costs: proportional or not

fixed costs • salaries (fixed

contracts)• rent• machines

variable costs

• production materials• distribution costs• salaries

(outsourced)

# mosfets Price/unit % discount1 0,2110 0,19 10%100 0,17 19%

cost advantages

economies of scale– bulk buying– mass production

can add value by lower price, but also by …

economies of scope– marketing – distribution

can add value of status, convenience, …

cost & management decisions

capex (capital expenditure): investments, long term, assets that go on the balance sheet of a company, depreciation

opex (operational expenditure): running costs, day-to-day, “used up”, expenses

e.g. 3d printer is capex, materials, electricity and maintenance are opex

cost and value proposition

• cost driven > race to the bottom• value driven > money is not an issue

Playing field lies between the extremes

Many service industries e.g. hotels, restaurant, airlines, have both budget and luxury operators and a range of options in between