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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.
Adrian Slywotzky described value migration in his 1996 book.
- 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
- 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 firm's success at creating value.