𝗩𝗮𝗹𝘂𝗲 𝗠𝗶𝗴𝗿𝗮𝘁𝗶𝗼𝗻

Value migration is a flow of economic and shareholder value away from obsolete business models to new, more effective designs that are better able to satisfy customers’ most important priorities.

𝗔). 𝗧𝗵𝗿𝗲𝗲 𝘀𝘁𝗮𝗴𝗲𝘀 𝗼𝗳 𝗩𝗮𝗹𝘂𝗲 𝗠𝗶𝗴𝗿𝗮𝘁𝗶𝗼𝗻:
𝟭). 𝗩𝗮𝗹𝘂𝗲 𝗶𝗻𝗳𝗹𝗼𝘄:
In this phase, a company or an industry captures value from other industries or companies due to a superior value proposition. The market share and profit margins of the company or industry expand.
𝟮). 𝗦𝘁𝗮𝗯𝗶𝗹𝗶𝘁𝘆:
In this phase, competitive equilibrium is established. Growth rates moderate.
𝟯). 𝗩𝗮𝗹𝘂𝗲 𝗼𝘂𝘁𝗳𝗹𝗼𝘄:
Value starts to move away towards companies or industries meeting evolving customer needs. In this phase, market share declines, margins contract, and growth stops.

𝗕). 𝗧𝘆𝗽𝗲𝘀 𝗼𝗳 𝘃𝗮𝗹𝘂𝗲 𝗺𝗶𝗴𝗿𝗮𝘁𝗶𝗼𝗻
Value migration can manifest in several ways.
𝟭). 𝗜𝗻𝘁𝗲𝗿-𝗰𝗼𝘂𝗻𝘁𝗿𝘆 𝗺𝗶𝗴𝗿𝗮𝘁𝗶𝗼𝗻:
The Indian IT and Pharmaceutical sectors have seen value migration from western geographies owing to lower cost and niche capabilities.
𝟮). 𝗜𝗻𝘁𝗲𝗿-𝗶𝗻𝗱𝘂𝘀𝘁𝗿𝘆 𝗺𝗶𝗴𝗿𝗮𝘁𝗶𝗼𝗻 𝗶𝗻 𝘁𝗵𝗲 𝘀𝗮𝗺𝗲 𝗰𝗼𝘂𝗻𝘁𝗿𝘆:
In India, value has migrated from Railways to Airlines, facilitated by low-cost, no-frills airlines.
𝟯). 𝗜𝗻𝘁𝗲𝗿-𝗰𝗼𝗺𝗽𝗮𝗻𝘆 𝗺𝗶𝗴𝗿𝗮𝘁𝗶𝗼𝗻 𝗶𝗻 𝘁𝗵𝗲 𝘀𝗮𝗺𝗲 𝗶𝗻𝗱𝘂𝘀𝘁𝗿𝘆:
Value has migrated from the public sector to the private sector in the Indian Banks and Telecom spaces.
𝟰). 𝗢𝗻𝗲 𝘀𝗲𝗴𝗺𝗲𝗻𝘁 𝘁𝗼 𝗮𝗻𝗼𝘁𝗵𝗲𝗿 𝗶𝗻 𝘁𝗵𝗲 𝘀𝗮𝗺𝗲 𝗰𝗼𝗺𝗽𝗮𝗻𝘆: Telecom service operators have seen value in migrating from Voice to Data.

𝗖). 𝗧𝗵𝗲 𝗱𝗿𝗶𝘃𝗲𝗿 𝗼𝗳 𝘃𝗮𝗹𝘂𝗲 𝗺𝗶𝗴𝗿𝗮𝘁𝗶𝗼𝗻
(𝟭) technology, (𝟮) cost, (𝟯) convenience, (𝟰) innovation, (𝟱) easier access to funding, and (𝟲) lower Switching costs.

𝗗). 𝗛𝗼𝘄 𝘁𝗼 𝗠𝗲𝗮𝘀𝘂𝗿𝗲 𝘁𝗵𝗲 𝗩𝗮𝗹𝘂𝗲 𝗼𝗳 𝗠𝗶𝗴𝗿𝗮𝘁𝗶𝗼𝗻:
The market recognizes the potential beneficiaries of value migration much before the reflection in financials. A key approach to measuring that flow of value is the Price-to-sales ratio (market cap/trailing 12 months’ revenue).
Value Inflow Phase: (P/S ratio > 2)
Stability Phase: (1 < P/S ratio < 2)
Value Outflow phase: (P/S ratio < 1)

𝗘). 𝗙𝗮𝗰𝘁𝗼𝗿𝘀 𝘁𝗼 𝗗𝗲𝘁𝗲𝗰𝘁 𝗩𝗮𝗹𝘂𝗲 𝗠𝗶𝗴𝗿𝗮𝘁𝗶𝗼𝗻
𝟭) Market share movements
𝟮) Innovation leadership
𝟯) Customer satisfaction scores
𝟰) Policy changes

𝗙). 𝗗𝘂𝗿𝗮𝘁𝗶𝗼𝗻 𝗼𝗳 𝗩𝗮𝗹𝘂𝗲 𝗠𝗶𝗴𝗿𝗮𝘁𝗶𝗼𝗻
The longer the value inflow stage, the greater the value creation.
Duration of value migration is a function of three factors:
𝟭. Strength of the value migration driver
𝟮. The ability of the incumbent to innovate and meet ever-changing consumer needs/priorities
3. Sustainability of the competitive advantage.