value-migration

What is value migration?

Value migration was first described by author Adrian Slywotzky in his 1996 book Value Migration – How to Think Several Moves Ahead of the Competition. Value migration is the transferal of value-creating forces from outdated business models to something better able to satisfy consumer demands.

Understanding value migration

In marketing, value migration describes the flow of economic value from obsolete business models to models better suited to satisfying consumer priorities.

Value flows in three ways:

  1. Between industries. For example, in-flight entertainment (IFE) transfers value from the airline industry to the entertainment industry. In India, the value of the rail industry as an affordable means of transport has shifted to the airline industry.
  2. Between companies. For photographers, value is transferred from Adobe Lightroom to Adobe Photoshop during a processing workflow.
  3. Between business designs within a company. A popular example is the transferring of value from IBM mainframe computers to IBM PCs with system integration. In recent decades, telecom service providers have also seen value migrate from voice to data.

While every organization seeks to satisfy the end-user, Slywotzky argued that the factors determining value are constantly changing. Therefore, the business that can predict value migration ahead of time is the business that can gain a competitive advantage.

The three stages of value migration

Generally speaking, value migration has three distinct stages:

  1. Value inflow – in the first stage, a company or industry captures value from another company or industry due to a superior value proposition. The profit margin or market share of the entity expands.
  2. Stabilitygrowth rates moderate as competitive equilibrium is established. Market share and margins remain stable.
  3. Value outflow – at some point, value begins to migrate toward companies meeting evolving consumer needs. The original company or industry experiences a decline in market share with contracting margins and a reversal in growth.

Anticipating value migration

In the introduction, we noted that competitive advantage could be secured by the early identification of value migration.

This can be anticipated in several ways:

  • Understanding the customer. Are there observable shifts in the composition of the target audience? Are customer priorities changing due to regulation, increased purchasing power, or technological innovation? Indeed, are customers becoming more powerful or discerning?
  • Understanding the business design. The organization should understand how flexible its business design is. In other words, can it serve different customer priorities? Does it have the ability to provide value for both the customer and the company? What are the chances the design will become obsolete?
  • Avoiding commoditization. How can the business avoid a scenario where its goods or services become devalued commodities? Building a strong brand and avoiding heavy, bulk discounting is a good place to start. But commoditized products are often the result of rigid, undifferentiated business design. In this case, the business must revitalize its product offering with a focus on delivering higher value.

Key takeaways:

  • Value migration describes the migration of value from outdated business models to those which are better able to satisfy consumer priorities.
  • Value migration occurs in three ways: between industries, between companies, and between business designs within the same organization.
  • Anticipating value migration is the key to maintaining or securing a competitive advantage. A deep understanding of the customer and business design reduces the odds that a product becomes devalued through commoditization.

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FourWeekMBA Business Toolbox

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