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Pattern description
Pattern description
Value creation focuses on what is necessary to deliver the core value proposition of a product or service, typically as basic as possible. Cost savings are shared with the customer, usually resulting in a customer base with lower purchasing power or purchasing willingness.
Inventive problems
Inventive problems
The product price should be high to cover costs.
The product price should be low to increase the turnover of the company.
The value-added chain operations should be large-scale in order to ensure maximum economies of scale.
The value-added chain operations should be small-scale in order to produce products with different characteristics.
The product should be targeted at a small group of customers in order to fully meet the needs of customers.
The product should be targeted at a large group of customers in order to attract more buyers and get the maximum revenue.
Application examples
Application examples
Henry Ford became a famous No Frills pioneer when he introduced his Model T in 1908. At launch, the car was available for the incredibly low price of US $850, about half the usual cost of a motor vehicle at the time. Ford was able to arrive at such a low price by introducing methods for large-scale manufacturing and, later on, assembly lines. Customers were no longer able to customise their cars according to their wishes, but the price spoke volumes. Henry Ford’s quip on the subject, ‘You can have any color as long as it’s black,’ has now gone down in history. A major factor in keeping the price so low was the simple construction used for the Ford Model T. It was built with a modest 20 horsepower engine on a relatively uncomplicated steel chassis. Henry Ford’s success was so resounding that by 1918 every second car in the United States was a Model T and over 15 million units had been sold when production ceased in 1927.
A very familiar example today is the airline industry’s low-cost carrier model. US-based Southwest Airlines launched it in the early 1970s, offering its customers very cheap fares bereft of comforts such as meal service, seat reservations or booking assistance through travel agencies. Unlike traditional carriers, airlines employing this model generally don’t use major airports, but choose instead to fly to smaller airports located at city peripheries. While less conveniently located, they charge lower airport taxes. The introduction of the low-cost carrier model has led to enormous changes in the airline industry, and it is estimated that every second flight in Europe is operated by a low-cost carrier.
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