Value Innovation and Blue Ocean Strategy

Value Innovation – The Way to the Future

If you’ve ever seen an Andre Rieu concert, you will know that he has turned the concert of classical music on its head. Amongst other things, audience participation is deeply encouraged, he is a natural comedian that makes people in his audiences laugh a lot, and he makes light of even the most serious classical music. He is also very wealthy.

In today’s business world we have a surplus of similar companies, employing similar people, with similar education backgrounds, working in similar jobs, coming up with similar ideas, producing similar things, with similar prices and similar quality. We also have a surplus of similar brands, with similar brand attributes, similar marketing messages, making similar brand claims. The result? There is amongst today’s customers a nostalgia for something – anything – that’s different.

There are many companies, servicing both consumers and other businesses, which achieve the distinction of consistently charging higher prices that their customers don’t seem to mind paying, and keeping those customers coming back. The most obvious example, often thrown about in conversations, is Woolworths, as in: “We want to be the Woolworths of the motor car industry.” The reality is that there are many others: Avis Rent a Car, Harley-Davidson, Harvard Business School, Disney World, Liberty Life, Virgin Atlantic Airlines, Origin, and Exclusive Books are a few of them.

We are often asked how other companies can achieve the same. “What can we do to get our customers to keep returning, and willing to pay a higher price for our products and services?” Many authors have described the marketing strategies and choices that companies need to make, but they all seem to boil down to this: Your business needs to consistently keep coming up with innovative ways of adding value for customers.

Philip Kotler has identified four broad areas of differentiation: The product or service itself, the service and delivery, the quality of the people, and the image of the business. However, there are many more possibilities.

We recently met with a strategy professor at Insead, W Chan Kim, who, together with his colleague Renee Mauborgne, have further developed the science of customer loyalty. In their approach, called Value Innovation, (which is a tool used from their Blue Ocean Strategy ideas,) they propose that the high-growth companies of the future will radically change their industries by thinking differently about the rules, going beyond the conventional lines of thought. (The classic case study is Apple.)

Perhaps the most important point which they make is that these businesses “pursue a quantum leap in value… for customers” in order to dominate their industries, and, in many cases, they completely ignore what their competitors are doing. They challenge the industry status quo on a regular basis. For example, a short-term insurer in South Africa decided to give customers ten percent of their premiums back if they didn’t make claims for three years. In the space of about ten years, Outsurance has captured a big chunk of market share from its competitors. Another company, Hollard, went one step further, and introduced a motor-vehicle policy that charges you by the kilometre through its pay as you drive policy. Mr Delivery is yet another successful South African company that has broken the rules – and delighted its customers.

Chan Kim and Renee Mauborgne have suggested an approach that can be used by companies to implement the ideas of value innovation. Of course, their suggested approach is too detailed to go into here, but we will summarise some of the major thoughts below.

First, it is a good idea to map out the various stages of your customer’s experience cycle, from initial enquiry to final disposal. Thus a generic model would include: enquiry, purchase, delivery, use, maintenance, supplements and final disposal.

Second, at every stage of this process ask what you and your rivals in your industry compete upon. Where do you spend your money and resources? What are the “rules of the game”? What do customers get? Who are the “non-customers” and why would they buy from you?

Third, ask if it is possible to add-value in any number of ways. We have identified at least eighty-two ways to add value for customers, too numerous to list here. Some possibilities, however, include:

• Empowering customers by giving them access to information that they may previously not really had a chance to see;
• Speeding up processes so that customers don’t need to spend too much time in queues for example;
• Creating convenience and simplicity by allowing customers to do business whenever they want to, such as servicing their cars at night;
• Reducing their headaches and problems by arranging paperwork, such as tax directives, on their behalf;
• Adding some fun, or somehow making the experience personally memorable, such as offering a test-drive on the track at Kyalami, for example;
• Rewarding customers with special club membership such as Harley-Davidson and the HOG’s (Harley Owners Group.)

There are, of course, hundreds of possibilities. However, if you don’t keep finding innovative ways to add value, there are always going to be younger, hungrier, smaller, and smarter competitors that will be more than willing to do so.

It may seem, from the specific examples given above, that you need to start a new business from scratch in order to innovate, but there are many examples of established firms that have made the move successfully. Apple is a great example, as is Amazon.com’s online store. Both of these are businesses which, not too many years ago, were not considered “special” as they are right now. But both are also businesses that, over a number of years, gradually made the customer’s experience so positive that today the levels of loyalty are amongst the best.

Is it enough to only change a few things? Probably not. Like Virgin Atlantic, for example, there needs to be a constant flow of value innovations on a continuous basis to keep customers happy. But that “quantum leap in value” that Chan Kim and Renee Mauborgne talk about is easily eroded by imitators.

You can never relax.


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