The Value Curve Model

Chart a New Direction for Your Company

The Value Curve Model - Chart a New Direction for Your Company

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How does your strategy measure up?

Maya works as a project manager for a large multinational organization. She's been tasked with developing a new product that will really stand out from others on the market, and she's getting ready to present her strategy for its launch to the board.

She's done her market research, has tested prototypes with focus groups, and has completed a thorough competitor analysis. She's pretty confident that her product has the potential to fill a gap in the market that the competition has missed, but she wants to make sure that her findings are correct. She also wants to present her plan of action to the board in a quick and compelling format.

A simple strategy tool known as a "value curve" could be just what she's looking for. It helps you compare your strategy to that of your competitors, communicate it in an easily understandable way, and think about how you should shape it for the future.

What Is a Value Curve?

The concept of value curves was introduced in 1997 by academics W. Chan Kim and Renée Mauborgne. They believe that an effective strategy needs to have three main factors:

  1. A clear focus.
  2. Divergence from the competition.
  3. A compelling tag line.

The Value Curve model aims to fulfil all of these factors. It provides a useful framework for comparing your strategy against that of your competitors, by using a simple chart. This helps you focus sharply on the things that differentiate you from your competitors, and develop a clear and easily explained value proposition.

Figure 1, below, shows an example of how value curves can be used to compare strategies. In this example, the value curves represent the strategies used by a budget airline and a traditional airline. The factors on the horizontal axis show the key criteria or "competitive factors" that companies in this industry think are important. The vertical axis shows the degree to which the budget and traditional airlines invest in, or "value," each of these criteria.

Figure 1: Example of Value Curves for a Budget and a Traditional Airline

 

Terms reprinted by permission of Harvard Business Review. From “Value Innovation” by W.Chan Kim and Renée Mauborgne.Copyright © 1997 by the Harvard Business School Publishing Corporation; all rights reserved.

Unsurprisingly, the budget airline's proposition is based on affordability. Unlike the traditional airline, it doesn't offer extra services such as in-flight entertainment, extra legroom, fine dining, or access to major airports. It does offer things like snacks, drinks, car hire, hotels, and coach tickets as optional extras, which means that it can still offer its core product at a low cost that will appeal to customers on a budget.

Advantages and Disadvantages

Value curves help you to test whether your strategy is different enough from your competitors' to have a real impact. They also provide a clear, visual representation of your competitors' strategic profiles and the competitive factors present in your industry.

Essentially, by rating the level at which your organization and your competitors "value" each competitive factor, you can quickly identify where your strategies diverge. After all, trying to gain a foothold in an industry by copying a competitor's strategy would likely be a fruitless task. Instead, gain a competitive edge by making sure that your proposition is sufficiently different from theirs in a way that matters to your customers. If it isn't, you might want to think about a change of direction.

Value curves can also help you to identify gaps in the market, for example by assessing whether there are important competitive factors that you and your competitors have yet to invest in.

One of the key advantages of using value curves is their simplicity. Anyone can use them and it's often much easier to refer back to them when making key decisions than it is to read a lengthy report.

But the simplicity of the tool can also be a disadvantage, as it often means that other, less tangible factors of competition, such as brand identity, are not taken into consideration. Similarly, internal sources of value – the value that your organization places on staff training or on a highly efficient production process, for instance – are not generally included.

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How to Use the Tool

Use the following steps to apply the model:

  1. Identify the main competitive factors in your industry. These could include price, customer service or quick delivery, for example.
  2. Write these along the horizontal axis of your graph.
  3. Determine how you and your competitors score for these factors. Now plot these points on your graph for yourself and your competitors, and draw lines to connect these points. These are the value curves for your industry.
  4. Now review your market position against that of your competitors. Do you have a clear market position? Is it likely to matter to your customers? And are there any gaps in the market that you could exploit?

Once you have completed these steps, it's time to think about how you can alter or refine your product to match your value curve. To do this, Kim and Mauborgne suggest that you ask yourself these four questions:

  1. Which competitive factors are of little value to your competitive position, and could be reduced?
  2. Which factors are of high value and could be raised?
  3. Which factors add no value and could be eliminated?
  4. Which factors have not yet been offered that could improve the product, and therefore need to be created?

Tip:

Kim and Mauborgne developed Value Curves as an approach for communicating strategy, and scores are based on the organization's view of the market.

You can adapt this approach to focus on potential customers' opinions, and this is highly important for crafting and developing a powerful Unique Selling Point. You can find out more about this approach in our article on USP Analysis.

Key Points

The Value Curve model is a strategic planning and communication tool created by business academics W. Chan Kim and Renée Mauborgne. It is a simple, visual means of testing whether your strategy is different enough from your competitors' to be workable, and to help you to compare your strategy against those of other major industry players.

Value curves are also helpful for analyzing your industry's competitive dynamics, and for identifying gaps in the market that have yet to be taken advantage of. The tool's simplicity means that it is easy to use, and it helps you to communicate strategy clearly to people across your organization.

However, the tool only really takes into consideration external, market-based competitive factors, and tends to ignore internal ones that your organization values just as highly. Its simplicity also means that it is best used as part of a more detailed strategic planning process. Despite this, it provides an excellent starting point for an organization that wants to explore a new direction.

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Comments (2)
  • Over a month ago Midgie wrote
    Hi dkwconsulting,
    Welcome to the Club and it is great to hear that you found this article interesting! Hope you enjoy more of our resources here to help even further.

    Why not come over to the Career Cafe and introduce yourself to other members. We learn so much from each other simply by asking questions and offering ideas. So, hope to see you over there.

    Let us know if there is anything we can help you with.

    Midgie
    Mind Tools Team
  • Over a month ago dkwconsulting wrote
    Thanks that is really interesting. I have never thought about how you determine customer value using a few factors