TS 4
Creating & Leveraging New Market Space by Developing a Value Curve
Overview of Today’s Class
- Understanding the general procedure for new market space creation with the value curve
- The nature of head-to-head competition and assumptions of “conventional” marketing
- Avoiding head-to-head competition and the assumptions of value innovation
- Tool 1: The value-curve
Conventional Marketing Strategy
- Assumes that industry conditions are given
Industry
Structure
(Competitors +
Customers)
Firm
Strategy
(Cost or
Differentiation
Based)
Firm
Performance
(Above Average
or
Below Average)
Conventional Marketing Strategy
- Conduct an Industry Analysis
- SWOT analysis
- Competitive benchmarking
- Segmentation of industry customers
- Determine source of competitive advantage – this drives your choice of strategy
- Position on a cost-basis (Wal-Mart, Dell, Southwest)
- Position on differentiation-basis (Apple, Sony, Intel)
Conventional Marketing Strategy
- Then, execute your strategy well
- Protect and steal market share
- Keep on refining your segments
- Try and find greater profits in tinier segments
- Leverage your capabilities to their maximum
- If all of the above steps (industry analysis; choice of position; and execution) are right, then
- Above average performance will result
Problems with Conventional Marketing Strategy
- Leads to head-to-head competition over time
- Why?
- Objective is to protect or steal market share
- With competitive benchmarking – strategies converge
- Products start looking very similar
- Segments start getting smaller and smaller – very little new space
- Price competition results
The (Real) Problem with
Conventional Marketing Strategy
- Occurs when industry matures
- Meaning?
- Increasing functionality AND
- Decreasing prices
- SIMULTANEOUSLY! – (Try and survive that!)
Some Example Industries
- Airlines
- Personal Computers
- Electronics
- Automobiles?
- Financial Brokerages
SO NOW, WHAT?
Use the VALUE CURVE
- In extremely mature product categories characterized by
- Increasing functionality AND
- Decreasing prices
- To help visualize market space that is genuinely new AND can be profitable
- To demonstrate the form that a product or service can take in highly competitive space
Few Examples of Companies that have
Created New Market Space
- Home Depot
- Accor***
- Bert Claeys – Kinepolis***
- Charles Schwab
- Southwest Airlines
- Dell Computers
- Target
- Curves
- Crest Whitening Strips
5 Assumptions to Create a Value Curve
Think like an entrepreneur
- What if you were a new entrant to this market?
- What if you were not constrained by existing assets?
Assume that industry conditions can be shaped and are NOT given
- Think “Matrix”
5 Assumptions to Create a Value Curve
3. DO NOT FOCUS on competition in mature industries
Only way to make a quantum leap in value to dominate the market
4. FOCUS on total solution sought by bulk of customers
Meta-markets
5 Assumptions to Create a Value Curve
5. FOCUS on the COMMONALITIES in what customers value NOT THE DIFFERENCES
Focusing across segments and industries
Almost a mass-market approach with a key difference
Implications for conventional segmentation?
4 Step Procedure for Creating Value Curve
Select the mass market
Identify factors of competition
Map the performance level of existing
solution providers
Create a new value curve keeping profitability
and communicability in mind
Step 1: Select the Mass Market
- Define mass market
- Generally 2 largest segments
- Use combination of $ volume and segment size
- Remember, you are picking CUSTOMER segments, but it really does not matter
- In practice, you are picking SOLUTION providers
- Choice of segments = Choice of competitors
- Where do you look for solution providers?
Step 1: Select the Mass Market –
Where to Look?
- Across strategic groups within industries
- Across functional or emotional appeals to buyers
- Across substitute industries
- Across chain of buyers
- Across complements
Step 1: Select the Mass Market – Example
- Across strategic groups within hotel industry in 1985 France for business travelers
- Accor in 1985
- All 1 star hotels
- All 2 star hotels
Step 2: Identify Factors of Competition
- Involves creating and mapping factors of competition for your mass market
- What does the mass market receive from existing solution providers?
- What factors do existing solution providers currently invest in?
Step 2: Identify Factors of Competition - Example
- What did Accor’s mass market receive from existing solution providers?
- Room price per night
- Room quietness
- Room hygiene
- Bed quality
- Room amenities
- Receptionist and front desk staff
- Room size
- Lounges
- Restaurants
Step 3: Map the Performance of Existing
Solution Providers
- Involves creating and mapping factors of competition for your mass market
- Start creating a 2-dimensional graph that highlights relative performance of the 2 critical competitors
- X-axis – state all important factors
- Y-axis – relative performance of 2 sets of solution providers
Step 3: Map the Performance of Existing
Solution Providers
- Remember – keep it simple – ‘High” and “Low” levels of performance
- RELATIVE to each other
- Map all important factors
Step 3: Map the Performance of Existing
Solution Providers - Example
Step 3: Map the Performance of Existing
Solution Providers - Example
Price
Room Quiet
Hygiene
Bed Quality
Room Amenities
Receptionist
Room Size
Lounges
Restaurants
1-star
2-star
HIGH
LOW
Step 4: Create a New Value Curve
- Ask “What will cause customers to trade between 1 set of solution providers for the other?”
Step 4: Create a New Value Curve
- Then, make sure you conduct all 4 of the following actions
Reduce factors
below
industry standard
New Value
Curve
Raise factors above
industry standard
Eliminate
unnecessary
factors
Create
new
factors
Step 4: Create a New Value Curve
- Which factors to raise above industry standards?
- The ones that make the mass market trade between 2 sets of solution providers
- Which factors need to be created?
- Those which if created, will cause the mass market to switch
Step 4: Create a New Value Curve
- Which factors to reduce below industry standards?
- The ones that are needed but not deal-breakers – “hygiene factors”
- Which factors need to be eliminated?
- Those that the mass market is indifferent to
- “Couldn’t care less if present or not”
Step 4: Create a New Value Curve - Example
- Accor
Factors Raised
Bed quality
Hygiene
Room quietness
Price performance
Factors Created
Convenient Location
Factors Reduced
Room Size
Factors Eliminated
Receptionist
Lounges
Restaurant
COST
REVENUE
Step 4: Create a New Value Curve Example
- Accor’s Value Curve
Price
Room Quiet
Hygiene
Bed Quality
Room Amenities
Receptionist
Room Size
Lounges
Restaurants
Accor
1-star
2-star
HIGH
LOW
Location
Step 4: Communicability of New Value Curve?
- Litmus test – A simple, tag-line
- Can you state the new position in a short, concise statement?
- Accor
- “An excellent night’s sleep at an affordable price”
Step 4: Profitability of New Value Curve?
- Profitability results from 3 actions
1. Reduction and elimination of performance leads to lower costs
2. Creation and raising of performance leads to increased revenues
3. Sustainability of profits over time comes from a volume strategy that combines the 2 largest segments AND lowers price
- Economies of scale in supply
- Drawing customers from other segments
The Nature of Competition
- Competitors will play catch-up
- Sustain as long as you can
- CNN
- Home Depot
- Bert Claeys
- The necessity of repeating - again & again & again….
Now You Do It – These have already done you just need to explain steps and draw curves
- IKEA
- Listerine strips
- Swiffer
- Southwest Airlines
- Lifetime Fitness
These companies have already created curve – you tell me how they did it…