Tag: cost innovation

Guidelines: from red failure to blue value-based model

There is no ready receipt to make your business succeed, but their are components many successful companies embrace in order to go from red, bloody competition-driven mindset into a blue, value-based, innovation driven one. The name of the game must be value (for employees, customers, stakeholders, society and environment) innovation.

To build a viable and sustainable business model based on value innovation, the following four strategic dimensions need to be decided upon: buyer utility, price, cost, and adoption.

Business model strategic dimensions

To decide upon each of the dimensions above is equivalent to finding exhaustive and compelling answers to certain questions. For example, at the first stage, Buyer utility, to go or not go ahead with a service/product you are thinking of (re-) introducing to the market is determined by seeing whether your offer is useful and whether there is a compelling reason to buy it. If any of the two questions do not get a resounding YES, then you are risking to enter a competitive market without guarantee of attracting a big enough crowd or having to put forth your offer without getting expected/necessary revenues.

The most important part in Buyer utility stage is to position your product/offer on the following target “buyer map,” you will determine whether your product/service will create new demand/market (like Nikon is now trying to do, a market for energy goods or in a production of arts) or enter into an already existing market. The map also allows you to check existing competitor products/services, their locations and where the gaps, hurdles and unmet demand exist for your offer.

Buyer map

Essential for Price stage is to understand the economics of similar offerings. Target buyers will more eagerly buy a product/service recommended/referred to them by their peers/others rather than one that only few buy – network externalities. Hence, the need for correct pricing to attract that initial threshold of customers, which will then cause a snowball effect.

Another important factor for determining a price is the idea of rival (for example, production materials, which exclude their use by their rivals/competitors) versus non-rival (for example, ideas, which can be adapted/used by their rivals/competitors) types of products/services. By looking at similar offerings – same form and function; different form, same function; and different form and function, same objective – you will be able to narrowly define a price corridor for your target customers that will be feasible from your side (ensuring sales and profit).

For the Cost stage, the counterintuitive but winning strategy is to have price-minus costing rather than cost-plus pricing, if you are willing to have a cost-structure that is both hard-to-match for competitors and profitable. To be able to attain your preset cost target, there are three ways:

And finally, for Adoption stage, you need to consider that new things tend to always be met first with resistance even by those for whom they are made/offered. Hence, a need to clearly communicate, address issues and receive “acceptance” before going ahead with employees, stakeholders, target market, generic public.

Failing at any (or few) of the four strategic dimensions is what usually leads a company down the drain..

P.S. A more complete elaboraiton of this dicussion about value innovation and more can be found in “Blue Ocean Strategy.”