The Value Curve Model is a graphical diagram that illustrates where a business is creating value through its products and services e four points that businesses must consider: raise, reduce, eliminate, and create. To plot the available consumer products in a marketplace against the company’s ability to provide value and thus be competitive.
Understanding the Value Curve Model
The Value Curve Model was developed by authors W. Chan Kim and Renee Mauborgne in 1997.
The concept was expanded in their 2005 book Blue Ocean Strategy, where they argued that a business should focus on creating a new product and subsequent market with no competition.
A blue ocean is a strategy where the boundaries of existing markets are redefined, and new uncontested markets are created. At its core, there is valueinnovation, for which uncontested markets are created, where competition is made irrelevant. And the cost-value trade-off is broken. Thus, companies following a blue ocean strategy offer much more value at a lower cost for the end customers.
This is in direct contrast to traditional “red ocean” strategies, which advocate trying to beat the competition in an existing market.
The model itself can be depicted on a graph with the following axes:
The available consumer products in a marketplace are represented on the y-axis and rated on a scale of low to high.
The competitive factors of a given industry (or the range of factors that players in an industry invest in to be competitive), are represented on the x-axis. In other words, competitive ability.
An example of the Value Curve Model can be seen by considering air travel in Europe.
In this case, airline companies would be plotted on the y-axis and then judged according to their competitive ability in certain industry factors on the x-axis.
Specifically, these might include low fares, ancillary services, airport taxes, and average delay time.
A higher position on the graph correlates to a higher score. Returning to the airline example, British Airways might offer more value in ancillary services when compared to Ryanair.
However, Qatar Airways might beat both competitors when it comes to average delay time.
Ultimately, the Value Curve Model allows businesses to compare their products against those of their competitors.
This allows them to identify potential gaps in the market or identify areas where there is room for improvement.
The Four Actions Framework
Once the value curve has been established, the Four Actions Framework can be employed to alter the product in a given market.
While Kim and Mauborgne advocate the Blue Ocean Strategy, the framework can also be used to refine existing products.
In pursuit of these goals, there are four points that all businesses must consider:
Raise
Can any existing product attributes (competitive factors) be enhanced in such a way that they provide extra consumer value? In other words, which attributes can set new industry standards or trends?
Reduce
Conversely, are there any such elements that can be reduced or eliminated if their relative value or cost does not justify the means? Perhaps some factors erode profits or reduce competitive advantage?
Eliminate
This means removing factors that customers pay for as part of a status quo that industry players take advantage of. In the wine industry, the aging qualities of wine and the complex terms used to describe wine are promoted to add value to the finished product.
But what do these somewhat pretentious and superfluous terms mean to the average consumer? Better value-adding, competitive factors may include wine club discounts or guided tours of the winemaking process.
Create
Is there an opportunity to bring something novel to the market that solves a consumer problem in a more effective way than a competitor offering?
Instead of creating complex wines with complicated descriptions, a winery could produce a wine that was fun, unpretentious, and easy to drink at an attractive price point.
Value Curve Model Case Study
Let’s take a look at the model using European air travel as an example.
Airlines would be plotted on the y-axis with competitiveness according to industry-specific factors on the x-axis.
These may include low fares, ancillary services, airport taxes, and average delay time.
A more prominent position on the graph correlates with a higher score.
For example, British Airways may offer more value in ancillary services when compared to Ryanair.
However, Emirates may have them bothered covered when it comes to average delay time.
In essence, the Value Curve model allows businesses to compare their products against those of their competitors, enabling them to identify potential gaps in the market or areas where there is room for improvement.
And therefore, devise a practical business strategy on top of which formulate a competitive response to market forces.
Key takeaways
The Value Curve Model is a tool that businesses can use to differentiate and then manage product portfolios to create a competitive advantage.
The Value Curve Model plots the available consumer products in a marketplace against their ability to provide value and thus be competitive.
The Value Curve Model can be used in conjunction with the Four Actions Framework to assess new products and new markets in line with the Blue Ocean Strategy.
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Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
