The customer value chain

I’ve found this model useful in my thinking so many times. Also known as the Buying Hierarchy, it’s a model that illustrates a common evolution — though not perfect nor universal — in products and markets where an original innovation provides a performance or functionality benefit over what others can provide. As a result they can charge more as no one else does it.

When others come to deliver that too, then the focus for the customer can move to which delivers the most reliable quality. When the reliability is the same from different providers then we’ll choose the one that is more convenient.

Only once all else is equal does the lowest price option become the winning one. At this stage you’re selling a commodity where people could choose to get the same thing, just as easily, for the same quality in several places.

There’s a business to be made at each stage, but it’s sensible to know where you’re competing.

The original model is from Windermere Associates and widely shared by Clayton Christensen in The Innovator’s Dilemma.