The continuous intense competition has become a tremendous challenge to most companies. Yet, why do some companies keep on achieving sustained high growth in both revenues and profits?
The research studies done reveal that the answer lay in the way those companies approach marketing strategy. The difference in approach is not a matter of managers choosing one analytical tool or planning model over another. The difference is in the companies’ fundamental, clear assumptions about their marketing strategy.
The less successful companies take a conventional approach: they focus on matching and beating their rivals. As a result, their marketing strategies incline towards on similar dimensions. What ensues is head-to-head competition based largely on incremental improvements in cost, quality, or both.
Accor Group
The innovative companies break free from the pack by staking out fundamentally new market space - that is, by creating products or services for which there are no direct competitors. We call this strategic logic as “value innovation.” These companies pay only little attention to matching or beating their rivals.
One good example is the French Accor group.It is the story of two friends, Paul Dubrule and Gerard Pelisson, who opened their first budget hotel in 1967 at a time when no one in France yet believed in this new hotel business model. Today, the operate and franchise 4,200 hotels in 95 countries, from budget and economy lodgings to five-star hotels.They target opening 50 hotels per year. Their last year’s revenue was €5,631 M.
The secret of their tremendous success was their belief in the concept of value innovation.
The motto of Accor was challenging: transform, innovate,overturn traditional hospitality industry conventions.As Paul once said, “When the swimming pool is overcrowded, jump into the blue ocean.”
In early seventies, Paul and Gerard began by identifying what customers of all budget hotels whether no star, one star, and two stars really wanted. They summed their findings in one simple sentence. “A typical budget hotel client expects a peaceful night’s sleep in comfortable atmosphere for a low price.”
Focusing on that particular need, Paul and Gerard saw an opportunity in front of them. They asked themselves the following four questions. Which of the factors that our industry takes for granted should be eliminated? Which factors should be reduced well below the industry’s standard? Which factors should be raised well above the industry’s standard? Which factors should be created that the industry has never offered?
The first question forced both of them to consider whether the factors that companies compete on actually deliver value to consumers. Often those factors are taken for granted, even though they have no value or even detract from value. Sometimes what buyers value changes fundamentally, but companies that are focused on benchmarking one another do not act on - or even perceive - the change.
The second question forced both of them to determine whether products and services have been overdesigned in the race to match and beat the competition. The third question pushedthem to uncover and eliminate the compromises their industry forces customers to make. The fourth question helped them break out of the industry’s established boundaries to discover entirely new sources of value for consumers.
Ibis
In answering these questions, Accor came up with a new concept for a hotel, which led to the launch of Accor Ibis brand of budget hotels. First, the company eliminated such standard hotel features as costly restaurants and appealing lounges. Accor reckoned that even though it might lose some customers, most people would do without those features.
So, Ibis gives the customers comfy beds, cocoon-style rooms, 24/7 access, free Wi-Fi, wide choice of TV channels and a breakfast in a buffet at an affordable price. The cost savings have allowed Ibis to improve the features customers value most to levels beyond those of the average two-star hotel, but the price is only marginally above that of one-star hotels.
Customers have rewarded Ibis for its value innovation. The company has not only captured the mass of budget hotel customers but also expanded the market. From salesmen who previously stayed in crowded hostels to businesspeople needing a few hours of rest, new customers have been drawn to the Ibis category.
Jo&Joe
In May last year, Accor Hotels launched another revolutionary hotel concept called JO&JOE. It represented a whole new hospitality brand. JO&JOE has been conceived above all as an “open house” welcoming anyone to share experiences and meet in a blended environment.
The entire infrastructure of the hotel was built around an “open house” concept. The bar serves as the house’s heart, a unique, social place where everyone is welcome. Hotel guests will have the possibility to cook in a shared kitchen or enjoy the local cuisine at a very decent price.
Designed so that everyone retains their privacy, the sleeping accommodation offers different solutions to suit all needs: Together (a shared sleeping area for 7 to 12 people), Out of the Ordinary, (uniquely laid out accommodation for up to 10 people) and Yours (private rooms for 2 to 5 people).
Nowadays, young adults are keen on using sharing economy platforms because of their convenience, accessibility and novelty. Accor Hotels believed that the hospitality industry must break authenticity, and challenge its existing barriers. They did it and found out the response was very much beyond what was predicted.
Value Curve
The extent of Accor’s departure from the standard thinking of its industry can be seen in what we call a value curve - a graphic depiction of a company’s relative performance across its industry’s key success factors. According to the conventional logic of competition, an industry’s value curve follows one basic shape. Rivals try to improve value by offering a little more for a little less, but most don’t challenge the shape of the curve.
Accor Hotels discarded the notion of what a hotel is supposed to look like in order to offer what most customers want: a good night’s sleep at a low price.
However, other than Ibis and Jo&Joe, Accor Hotels offer a large brand portfolio in the hotel industry comprising luxury and upscale brands as well as popular midscale & economy brands and in-demand lifestyle smart concepts.
Instead swimming in the crowded pool, Accor had dived into the blue ocean
Conventional Logic Versus Value Innovation
Conventional strategic logic and the logic of value innovation differ along the four basic dimensions of strategy.
Industry Assumptions
Many companies take their industry conditions as given and set strategy accordingly. Smart entrepreneurs don’t. No matter how the rest of the industry is faring, they look out for blockbuster ideas and quantum leaps in value.
Had Accor, for example, taken its industry’s conditions as given, it would never have created Ibis or a Jo&Joe. The company would have followed the end-game strategy of milking its business or the zero-sum strategy of competing for share in a shrinking market.
Customers
Most companies seek growth through retaining and expanding their customer bases. This often leads to finer segmentation and greater customization of offerings to meet specialized needs. Value innovation follows a different logic. Instead of focusing on the differences between customers, they build on the powerful commonalities in the features that customers value.
In the words of a senior executive at the hotelier Accor, “We focus on what unites customers. Customers’ differences often prevent you from seeing what’s most important.” Value innovators believe that most people will put their differences aside if they are offered a considerable increase in value. Those companies shoot for the core of the market, even if it means losing some of their customers.
Assets and capabilities
Many companies view business opportunities through the lens of their existing assets and capabilities. They ask, “Given what we have, what is the best we can do?” In contrast, value innovators ask, “What if we start anew?”
This is not to say that value innovators never leverage their existing assets and capabilities; they often do. But, more important, they assess business opportunities without being biased or constrained by where they are at a given moment. For that reason, value innovators not only have more insight into where value for buyers resides - and how it is changing - but also are much more likely to act on that insight.
Creating a new value curve
How does the logic of value innovation translate into a company’s offerings in the marketplace? Consider the case of Accor.
Conventional logic leads companies to compete at the margin for incremental share. The logic of value innovation starts with an ambition to dominate the market by offering a tremendous leap in value. Value innovators never say, “Look, here’s what competitors are doing; let’s do this in response.”
Of course, they monitor competitors but do not use them as benchmarks. value innovators philosophy is simple: “We are not interested in whether we are better than the competition. The real test for us is, will most buyers still seek out our products even if we don’t market them?”
Since value innovators don’t focus on competing, they can distinguish the factors that deliver superior value from all the factors the industry competes on. They do not expend their resources to offer certain product and service features just because that is what their rivals are doing.
Like Accor, all the high-performing companies create fundamentally new and superior value curves. They achieve that through a combination of eliminating unnecessary features, creating new features, and reducing and raising features to levels unprecedented in their industries.
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