The Eliminate, Reduce, Raise, Create (ERRC) curve is one of the best tools from Blue Ocean Strategy. It is a visual representation of everything; differentiation, value stick, customer value proposition, defensibility, segmentation and almost anything else you can think of.
The premise is simple. Draw the axes of a graph, with the y-axis showing low to high. On the x-axis, you first plot Price. Then you have all the other aspects of a product that are important for a customer, from availability to quantity per purchase to taste to ease of use and so on.
Plot on the graph the offering of your competitors; you ought to notice some themes and clues to how they differentiate between themselves. Some have higher price points and concomitant higher quality offerings. Others go for low cost, and others look for niches in other areas. Successful companies will have a curve that ties in with their value stick and brand image. An Asda high-end champagne wouldn’t make sense, nor would Ferrari trying to get a good score in easiness of access/availability.
The most important line is the one that represents the desires of the customers in the segment you are going to target. Plot that. If you have identified an opportunity in the market, it is because somewhere along the curve the customer demand line draws clearly away from all of the different competitor offerings.
Below is an example for Yellow Tail wines and their expansion into America. In 2001 this Australian vineyard plotted what it saw as the only two offerings on the wine market, in red and blue. Premium wines are very expensive, very complicated, have lots of awards, and tell you about their obscure vineyards.
Budget wines assume that customers want all of that, but cheaper. So they are a mimic of the premium wine offering, but with everything reduced almost exactly proportionally. There was a race to the top among expensive wines, and a race to the bottom among supermarket wines, and no-one was asking customers what they wanted.
Yellow Tail plotted their view of the ideal customer offering in green. They decided to Eliminate pedigree and awards. That worked nicely in terms of their core resources, as they were producing their own (not well known) wine and hadn’t won any awards.
They Reduced the range and complexity of what was on offer, deciding that a little of these features was necessary, but not as much as everyone else was offering.
They Raised the availability of the product, making it easy to find and reliably stocked all over America.
And finally they Created new aspects of the product (Blue Ocean thought in action) that they felt customers wanted but were not getting. All their bottles very clearly communicate what the flavour of the wine is, and what it goes with. In hindsight it seems pretty obvious; a whole generation of younger people didn’t have an education in French wine pairing theory, and just wanted something they could take to dinner or a date without looking foolish. That was the target segment; not the wine connoisseur crowd, but young people.
Having plotted the value curve that customers wanted (and adopting it as their own), Yellow Tail could see that always dropping prices wasn’t necessary. People weren’t concerned that wine was too expensive, they just didn’t know enough about what they were buying and so weren’t buying it. If anything, budget wines were becoming so cheap that customers didn’t want to buy them for brand association reasons.
Yellow Tail offered information to customers in exchange for a higher price, and customers were emphatically willing to agree to that deal. Yellow Tail could therefore produce wine more cheaply even than budget alternatives (who still paid for awards and pedigree) yet sell for a higher price- the golden ticket in business.
From a start in 2001 selling 112k 9-litre cases, Yellow Tail became America’s largest wine importer by volume in 2003, sold 7.5m cases in 2005 (more than all French exporters combined), and as of 2011 provided 8.35m cases per year, a total larger than that of the next three importers combined.
Uses
Put this curve in your pitch to an investor. If you had only one slide in a pitch deck, this would be it.
Investors can immediately see your core customer offering by following your line. The divergence between your line and those of the competitors tells them how you are differentiated, and your explanation of the core resource that allows you to provide that differentiation in the first place will explain your moat, or defensibility.
The customer line you have chosen is your segmentation. For each point you plot on the graph you force yourself to challenge and defend your assumptions by gathering data, which populates your data room.
The value stick (article here) is brought into plays at both ends. Pushing WTP up are Raise and Create, while pushing your costs down are Eliminate and Reduce; between the four they increase your margin or your number of customers, depending on what you do with price.