What is Value Innovation?

5 min readJan 23, 2023

Fundamentally, to create and run a successful business, an entrepreneur must first know what is needed and then devise a strategy to meet that need differently and better than the rest of the market. That’s simple enough. So how is value innovation different from the fundamental business principle, and why is it important?

Value innovation builds on this fundamental principle by insisting that, instead of matching and beating your competitors, going head-to-head while trying to stay ahead of the competition merely by differentiating with incremental improvements in price, cost, or quality, entrepreneurs should find unoccupied market segments/domains that represent real value to customers.

Value innovation is the cornerstone of the classic market-creating strategy known as the Blue Ocean Strategy. Developed by two INSEAD professors, W. Chan Kim and Renee Mauborgne, in 1999 but published in 2005, Blue Ocean Strategy posits that the best approach to business growth is to create uncontested market space to render the competition irrelevant- essentially creating your lane.

“Value innovation, not technology innovation, is what launches commercially new markets” — Kim, Mauborgne, and Ji

Value innovation is the simultaneous pursuit of market differentiation at a relatively lower cost i.e., the intersection where Buyer Value meets Cost. Value Innovation suggests that innovation should be pursued concurrently with value as opposed to focusing on the conventional value-cost trade-off: i.e., either creating reasonable value at a relatively lower cost or higher value at a higher cost.

Value innovation builds a stronger case when assessed along the fundamental dimensions of strategic logic: industry assumptions, strategic focus, customers, assets, and capabilities, as well as products and service offerings.

Industry Assumptions: conventional market players take the industry’s conditions as a set, unchangeable. Value innovators don’t; they see it as amenable. Kinepolis, the Belgian-French cinema group, defied the Belgian industry’s conditions when it was founded in 1988- amidst declining performance in the Belgian movie industry during the 1980s. While other cinema operators turned their cinemas into multiplexes, competing for a shrinking market by differentiating with price or service offerings, Kinepolis (formed through a merger of two family-owned movie houses, Bert and Claeys) entered the market with the world’s first megaplex- having seven times more seats and double the screen size of the conventional multiplexes, all at no extra ticket cost, with free parking, and at a relatively lower operating cost. Value innovations/innovators overcome the value-cost trade-off by answering the question: which of the factors/conditions that the industry sets can be challenged?
Strategic focus: conventional strategic focus says that market players should develop a competitive advantage to beat the competition. Value innovators say that competition is not the benchmark and that market players should dominate the competition by pursuing a quantum leap in value. Nintendo launched the Nintendo Wii when they focused on serving casual gamers, a new market segment consisting of families with young children, instead of focusing on high-resolution, realistic graphics like its competitors: Microsoft Xbox and Sony’s Playstation. They dominated the market for some time, selling over 100 million units. Value innovations/innovators overcome the value-cost trade-off by answering the question: which factors/conditions can be reduced well below the industry’s standards?
Customers: conventional strategic logic says that companies should retain and expand their customer bases by further segmentation and customization, focusing on customer value differences. Value innovators focus on the common/similarities in customer values, targeting mass buyers. Accor hotels, the largest hotel chain in Europe, understand that most hospitality customers are travelers who need comfort, quality, and cleanliness, at a favorable price. So, in the mid-80s, their Formula 1 hotel discarded the expensive hotel lobby, 24/7 hotel reception, and big closets to focus on providing comfortable, high-quality rooms that give a good night’s sleep in a good hotel bed’. Value innovators believe (and have demonstrated) that most people will compromise their special preferences and differences if they receive greater value. More recently, Accor hotels have been digitally transforming their hotels to extend their services beyond hospitality and serve non-travelers.

“Hospitality must evolve towards more flexibility and open its gates to non-travelers for a drink, a yoga course, a fitness room, etc. Through strategic partnerships, we are now offering our hospitality expertise in new playing fields, such as co-working spaces” - Sebastian Bazin, Accor Hotels CEO.

4. Assets and capabilities: conventional strategic logic insists that companies should stay competitive by leveraging their existing assets and capabilities, while value innovations/innovators believe they should not be constrained by what they already have. Instead, they answer the question: what would we do differently if we started afresh? Value innovators also leverage their assets and capabilities, but they focus more on future business opportunities, which allows them to understand deeper and act where exponential customer value lies as well as how it is changing. Realizing that for most publicly-traded brands, the stock market does not respond to appreciation in property value, Marriott began divesting and selling their properties in the early 70s. Marriott was one of the first asset-light brands, operating from more than 6000 properties globally yet only owning 1 in the U.S. and 13 worldwide. Uber and Airbnb are also delivering great customer value despite being asset-light brands.

5. Products and service offerings: this is closely related to the first dimension: industry assumptions. Conventional strategic logic says that traditional industry boundaries dictate a company's products and offerings. Value innovators often cross these clearly established industry boundaries by thinking about the total solution the customer seeks, even if it takes them beyond market expectations. For example, Kinepolis provided free, safe, well-lit parking to its customers when the industry standard was expensive parking; NIO, the Chinese electric car manufacturer, launched an immediately popular Battery-as-a-Service model in 2020 when the Battery Charging model was predominant in the highly competitive EV market in China. This enabled them to scale the EV adoption hurdles that involved long battery charging time, battery degradation concerns, and fast loss of resale value.

With value innovation, you can eat your cake and have it too. Through value innovation, businesses can create new growth for themselves and their industry; they can focus their innovation activities on unlocking new buyer demand and being more cost-light and local value-driven.

What is Value Innovation?

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Written by Gumi & Company