology. “Value is increased only when the benefits of diversification are larger than the costs” (Brickley, Smith, & Zimmerman, 2016, p. 285). As Apple became more diversified, they took advantage of the benefits from their diversification. “What is necessary is that the manager be a ‘visionary’ and make sound investments in developing the skills and capabilities to compete successfully in the future” (Brickley, Smith, & Zimmerman, 2016, p. 290). Steve Jobs was a bullish visionary that brought Apple from a small computer company in 1977, to a technological powerhouse they are today. Without his vision to produce products to keep capturing value with his company, they would have surely fallen to be just another computer company with no real identity or value.
