Value Innovation; Co-creation of value

Value Innovation

Value innovation is a process in which a company introduces new technologies or upgrades that are designed to achieve both product differentiation and low costs.

The changes implemented through value innovation create new or improved elements for the product or service, but also result in cost savings by eliminating or reducing unnecessary aspects during the product lifecycle.

Value innovation does not necessarily create a completely new product or technology. This type of innovation can improve on existing services and lowers the costs of that service for both the company and their customers.

Blue oceans refer to all the unexplored or unknown markets. Red oceans, the existing markets, are filled with fierce competition that eliminates profit whereas the blue ones are untouched by competition and thus full of opportunity for profitable growth. So, the Blue Ocean Strategy simply refers to creating new demand by developing uncontested market space instead of competing in the crowded red ocean colored by the blood of everyone that swims in it.

Benefits:

Make the competition irrelevant

As mentioned, in a traditional setting, growth and performance are achieved when you manage to beat competition. When you focus on beating the competition you work on small improvements which are good, but not enough to give you a leading position for too long.

Even more, this approach means that you limit the time and resources you allocate to identifying new innovation opportunities. When you pursue value innovation you focus on adding higher value at lower costs, so you make the competition irrelevant.

Make the competition irrelevant

As mentioned, in a traditional setting, growth and performance are achieved when you manage to beat competition. When you focus on beating the competition you work on small improvements which are good, but not enough to give you a leading position for too long.

Even more, this approach means that you limit the time and resources you allocate to identifying new innovation opportunities. When you pursue value innovation you focus on adding higher value at lower costs, so you make the competition irrelevant.

Create an exponential mindset

Another noteworthy benefit of value innovation is the unconventional thinking that it comes with.

Successful companies focus on exponential value, not just on incremental improvements. While both have their role in the growth of a business, there is a big difference between the two.

Incremental thinking is about making something 10% better while the exponential thinking is about how to be 10x better by making something different. The 10% is a plane taking you from A to B, while the 10x is a rocket launching into space.

When companies compete for the same market share, their strategy is mostly built around incremental improvements that give a competitive advantage, until they are surpassed or outperformed again, and the process starts all over.

Co-creation of value

Co-creation of value is a business strategy, one that promotes and encourages active involvement from the customer to create on-demand and made-to-order products. With co-creation, consumers get exactly what they want and have a hand in making it happen. Like the NikeID platform, co-creation makes the design process fun through a user-friendly site with great product visuals. Co-creation, then, becomes as much about the process of the product as purchasing the product itself.

Co-creation, in the context of a business, refers to a product or service design process in which input from consumers plays a central role from beginning to end. Less specifically, the term is also used for any way in which a business allows consumers to submit ideas, designs or content. This way, the firm will not run out of ideas regarding the design to be created and at the same time, it will further strengthen the business relationship between the firm and its customers. Another meaning is the creation of value by ordinary people, whether for a company or not.

Retailers are using co-creation primarily in an e-commerce setting where it is easier to engage customers in a more interactive experience, but the model can also be seen in some brick-and-mortar stores, like Build-A-Bear Workshop. For businesses, there are reduced manufacturing and production inefficiencies and failures because products are built based on consumer demand, enhancing customer satisfaction.

Co-creation, in many ways, is a collaborative creation between a brand and its fans. It has evolved the sales and marketing of products from a one-to-many formula to a one-to-one formula, a more personalized approach. For marketing professionals, it has turned the communication from active brand/passive consumer to one where both sides are active and engaged.

Disadvantages

Though the potential for co-creating value through interaction is huge, the possibility of interactional value co-destruction should not be overlooked. Managers and academics alike must recognize that value co-creation is not the only possible outcome of interaction between service systems. Adverse consequences can occur for a variety of reasons. It is therefore essential, before implementing a strategy based on S-D logic, to consider where, how, and to what extent co-destruction might occur.

Exploitation of customers under the norms of ‘value co-creation’ takes place on two related but different planes. First, consumers are not generally paid for the know-how, enthusiasm, and social cooperation that they contribute to the manufacturing process of marketable commodities. Second, customers typically pay what the marketing profession calls a ‘price premium’ for the fruits of their own labor. They call it the use value provided by co-created commodities is said to be higher than that which can be accomplished through rationalized systems of standardized production. In other words, the work undertaken by customers to customize their own commodities, ends up increasing the price one has to pay for one’s creation.

Consumers have to also learn that co-creation is a two-way street. The risks cannot be one sided. They must take some responsibility for the risks they consciously accept. The tobacco company has the obligation to educate consumers on the risks of smoking and develop cessation programs. But if a consumer persists in smoking, he must take responsibility for his own actions. In cases where the consumer is unlikely to have the expertise to make that choice, they must accept the choice made for them by a neutral party such as the Federal Drug Administration.

Markets, industries, companies, systems, and people do not change so often: it may take quite some time before the whole world is co-creating. The concept challenges many of the habits of managers. To change the mind-sets of people within the company into the way that an external customer think is not an easy task.