Competitive Advantage Through Value Innovation in the Covid-19 Pandemic Period

Competitive Advantage Through Value Innovation in the Covid-19 Pandemic Period

By: Gede Suparna, SE., MS.

Faculty of Economics and Business, Udayana University

Having a competitive advantage has always been a dream of business people, so they can survive in the market and win the competition. Unfortunately, this dream cannot always be realized by business people, until it can result in business falling from the industry. One way to be able to realize competitive advantage is to innovate values.

Competitive advantage is very important and becomes the main concern of the company, so it is always discussed at every morning briefing. However, it is not easy for business people to develop or create competitive advantage, because competitive advantage is a contribution of various factors and requires a holistic approach (Wu, 2013). According to the theory of resource-based view (RBV), competitive advantage comes from valuable resources and company capabilities (Barney, 1991). The RBV views that companies are fundamentally different, because each company has a unique set of resources and organizational capabilities to utilize these resources. Resources are inputs in the production process of a company, its type and nature, as well as its limitations vary from one company to another. This means, each company has and can utilize different and unique resources to build competitive advantage. Only valuable, scarce, imperfect, and non-substitute resources can create competitive advantage (Barney, 1991). In the course of time, the competitive advantage built by the company can be duplicated or duplicated by competitors. Therefore, companies must renew resources or reconfigure existing resources, so they can develop new competencies for the sustainability of competitive advantage. Sustainable competitive advantage is determined by high value and low cost. Value creation can only occur through innovation and all types of innovation can lead to sustainable competitive advantage (Potočan, 2013).

The rapid advancement of technology has substantially increased the ability of companies to innovate so as to produce a variety of differentiation of new and even new products and services. Innovation is the ability to develop something new to facilitate the company's business, operations and services (Liu et al., 2010). Various innovations (in the form of product, process, organization, management, green, radical, or incremental innovation) have been continuously carried out by companies with high speed, the result is an excess supply of demand in almost every industry. Technology maturity enables competitors to quickly emulate the company's products and services, brands become increasingly similar, consumers can easily switch to competing products and services based on price choices, consumer loyalty is running low, profit margins continue to shrink, competition becomes harder. Advances in information technology make the situation more complex when information about products and prices is very easily accessed via the internet. Information flows quickly and instantly in global reach. The strategic mindset used by business people so far is: 1) How to beat competitors, so that the company continues to compete to give better to customers, by making various innovations or imitations. 2) Products or services of premium quality are subject to higher prices, and products or services of worse quality are subject to lower prices. Strategy is seen as making a choice between differentiation or low cost. In an industry where players are already overcrowded, this kind of approach results in competition being very violent, bloody, and deadly.

How do companies stay away from competition? One radical way to stay away from fierce and deadly competition is that companies must stop winning competition, and make competition irrelevant by creating a leap in value for buyers and companies together. This method is called value innovation, which occurs only when companies combine innovation with utility, price, and cost positions (Kim and Mauborgne, 2005: 31). Value innovation means the company makes innovative products that provide the same benefits to consumers and companies. This is about how companies combine differentiation and low cost strategies, which means companies create differentiated or unique products or services with relatively cheap prices. This concept of value innovation answers the local and global phenomena that are now happening, where consumers want products or services of good quality at affordable prices. Consumers will feel the benefits of a product exceeding the price paid, and the company can secure healthy profit margins at targeted costs. The concept of value innovation also responds to the phenomena that occurred during the co-19 pandemic, where people's purchasing power declined sharply, and economic conditions became lethargic ,. Because of low purchasing power, companies must find solutions how to create unique products or services at relatively low prices so that people can buy.

What to do? The company's point of view must be changed, no longer in competition, instead moving away from the things that are used to be done in the industry but are no longer considered important by consumers. Value innovation starts with directing the focus of strategy from competitors to alternatives, and from buyers to non-buyers. In order to achieve high value and low cost, companies must forget logic: comparing competitors and choosing whether to carry out a differentiation strategy or low cost. To win the competition, conventional strategy logic requires companies to offer better solutions than competitors to problems that are clearly defined by the industry. Conversely, when companies shift the strategic focus from current competition towards alternatives and non-buyers, it will be understood how to redefine the problems facing the industry, so as to reconstruct elements of buyer value that exist along industrial boundaries (Kim and Mauborgne 2004, 2005).

The reconstruction of the elements of buyer value is carried out through a four-step framework, namely: eliminate, reduce, increase, and create (Kim and Mauborgne, 2005), so as to create differentiation and low costs simultaneously.

1.      Erase it. Eliminate factors that have been taken for granted by the industry. This forces the company to eliminate factors that have long been an arena of competition in the industry, but those factors are actually no longer of value to buyers. Because companies focus on benchmarks so they don't respond, or don't even see the change.

2.    Subtract. Reduce factors that are not so important to below industry standards. Companies must determine whether the product or service is designed too excessive in serving consumers, thus increasing the cost structure without producing anything, just to follow the rhythm of competition and defeat it.

3.   Increase. Improve the factors that consumers value above the industry standard. Companies must be brave in eliminating the compromises that the industry imposes on consumers, and raising above industry standards for factors that are valued by consumers.

4.     Create. Create whatever factors the industry has never offered. This helps companies find entirely new sources of value for buyers, thereby creating new demand and changing the strategic pricing of the industry.

This four-step framework systematically explores the way companies reconstruct elements of buyer value to offer buyers a completely new experience, while still maintaining a low-cost cost structure.

Many companies fail to reconstruct the elements of buyer value through a four-step framework, so they are unable to provide special value because they are obsessed with the novelty of the product or service, and the new technology that comes with it. Technology traps have repeatedly toppled large companies in the world, such as Yahoo, Nokia, Kodak, Friendster, Siemens, Gillette, McDonnell Douglas and others. Value innovation occurs when companies are able to combine innovation with utility for buyers and companies (Eskandari et al., 2015). The consumer utility map displays all the factors that companies can use to offer special utility to buyers and also displays the various experiences buyers can feel when consuming products or services. The buyer's utility factors consist of: consumer productivity, simplicity, comfort, risk, cheerfulness and image, and friendliness to the environment (Kim and Mauborgne, 2005: 166-169). After special consumer utilities are created, the next step is to set the right strategic price. It is important to ensure that consumers will not only intend to buy the company's products or services, but have the ability to pay.

Most companies set high prices at new product or service launches by aiming at consumers who are thirsty for all things new and price-sensitive, after how long they only lower prices to attract further buyers. This difference in point of view is important, because a product or service created is not only technically focused on technology, but more emphasis on utility or benefits for the buyer. These steps ensure the company creates a jump in the value of the buyer, namely the utility obtained by the buyer minus the price paid for the utility (Kim and Mauborgne, 2005: 164). The utility or benefit received by the customer must be comparable or higher than the price paid. Next to get the utility of company value, it is important for companies to secure healthy profit margins at targeted costs. Don't let costs control prices. When the target cost is not met, then forget the idea because the market space is not profitable, or innovate a business model to meet the targeted costs and ensure that it has created a leap in value for the company in the form of profits, ie the price of the product minus the cost. The combination of special utility, strategic pricing, and targeted costs enables the company to achieve a value leap for buyers and the company simultaneously. Thus, value innovation is the best way for companies to create new market spaces, without competition, and sustainable competitive advantage can be achieved by expanding existing industries.

Referensi:

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