Managing Value

internally and externally

Value Competition

Firms compete at any one point in time in terms of value in three levels as follows:

  • Primary value is offered in the dimension in which the firm's offer is most compelling. It is the dimension in which the firm demonstrates its strongest competitive advantages and will attract the most interest from parties
  • Secondary value is offered in a dimension in which the firm's offer is relatively strong. It is a dimension in which the firm exhibits further competitive advantages and additionally attracts interest from parties
  • Basic value is offered in a dimension in which the firm's offer merely meets the minimum expectations of parties. No party chooses a firm due to basic value, but if at least basic value is not available in each dimension, the party will not consider a transaction with the firm at all.

Firms compete over time in terms of value in three phases as follows:

  1. Innovation in Primary Value: A single firm introduces a ground-breaking innovation in a given dimension, enjoying a substantial competitive advantage over its rivals in this dimension and thus offering primary value.
  2. Me-Too Competition in Secondary Value: Rival firms observe the success of the innovation and introduce similar benefits into their own offers in this dimension. Because several firms offer the benefit, it is no longer very compelling and therefore represents secondary value.
  3. Dispersion throughout the Market as Basic Value: Ultimately all firms offer the feature, such that it represents merely basic value.

The overwhelming bulk of firms exhibit one single value dimension in which the firm offers primary value to all counterparties. In this dimension with primary value the firm's competitive advantages are strongest. Firms therefore compete most directly against rival firms who have primary value in the same dimension, because the two firms compete for the same target segment of counterparties with the weightiest preferences in that dimension. This competition becomes a kind of live-or-die rivalry, such that in an industry, one or only a few firms emerge as the winner(s) in each value dimension.

The winners of this direct competition are shown in the table below for selected industries. The firms are categorized according to their primary value dimension.