Value innovation is a business strategy first presented by W. Chan Kim and Renée Mauborgne in their book “Blue Ocean Strategy.” It suggests that companies can succeed not by battling competitors but by creating “blue oceans” of uncontested market space.
In the context of this strategy, value innovation is the simultaneous pursuit of differentiation and low cost, resulting in a leap in value for both the company and its customers. It involves creating and introducing unique elements or features that can distinguish a product or service from competitors while potentially lowering costs.
Value innovation is not about technological innovation but the value it provides customers. This could come in the form of reduced price, increased functionality, increased convenience, improved design, or some other aspect that brings new value to customers. The goal is to make the competition irrelevant by creating a leap in value for both the company and its customers.
For example, if a software company develops a unique, user-friendly interface that drastically reduces the time customers take to complete tasks, this could be value innovation. The company isn’t just competing on price or features but creating a new market space where their product’s speed and ease of use sets them apart.
Value innovation framework
The value innovation framework can be considered an element of the Blue Ocean Strategy. It involves a set of steps to facilitate the creation of new value for customers and the organization, ultimately aiming to make the competition irrelevant. Here is a basic overview of the value innovation framework:
- Strategy Canvas: This is a diagnostic and action framework for building a compelling blue ocean strategy. It captures the current state of play in the known market space. The horizontal axis captures the range of factors the industry competes on and invests in, while the vertical axis captures the offering level buyers receive across all these key competing factors.
- Eliminate-Reduce-Raise-Create Grid (ERRC Grid): This grid pushes companies to systematically explore the four actions of eliminating, reducing, raising, and creating factors in their industry. It helps to discover a new value curve.
- Eliminate: Consider factors that the industry takes for granted and could be eliminated.
- Reduce: Determine whether products, services, or other factors could be reduced below the industry standard.
- Raise: Identify which factors could be raised well above the industry’s standard.
- Create: Discover and create new factors that the industry has never offered.
- Buyer Utility Map: This tool helps the company to identify all the levers the company can pull to deliver exceptional utility to buyers. There are six stages of the buyer experience cycle and six utility levers. The intersection of each stage and lever offers a potential occasion to create new value.
- Price Corridor of the Mass: This method is to help pinpoint the right price to attract the mass of target buyers. It involves identifying the price corridor of the mass and, within that corridor, choosing a level of pricing that best represents the objective of the company’s strategy.
- Blue Ocean Idea Index: This is a tool for assessing the commercial feasibility of a blue ocean idea. It rates the idea across the six principles of blue ocean strategy: reach beyond existing demand, get the strategic sequence right, pursue differentiation and low cost, reconstruct market boundaries, focus on the big picture, and overcome key organizational hurdles.
- Four Actions Framework: This framework helps create a new value curve by answering four key questions: Which factors the industry takes for granted should be eliminated? Which factors should be reduced well below the industry’s standard? Which factors should be raised well above the industry’s standard? Which factors should be created that the industry has never offered?
- Three Tiers of Non-customers: This model helps companies reach beyond existing demand to unlock a new mass of customers that did not use the current market offerings.
By following this framework, companies can create products or services that break away from the competition by adding unprecedented customer value.
Creating Shared Value: Explained with Examples
Value innovation examples
Here are a few examples of value innovation:
- Cirque du Soleil: By reinventing the concept of a circus, Cirque du Soleil eliminated expensive elements like animal shows and star performers that were standard for the traditional circus industry. They created a unique blend of theatre, art, and circus to appeal to a new group of customers, namely adults and corporate clients who were ready to pay a much higher price for a sophisticated entertainment experience. This is a classic example of value innovation, where they didn’t compete directly with traditional circuses but created an entirely new market space.
- Southwest Airlines: Southwest Airlines, one of the pioneers of low-cost travel, exemplifies value innovation in the airline industry. They eliminated certain aspects considered “essential” by other airlines, such as seat assignments, meals, and interline baggage transfers. Simultaneously, they created a new value proposition—low fares, friendly service, frequent point-to-point departures, and the convenience of ticketless travel. They drastically reduced costs and passed those savings on to customers through low fares.
- Apple’s iPod and iTunes: They revolutionized the music industry When they first launched the iPod and iTunes. Before iPod, the digital music market was cluttered with incompatible devices and music platforms. Apple created an easy-to-use device (iPod) and a convenient platform to purchase and store music (iTunes), offering a seamless music experience. By doing this, Apple wasn’t directly competing with other music player manufacturers or music platforms but creating a new market space where they were the leaders.
- Netflix: Netflix created a new business model in the video rental industry. Instead of charging late fees for each movie rental like Blockbuster, Netflix introduced a subscription model, allowing customers to rent as many movies as they wanted for a flat monthly fee. They also eliminated the need to visit a physical store by delivering DVDs via mail and later by streaming content directly to consumers’ devices. This drastically increased the convenience for consumers and made the traditional video rental model obsolete.
These examples of value innovation showcase how companies can redefine value propositions to create new market spaces and make the competition irrelevant.
Innovation Strategies: Explained with examples and framework
Value Innovation Strategy for Organizations
To implement a value innovation strategy in an organization, the following steps can be considered:
- Reassess the Market: The first step is to look at the market from a new perspective. This involves identifying the factors the industry takes for granted and systematically questioning their necessity.
- Understand customer Needs: Value innovation requires a deep understanding of what customers value. This often involves looking beyond the current customer base to understand the needs and desires of non-customers or under-served customers.
- Create a Value Curve: Use the strategy canvas, a central diagnostic and action framework for creating a compelling blue ocean strategy. It captures the current state of play in the known market space and visually represents the company’s competitive position in the industry.
- Use the ERRC Grid (Eliminate, Reduce, Raise, Create): This tool helps you to think about which factors to eliminate, reduce, raise, or create to differentiate your offering and lower costs. The idea is to create a new value proposition that breaks away from the competition.
- Explore New Technologies or Processes: New technologies can often provide opportunities for value innovation. Consider how new technology can be used to meet customer needs in a new and better way.
- Implementing the Changes: Once the organization has identified a potential area for value innovation, it must align its resources and processes to deliver on this new value proposition. This might involve changes to the product, changes in how the product is produced, or changes in how the product is marketed and sold.
- Continuously Evaluate and Adapt: Once a value innovation strategy has been implemented, the organization needs to evaluate its effectiveness and adapt as necessary continuously. This might involve adjusting the product, changes in strategy, or even pivoting to a new area of value innovation.
Remember that value innovation is not about competing within the confines of the existing industry or trying to do things a little better than the competition. It’s about looking at the market from a new perspective and finding ways to create a leap in value for the customer, creating a new market space.
