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Value migration

From Academic Kids

Marketing strategy is the art of creating value for the customer. This can only be done by offering a product or service that corresponds to customer needs. In a fast changing business environment, the factors that determine value are constantly changing. Value migration is the shifting of value-creating forces. Value migrates from outmoded business models to business designs that are better able to satisfy customers' priorities.

Three types

There are three general types of value migrations:

  • Value flows between industries - example: from airlines to entertainment
  • Value flows between companies - example: from Corel WordPerfect to Microsoft
  • Value flows between business designs within a company - example: from IBM mainframe computers to IBM PC's with system integration

Three stages

There are three stages to value migration:

  • Value inflow stage - value is absorbed from other companies or industries
  • Value stability stage - competitive equilibrium with stable market shares and stable profit margins
  • Value outflow stage - companies lose value to other parts of the industry - reduced profit margins - loss of market share - outflow of talent and other resources

The value chain is the sum of all activities that add utility to the customer. Parts of the value chain will be internal to the company, while others will come from suppliers, distributors, and other channel partners. A linkage occurs whenever one activity affects other activities in the chain. To optimize a value chain, the linkages must be well coordinated.

The calculation of value migration is more difficult than it would at first seem. Value is perceived by customers and, as such, is subjective. This is very difficult to measure so relative market value of the firm is used as a proxy. Relative market value (defined as capitalization divided by annual revenue) is used as an indication of the firms success at creating value.

The concept of value migration was first proposed by A. J. Slywotzky in his classic 1996 book Value Migration, How to think several moves ahead of the competition, published by Harvard Business School Press.

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