Value migration

Value migration is the change that occurs in the forces of value creation. Value is transformed from outdated business models to business designs that more satisfactorily respond to customer priorities. Marketing strategy is the art of creating value for the consumer. This can only be achieved by offering a product or service that corresponds to the customer's needs. In a rapidly changing business environment, the factors that determine value are constantly changing.

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

Three types

There are three generic types of value migrations:

• Value flows between industries. For example, from airlines to leisure industry.
• Value flows between companies. For example from Corel WordPerfect to Microsoft.
• Value flows between business models within the same company. For example IBM computers from main frame to integrated PC.

Three steps

There are three states of value migration:

• Internal value flow - the value is absorbed from other companies or industries.
• Value stability - competitive balance with stable market quotas and stable profit margins.
• External value flow - companies lose value in favor of other members of the industry suffering reduced margins, loss of market share and flight of talent and other resources.

The value chain is the sum of all activities that provide utility to the consumer. Some parts of the value chain will be internal to the company while others will be contributed by suppliers, distributors and other distribution channel partners. A connection occurs whenever an activity affects other activities in the chain. To optimize the value chain, the connections must be well coordinated.

Calculating value migration is more difficult than it may seem. The value is perceived by the consumer and therefore is subjective. It is very difficult to measure so the relative market value of the firm is used as an approximation. Relative market value (defined as capitalization divided by annual revenue) is used as an indicator of the company's success in creating value.