Value drivers are factors that have a strong impact on the value of a given product, making it more attractive to the prospective consumer, and thus, the position of the company among competitors on the market also increases. These factors may have a different form, eg customer loyalty, technological novelties or brand awareness on the market. Value Drivers are characteristic features of the company that may reduce the risks and failures that entrepreneurs face while conducting business, or increase the level of this activity in the future. The company value consists of licenses, patents, technology, market position, company strategy, mission and vision, business systems and models, and human resources.
Value drivers include:
- management team,
- effective financial control,
- a constant base of buyers,
- supporting operating systems,
- growth strategy,
- cash flow,
- facility appearance.
The Value drivers of Business Model
Major business model value drivers are:
- Novelty concerns innovations in the business model, referring to the activity system. May refer also to the new methods of production of goods or services, their subsequent distribution or the new ways of reaching the customer using marketing techniques.
- Lock-in is about activities in the model that affect the level of change costs and can also refer to encouraging participants to trade in the activity system. Lock-in in the business model and the process of its creation will proceed properly, if it can encourage customers to make the next purchase and build a lasting relationship with a company. Thanks to this, the number of purchases will increase, and the client will not have to use other competing companies.
- Complementarity concerns the interrelationships between activities that take place in the business model that can be increased. Complementarity applies when a package of products offered together produces more profits than each of them separately.
- Efficiency refers to cost saving, which is possible thanks to common operating systems. The efficiency of a given transaction is greater when the costs are lower. Improving such a model is possible by reducing the amount of information asymmetry that occurs in the contact between customers and sellers, by providing up-to-date and specific information. As a result, consumers make more rational and thoughtful purchasing decisions, have more choice at relatively low costs, and deliveries and all distribution activities run more efficiently.
Value drivers analysis
Value Driver analysis is a key element of the proper functioning of the company and strategy planning, it helps in effective management and distinguishing strategic operations for business. For example, if growth factors are identified as important to the enterprise, companies should plan strategically to be able to take these factors into account.
Identifying value drivers consists of three stages:
- creating a map of drivers,
- checking how important and sensitive these drivers are,
- testing the controlling level of each driver.
Examples of Value drivers
- Customer loyalty: One of the main value drivers of a company is customer loyalty. This is achieved through providing excellent customer service, offering attractive pricing, and creating products and services that meet the needs of customers. By doing this, a company can build a strong customer base and gain a competitive advantage in the marketplace.
- Innovative Technology: Companies that stay on the cutting edge of technology are more likely to gain a competitive advantage over their competitors. By investing in research and development and providing innovative products and services, companies can create a brand image that is seen as being ahead of the curve and attract more customers.
- Brand Awareness: Companies that have a well-known and trusted brand name are more likely to attract customers. Having a strong brand presence in the market can help a company stand out from competition and attract more customers. By investing in marketing and advertising, companies can create a strong brand identity and increase their visibility on the market.
Advantages of Value drivers
- Increased customer loyalty: Value drivers create a sense of loyalty among customers and encourage them to come back and buy more, as they will see that the company is constantly providing new and innovative products and services that meet their needs.
- New opportunities for growth: Value drivers can open up new opportunities for growth as they provide a competitive edge that can help a company stand out from the competition.
- Brand recognition and visibility: With value drivers, companies can create a strong brand identity and visibility, which helps to attract more customers and increase sales.
- Improved efficiency and cost savings: Value drivers can help to improve operational efficiency and reduce costs, which can have a positive impact on the bottom line.
- Increased profitability: As customers become more loyal, costs are reduced, and efficiency is improved, value drivers can help to boost profitability.
Limitations of Value drivers
The use of value drivers may have certain limitations that should be taken into account in order to maximize their efficiency. These limitations include:
- The need for consistent analysis and evaluation of the value drivers, as their effectiveness can vary over time.
- The complexity of the process of selecting and implementing value drivers, as it requires detailed knowledge of the company’s specific circumstances.
- The need for continuous monitoring of the value drivers to ensure that their impact is in line with the company’s goals.
- The risk of focusing too much on the value drivers and neglecting other important aspects of the business, such as customer service or human resources management.
- The fact that value drivers may be incompatible with the company’s current strategies and processes.
- The need to consider the cost and resources necessary to implement value drivers.
Value Drivers can take many forms, including customer loyalty, technological novelties, brand awareness and other approaches.
- Customer Experience: Understanding customer needs and creating a positive customer experience is essential to a successful business. Companies must strive to create an experience that meets the customer’s needs and expectations, as well as providing value for their money.
- Innovation: Companies must stay ahead of the competition by continually introducing new products and services that meet customer needs. Innovation can be found in the way that businesses approach their operations, as well as in the products and services they offer.
- Organizational Culture: A company's culture sets the tone for how it does business and how its employees interact with customers and each other. Companies should strive to create a culture that encourages collaboration and innovation.
- Data-driven Decision Making: Companies must use data to make informed decisions. By leveraging data, companies can identify opportunities and make decisions that will drive value in the long run.
- Marketing: Companies must have a clear and effective marketing strategy to maximize their presence in the marketplace. Companies should use marketing to build relationships with customers, increase brand awareness, and drive sales.
In summary, Value Drivers can take many forms, including customer experience, innovation, organizational culture, data-driven decision making, and marketing. All of these approaches are important for companies to drive value in the long run.
- Value Drivers White Paper (2007) p.1-3
- Value Drivers White Paper (2007) p.1
- Value Drivers of e-Commerce Business Models,2014, p. 18-19
- Identifying and Managing Key Value Drivers, (2017), p.2
|Value drivers — recommended articles
|Goals of marketing — Aggressiveness strategy — Consumer orientation — Value innovation — Customer driven — Selling process — Growth potential — Brand value chain — Marketing advantage
- Amit R., (2014) Value Drivers of e-Commerce Business Models,The Wharton School University of Pennsylvania
- Amit R., Zott C., (2015) Creating Value Through Business Model Innovation p.36-44
- Identifying and Managing Key Value Drivers, (2017) Executive Insights,Volume XIX, Issue 36
- José del Rio Olivares M., (2013) Measuring Value Drivers of E-Business - An Empirical Study
- Noble P., Wilkins S., (2014), Using value-based management to improve capital project outcomes
- Value Drivers White Paper (2007), Business Enterprise Institute
- Wendee Paul M., (2011) A Theory of value drivers: A grounded theory study, University of Phoenix
Author: Justyna Wicek