Profit Pools


This case describes the concept of the profit pool. A profit pool depicts the contribution of revenue and profit from different value chain markets or segments in an industry and aids in the visualization of different profit and revenue sources in an industry. The case explains the profit pool concept through the discussion of the cinema business, the healthcare industry, the coffee industry, and big tech. In addition, the case discusses two industry characteristics associated with the profit pool concept. The first, a choke point, refers to a certain type of activity or type of company in an industry that has strong influences on the flow of profit throughout the industry. The case uses roasting value chain activity in the global coffee industry to illustrate the choke point in this industry and Amazon and Google are also discussed as examples of choke points for their industries. The second characteristic is the smiling curve shape of a profit pool, which is common in industries such as personal computers, cell phones, and apparel. Finally, the case discusses the implications of the profit pool concept on corporate strategies. Students are asked to consider, from the perspective of profit pools, what kind of value chain market(s) in an industry a company should enter to maximize profit.

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