In today's fast-paced business world and its endless possibilities, you either stay afloat or be drowned out by the competition. The scenario that plays out will depend on what end of the value flow you are positioned. So the businesses that provide the value requested by their customers' request will continue thriving—those who cannot will lose their value.
The concept of value migration is premised on this theme, and this article discusses its impact on businesses.
What is it?
Value migration is a business strategy that revolves around shifting economic value from outdated business models to those aimed at meeting new customer needs. It recognizes that customer interests can swing in a different direction at any time. And as these interests and preferences change, the businesses that service them must adjust to the changes.
Directions of Flow
The value migration strategy (according to its creator, Adrian Slywotzky) suggests that value flows in the following ways:
Between Industries: Value can flow from one industry to another. An example is the gradual transfer of value from the petrol-consuming vehicle manufacturing industry to the electric vehicle manufacturing industry.
Between Companies: This is the flow of value from one company to another. An example is the increasing customer shift from Yahoo mail to google mail (Gmail).
Between business designs/areas within a company: This is the flow of value from one segment or unit of a company to another within the same company. An example is Netflix's switch from DVD rentals and purchases to online streaming services.
Stages of Flow
Adrian Slywotzky also offered the three distinct stages of value migration.
Value inflow: This is the attraction of value to a company due to its capture of certain value-creating forces. This inflow is a result of a superior value or a competitive advantage.
Value stability stage: This maturity stage is marked by a balance between the value gained and the value offered. The company will not experience significant growth or market visibility during this period, all while maintaining its profit margins.
Value outflow: This is a "decline stage" where the value starts shifting from a company to other companies that can meet the customer's newest needs.
When do we use it?
Below are some events that call for adopting the value migration strategy.
To Adapt to new technology
Businesses must flow with the tide of emerging technologies and trends or be swept away. So if 5G is the latest fad in communications technology, you must provide value in this direction or be left behind.
To Stay ahead of the competition
The battle for the biggest market share will push companies to innovate and evolve. The company that can provide the best value (at reasonable costs) will gain a competitive advantage.
To Pursue growth and diversification opportunities
When the need arises, a business may have to cross industry lines to continue providing value to its customers. A gaming console company may diversify into producing ergonomic chairs and tables to provide convenient gaming for its customers.
To provide a Unique Value Proposition
Customers are only interested in what you can offer. And if you can offer something unique and valuable to them, it'll be easier to attract and keep them in your corner.
What business questions is it helping us to answer?
What is my Unique Value Proposition (UVP)?
Your unique value proposition sets you apart from the competition. It is that specialty product or service that people associate you with.
What Do My Customers Want?
The value migration framework accepts that the ultimate function of every business is to meet its customer's needs.
What are the biggest market prospects?
For a business to prosper, it must look for opportunities to grow and flourish in the long term. It must seek to remain relevant and sustainable, even if it means going outside of its comfort zone.
How Do I Tap into a value flow?
If you have eyes on your industry trends, you'll see where the market is headed. This should give you an idea of where the value is shifting so you can plug into it.
How do we use it?
The key to using the value migration framework is intensive market research. This research will help you identify the value-creating forces that influence customer preferences. It is recommended that you;
Analyze the previous shifts in your industry and the events that caused them.
Monitor the market trends to know when a shift is imminent. Collect relevant customer feedback and find out what they want from your product/service.
Monitor the external factors that may influence the operating conditions of your business environment. You may undertake a PEST analysis to this effect.
Find out what technology is the latest or has the greatest potential. Look for the most effective, cost-friendly, and popular means to optimize your value chain.
Understudy your competition. Find out what value they are currently offering or have planned.
Do all of the above, and you'd have a firm idea of what direction your business's value will follow. You can now build a strategy around this knowledge to develop the product or service that'll provide the said value.
Practical example
Amazon is one company that has remained in the spotlight for a long time due to its ability to adapt and innovate. It has continued to provide value to its customers, even diversifying its portfolio to capture newer audiences. It has grown from its original book-sharing roots to become a global conglomerate. At various times, it has branched into merchandising, video streaming, etc.
Advantages
It can help you identify areas of competitive advantage
A value migration strategy can help you identify your biggest strengths or the areas where you perform best. You can now explore these areas and take advantage of them.
It promotes innovation
The strategy holds that businesses must innovate to thrive in a competitive environment. It holds that a business must pursue every means to provide value to its customers or be relegated by those who do.
It explores new possibilities
This strategy acknowledges that value is dynamic and can take a new shape at any time. Thus, it encourages businesses to be open to exploring new business opportunities across industry and market lines.
It focuses on the customer
The customer is at the heart of the value migration strategy. A business must stay close to its customers and adjust when necessary to meet their needs.
Disadvantages
Difficulty in predicting customer preferences
It is not always easy to determine or anticipate what value the customers will be interested in. There is the danger of making the wrong move or moving too soon.
The Cost of Value Migration
The shift to a new value-providing utility might come with a steep price. It is important to check if the gains that will be made from switching to a different vehicle will cover the expenses accrued while making the shift.
It may not benefit specialist businesses
If the value in your market shifts across industry lines, it may be difficult to adjust if your business is not designed to adapt.
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