Adam Brandenburger and Barry Nalebuff developed the Value Net Model in May 1996 in their book “Co-opetition” as an alternative to Porter’s Five Forces Model, which focused on competition. The value net model discusses possible cooperation between competitors.
Value Net Model
Definition: The value net model is a business strategy that identifies four players in running a business and their influence and impact on its success. Afterward, it provides strategies to develop a productive and cooperative relationship between them.
These players are
- Suppliers
- Competitors
- Customers
- Complementors
The Suppliers
The suppliers furnish consumable and raw materials to an organization necessary to produce goods or products.
Suppliers have crucial roles in determining product quality. Low-quality raw materials will lower the quality of the product.
Suppliers also affect product costs. A high-priced raw material will lead to a high-priced product.
An organization deals with different suppliers. A supplier may not necessarily deliver raw materials. It can also produce the finished products for the organization that will be resold to the consumers. In such cases, the supplier can also be a competitor.
Apart from supplying the raw materials, suppliers can offer other opportunities such as cheaper or better-quality materials.
Working with the supplier is good for business. A good relationship with the supplier(s) is vital for business success.
Competitors
Competitors are other businesses that offer similar products and/or services that may serve as a substitute for the organization’s versions. The idea of competitors goes beyond the established businesses; it can include businesses that may be established in the future.
Competitors can also be in different geographic locations, and they are always seen as rivals.
Customers
These are the end users of the product. A customer can be an individual using the product or a business selling the product to its users.
The number of customers determines the business’s popularity in the market.
For a business to succeed, it must understand the basic needs of its customers and strive to meet those needs. How a business treats its customers will determine the market it can control.
Complementors
These are other businesses that sell products or services that complement the ones a business sells. A business and its complement can target the same customers.
Complementors impact how a business’s customers buy its products. A good relationship between a business and its complementors can help boost sales for both businesses.
An example is Microsoft and Intel. Microsoft sells laptops with Intel chips. Intel also sells chips to other vendors.
Strengths of the Value Net Model
The value net model is ideal for businesses that
- Buy raw materials to produce products
- Are looking to be taken over by a bigger organization
- Undertake large projects
- Undertake high-risk projects
The Pros of the Value Net Model
A value net model helps a business:
- Identify the key players
- Determine newer and better ways to compete
- Save costs.
- Establish a standard that an alliance would have to conform to
- Minimize the risk of bearing all the losses (if losses are incurred)
- Face similar or bigger brands in the market.
The Cons of the Value Net Model
Some limitations of the value net model are as follows:
Issues with Power
In an alliance, all parties may not have equal power. When there is power inequality, the partnership may not be mutually beneficial. In such a situation, one party earns an excessive profit at the expense of others.
Competitive Advantage is Lost
A partnership can be a mutually beneficial relationship; however, a business may also lose its competitive edge because of said relationship. Setting rules and tough guidelines limit the business’ competitiveness with each other.
Lack of Trust
Though the partnership is mutually beneficial, it won’t eliminate the businesses’ desire to compete. Consequently, businesses don’t share secrets and important information.
How to Use the Value Net Model
To use the value net model, businesses use PARTS:
P – Players
A – Added Value
R – Rules
T – Tactics
S – Scope
Step-1: Identify the Key Players
Prepare a list of key players and note down businesses and individuals. Ensure that no business is left out.
Find the opportunities to cooperate with key players.
Review the categories for adding or removing new or existing players.
Finally, analyze businesses’ impact on each other. Identify other businesses that may gain or lose with such a partnership.
Step-2: Determine the Added Value
Added value is what each player offers. It captures the offer of each player if an alliance is formed.
A player with high added value will have more power in the alliance.
A business should try to determine the power each player wields in an alliance.
Organizations can determine ways to increase the added value. This is determined by a business’s ability to have loyal customers and suppliers. Loyal customers and suppliers can be amplified by giving rewards, discounts, or incentives.
A business should also consider if it would benefit from limiting the added value of other players in the alliance.
Step 3:The Rules
A partnership has rules and regulations that govern the players in the alliance. These rules and guidelines should be analyzed, and a business should determine:
- What rules favor the business, and which ones put it at a disadvantage?
- Can rules be changed for the benefit of customers and suppliers?
- How much power does a business wield to change the rules?
- Can rules be reverted once changed?
Step 4:Tactics
This depends on how other players perceive a business. Tactics are steps taken by players to alter the perception of other players. Perceptions are ideas that players have about other players in an alliance.
The value net model has a game-like approach to business. The tactics should be analyzed. For example:
- How do players perceive the game and its impact on the game?
- What perception would a business like to preserve or change?
- How transparent should the game be?
Step 5: Scope
The scope is a boundary and refers to the market that can expand the business scope. Businesses are not isolated. They are linked to other businesses, including suppliers, eCommerce, media, and more.
Players can take steps to link or delink the relations with other industries.
The questions to consider concerning scope include:
- Should the business be linked, or should existing links be severed?
- How would linking affect the added value of the business?
- How will linking affect the perception of other players?
Identifying Mutually Beneficial Partnerships
A partnership works if it benefits all parties.
In a mutually beneficial partnership, the following must be observed:
- All parties should have a common understanding.
- There should be set expectations that each party should strive to attain.
- There should be a level of trust between the parties involved.
- The partnership should increase the added value of all parties involved.
- There should be a sufficient chain of communication.
- Each party should have access to the data that relates to the partnership.
- Contracts should be regularly reviewed to ensure all partners are satisfied.
What Is Co-opetition?
The word co-opetition was coined by combining cooperation and competition and means cooperative competition.
Competition is seen negatively, and most businesses try to crush their competition to dominate the market alone. However, this strategy does not work. Therefore, having a partnership that can make the businesses more competitive and profitable becomes important.
In co-opetition, a business can partner with its competition to serve the market or buy bulk goods together. In this way, the companies can purchase goods at cheaper rates, thus increasing the profit for both businesses.
Co-opetition targets modern business. In co-opetition, there are no losers or winners. Every business has a chance to thrive and be profitable. It helps expand the reach of all parties involved and enables them to remain relevant in the market longer than they would have if they were on their own.
Examples of Value Net Model
Below are examples of organizations that have successfully benefited from the value net model.
Nissan and Renault
In 1996 both companies partnered together. This partnership produced better vehicles in larger quantities and had better international reach.
Pfizer and BioNTech
In 2020, at the peak of the COVID-19 pandemic, these companies came together to produce a COVID-19 vaccine. The partnership made it possible to produce the vaccine quickly. Also, they were able to distribute vaccines worldwide using each other’s distribution networks.
Amazon and Small Vendors
When Amazon opened its online platform for small vendors, it gave small businesses a good platform and technological advantage. Small vendors could sell their products to a larger audience, and Amazon was getting a profit from each sale.
With this arrangement, all parties benefited.
Tinder and Other Social Media Platforms
The dating site Tinder partnered with other social media platforms to improve user experience. Users could link their social media accounts to their Tinder accounts. Each social media platform uses this connection to gain more active users.
Conclusion
The value net model builds better businesses and increases the profitability of all parties. The value net model ensures no single winner or loser in the game. Rather, there is a place for every business and mutual prosperity. With modern technology, such a business model becomes more feasible. Businesses adopting this model will be profitable and occupy key positions in the market.