The Value Stick model is a strategic framework used to understand and optimize value creation and capture within an organization. It visualizes how different strategic actions can influence the distribution of value among key stakeholders, including customers, employees, and the firm itself. The model highlights the levers companies can use to increase profitability and competitiveness by either increasing the perceived value to customers or decreasing the costs incurred by the organization.

Developed by Felix Oberholzer-Gee in his book Better, Simpler Strategy: A Value-Based Guide to Exceptional Performance, the Value Stick framework emphasizes the importance of creating value for all stakeholders in a balanced way. It provides a structured method for identifying how different strategic decisions impact the value dynamics within a business, thus helping organizations make choices that sustainably improve their position in the market.

tl;dr with Felix Oberholzer-Gee himself

https://youtu.be/o7Ik1OB4TaE

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Core Components of the Value Stick Model

The Value Stick model is represented as a vertical stick with four key components, each corresponding to a point where value is either created or captured by different stakeholders:

1. Willingness to Pay (WTP)

• Definition: Willingness to Pay is the maximum amount a customer is willing to pay for a product or service. It represents the perceived value that the customer attributes to the offering.
• Position on the Stick: WTP is located at the top of the stick, indicating the upper limit of the value customers are willing to receive in exchange for their money.
• Impact: When a company increases the WTP, it enhances customer perceptions of value, which can justify higher prices or increase demand. Strategies to raise WTP include improving product quality, enhancing the brand, adding features, or delivering superior customer service.

2. Price

• Definition: Price is the amount a company charges for its product or service. It determines how much of the value created between the WTP and Cost is captured by the company.
• Position on the Stick: Price sits below the WTP on the stick and represents the revenue captured from customers for each unit sold.
• Impact: Pricing decisions influence the firm’s revenue and the perceived value to the customer. Setting the right price is critical for balancing value capture (profit) and value creation (customer satisfaction).

3. Cost

• Definition: Cost refers to the total expenses incurred by the company to produce and deliver a product or service, including production, labor, logistics, and overhead.
• Position on the Stick: Cost is positioned below Price on the stick, representing the amount the firm needs to spend to produce the product or service.
• Impact: Reducing costs, while maintaining or enhancing quality, allows companies to capture a greater share of the value generated. Strategies include process optimization, economies of scale, supply chain efficiencies, and adopting cost-effective technologies.

4. Willingness to Sell (WTS)