Disruptive Innovation vs. Value Innovation
Value and disruptive innovations are occasionally perceived to be competing theories. Disruptive innovation is a process through which a product takes root in basic applications at the lowest part of a market and then persistently rises in the market, ultimately displacing established rivals. As organizations have the tendency of innovating faster than the evolving of the needs of their clients. This makes most of them producing products that do not match with the situations and needs of their customers. Companies seek these sustaining innovations at the peak of their markets as this is what has in the past enabled them to succeed through charging their most sophisticated customers the highest price hence achieving great profits. These actions, however, inadvertently lead to the opening of disruptive innovations at the market’s bottom. This way, many consumers are able to access products that were formally accessible by the sophisticated people only. Value innovation is process through which an organization introduces or upgrades its technologies with the aim of achieving low costs and product differentiation. The changes enforced through value innovation lead to the creation of new or improved aspects for the product. It also leads in saving of costs through the elimination or the reduction of unnecessary features during the lifecycle of the product. However, value innovation, does not necessarily lead to the creation of totally new technology or products. It may make improvements to the existing services or products leading to reduction of costs of such product or service for the customer and the company too. Disruptive and value innovations have particular focus on customers while aiming at the achievement of low costs and productivity.
Disruptive innovation is focused on making low cost alternates to be availed to people who previously experienced high obstacles to access. Value innovation is focused on reshaping the dynamics of the industry for the purpose of serving the needs of the current clients in new methods. Disruptive and value innovations both have a convergence perception when the innovation starts maturing. Both strategies use quality and affordability as their measures. Consequently, disruptive innovation starts attracting mandatory players and the present audience to the formerly undeserved market. Value innovations start attracting new clients and markets face economies of scale that as the innovation expands, are leveraged.
Disruptive innovation tends to place increasing focus on the competitive strategy of a company. It does not characterize itself with specificity to technology. Rather, it is a representation of a novel method that results in the opening up of new markets through making the cost of a service or product within the means of a populace that was incapable of accessing it. The main object of disruptive innovation is to offer more affordability and swift ease of access without the quality of the product or service being affected in a degrading manner.
Value innovation, on the other hand, places more concentration on the commonalities of the clients while creating significant rises in value through the provision of complete solutions that are pleasing to the highest number of consumers. The perception of the creators of value is that the conditions of production are capable of being shaped or manipulated rather than simply stay fixed as constraints. As opposed to the theory of disruptive innovation, the application of value innovation considers the negativity of mass customization as the failure to boost the quality of services and products. The value innovation theory claims that when the availability of affordability as a factor, increased levels of customization do not result in considerably distinct or enhanced quality or experiences. This is as depicted by the theory of disruptive innovation which is also sensitive to the elements of quality in spite of its emphasis on low costs. Due to this, companies should adopt strategies that go beyond the production conventions of the delivery of goods or services and instead focus on the creation of value founded on the servicing of every need of a consumer.
Unlike the emphasis placed on the use of low pricing by most corporations in the attainment of competitive advantage by disruptive innovation, value innovation simply focuses on the best delivery of and maximization of satisfaction for their consumers. The key difference between the two theories of innovation is that the disruptive innovation seems to place its centrality on the attainment of new consumers of their products or services whereas value innovation seek to gain competitive advantage through the creation of great service and products for their existing base of consumers rather than creating affordable choices for new consumers.
The American Express Company
The American Express Company, in 2014, introduced a new rewards card, Amex EveryDay, which was offered at no cost. The main objective of the company in introducing this card was to capture a segment of consumers that had long been eluding the corporation. These were persons that were not big spenders and did not fly around the globe to pursue their careers or fun. The cards that American Express offered originally had premium charges which offered attractive and profitable retail, travel and entertainment benefits. They, however, came with high yearly fees.
The Amex EveryDay cards were meant for almost every person in the lower and middle class. Offering that clients would be given twenty percent extra reward points per dollar they were charged upon making twenty or more purchases. This was regardless of how small the purchase was in a single cycle of billing. The introduction of this card, together with the different features in offered such as the use of a signature rather than a PIN, greatly contributed to the finding of a large number of new clients for the American Express Company. This then resulted in the raking in of increased income by the company in spite of no particular decrease in the quality of services and products that they offered. This was a clear demonstration of the capability of the American Express Company to exploit the theory of disruptive innovation to its advantage.
American express has gone from nearly no social media existence to a very strong one social media in few years. It has continued to carefully launch crafted promotions on social media hence enabling its brand in building a strong online society of cardholders. This has significantly reduced its advertising costs while reaching as many customers as possible, both current and potential. American Express continues to experiment with the main social media platforms that are Facebook, Twitter and YouTube and also upcoming social media platforms. It has therefore, moved from its sophisticated marketing strategies to a marketing strategy that accommodates most of its customers and allows it to reach more new customers. It, therefore, has been able to cut on cost while gain on having new customers. In doing this, the American Express has applied disruptive innovation.
Another one of American Express’ use of disruptive innovation has been illustrated through its lifting of restriction that it had put on merchants who accepted cards from customers to other brands. This way, it will be in a position of trading with some of the merchants it had restricted hence increasing its revenues. The company has allowed merchants to provide discounts or rebates to clients who pay with a visa or a master card. American Express may lower its prices to lure customers to its card. This way, it will be allowing a customer base that could not be able to afford its earlier prices to trade with it which also increases its sales.
In conclusion, disruptive innovations tend to focus on the advancement of the affordability of a certain product or service for the promotion of the customer base by attracting new consumers. It does not affect the quality of the product or service but rather its cost. Value innovation, on the other hand, focuses on the advancement of value by focusing on the commonalities of the consumers. It creates significant growths in value through the provision of complete solutions that are pleasing to the highest number of consumers. Value innovation focuses on already existing customers. The American Express Company has employed the disruptive innovation approach in the expansion of its market and customer base through such products as the Amex EveryDay cards.