There are two major ways in which a company can gain a competitive advantage through its value-providing strategy in today's markets. The first is by offering lower prices for the value being provided. And the second is by creating a product of differentiated value for the customer.
The latter option seeks to be different in the way that it provides some aspect of customer value. It is premised on this singular question—what can I do differently regarding the product/service or customer value offered? And while several business leaders have proposed the answer to this question, we'll examine it through the value curve model in this article.
What is it?
The Value Curve model provides a framework for identifying where a firm's value is created and how it is delivered through its products or/and services. It offers a broad view of the competitive landscape to determine where market share is positioned and where it is headed. And then, it'll point you to the areas where your competitors are investing and the markets where they are operating.
The value curve model affirms that an efficient business strategy focuses on how a business can distinguish itself from the competition. It emphasizes providing a unique value proposition that creates a new market space in return for a significant market share.
There are four ways to make changes to the product as per the value curve model, all of which may apply to a new or existing product. They are as follows:
Raise
This describes the measures you can take to enhance the value or improve the quality of a product so it can serve the customer better.
Reduce
This describes the measures to reduce the resources invested in a product or value-creating factor that fails to provide commensurate customer value.
Create
This describes how you can provide a specific customer value by delivering a differentiated product or service.
Eliminate
This describes the product features and elements you may remove as they do not add value to justify the prices customers pay for them.
The product offerings are graphed out on the vertical axis in the value curve diagram. At the same time, the various factors the industry competes on are represented on the vertical axis.
When the graph is plotted, a high score shows customer satisfaction as the company invests in the relevant area. On the other hand, a lower score implies that the required customer value is not being provided or that a gap exists somewhere.
When do we use it?
The value curve model has proven useful for certain business purposes, and here are a few of them.
To identify room for improvement
The value curve model provides a means to feel the market's pulse and know where the action or value is concentrated. This also helps you figure out your contribution level to this value pool. And you can now plan towards making the relevant improvement if you fall short.
To discover market opportunities
The market will sometimes present us with an opportunity to make a breakthrough. And a value curve analysis can help you position yourself to take advantage. You can use it to identify an unmet need and any other market potential you can leverage later.
To create a competitive strategy
The value curve model can help you understand the competitive outlook in your business environment. And then, it will give you clear insight into what factors your competition is invested in. You can use this information to create your business's competitive strategy.
To measure market performance
How do you compare value creation and distribution against your competitors? Are there prevailing customer needs you're not positioned to meet or industry capabilities you don't have? The value curve model can help you find answers to these questions.
What business questions is it helping us to answer?
Below are some of the most critical questions the value curve model helps you answer about your business or a product (value).
The Raise question
How can I improve any of my existing business components or aspects to provide better value to the customer?
The Reduce question
Are there any aspects of the business or product that are not adding value to compensate for their costs and can thus be scaled down?
The create question
Are there any particular product qualities or features of the specific value you can offer in the market that is not currently available?
The Eliminate question
Are any product features or functions incapable of adding real customer value relative to their price and can thus be disposed of?
How do we use it?
Here are a few quick guidelines for adopting and using the value curve model.
Identify the value curve elements
Specify your industry's major competitive factors, some of which may include price, functionality, product cycle times, etc. Represent these factors on your graph's horizontal axis. On the vertical axis, identify the products offered by you and your competitors based on these competitive factors.
Plot the value curve
Plot the points for yourself and your competitors and connect the points to show the value curve. The higher the score, the more effective you're at meeting the customer's needs and vice-versa. The graph will give insight into what competing factor offers the biggest market prospects. It'll also show you the gaps in what areas and the various ways you can compare favorably against your competitors.
Make inference from the value curve
Using this information, you can start looking at ways to refine or modify your product to suit your value curve. You can now ask yourself the four strategy questions (raise, reduce, create, and eliminate) and use the answer to design your product strategy.
Practical Example
An industrial printer manufacturing company uses the value curve model to check how it compares in key performance areas against the industry's leading names. It fares well under such competing factors as print speed, low running costs, and duplex printing, which are some of the industry's key capacities.
And then, it discovers a gap in the direct label printing area as no companies offer this service. It adopts drop-on-demand label printing technology, a technology that becomes unique to it. This gives it a competitive advantage in the market and thus creates a new market space that it can exploit for profit.
Advantages
It can help you identify market gaps and opportunities
The value curve model provides a framework to identify various market prospects and unmet customer needs. This provides an opportunity to deliver products that can close the gap and open up space for market capture.
It provides a means of strategy validation
Factors like your market and competitive experience can influence the type of business strategy you adopt. And the value curve model offers a means to collect relevant market data from your competitive environment.
It can help you create a competitive advantage
Knowing what your competition is doing and not doing is crucial to competing strongly against them. You can identify critical needs that have not been met by them or a cheaper and more effective way to meet these needs.
Disadvantages
It does not always consider internal factors
With the value curve model, there's a tendency to overlook the internal value-creating factors that affect a company's market performance. This happens when you focus too much on external competitive factors at the expense of organizational influences like levels of staff training, process efficiency, etc.
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