Using the Value-Based Strategy Approach to Develop a Competitive Strategy

Aquion is well positioned as a startup company. The technology offered by the startup is not only ingenious and one-of-a-kind, but extremely valuable to utility industry players as it represents a low cost alternative to what has been available nearly since electricity was harnessed. As the case study states, the new battery technology developed by Whitacre "promised significant price and performance advantages over other battery technologies across a wide range of stationary storage applications" (Eisenmann & Kiron, 2012, 1).

More specifically, the energy storage using Aquion technology could be priced at less than one center per kilowatt hour, which is fifteen times less than lithium ion storage and just one percent of the price of lead- acid- battery storage. Clearly, the technology offered by Aquion offers the potential for a competitive advantage in the market of utility and non-utility energy storage. But how can this advantage be harnessed?

The value-based strategy approach, as discussed by Dranove and Marciano (2005) provides a great deal of insight into how to both create and sustain a company's competitive advantage. As the authors state, "To be successfully positioned, your firm must offer a value proposition...that surpasses what your rivals can offer" (177). In other words, the value-based approach to creating a competitive strategy is provide a value to potential customers that cannot be duplicated by competitors. Thankfully, it appears that Quion is in just the right place to do so.

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According to the case study, "The potential value of a low-cost storage solution for the United State's aging electricity grid could be measured in the hundreds of billions of dollars," and that the "same attributes of the power grid also meant that a low-cost, reliable storage solution would be crucial for expanding the use of grid-scale renewable energy sources" (Eisenmann & Kiron, 2012, 2). In this way, Aquion is positioned to take advantage of the value-based approach to competitive strategy, since it is the only innovator in the market that offers this kind of value to potential customers.

The other aspect of Aquion's competitive advantage - that should certainly be integrated into its competitive strategy - is that it can benefit both the utility and the non-utility market. The main, planned application of Aquion's technology was energy storage on large electrical grids, as commissioned by the U.S. Department of Energy. However, the founder of the company also considered alternative target markets, which include "uninterrupted power supply for data centers or homes; optimizing the performance of diesel generators in remote locations; and local storage of excess power generated by homes and businesses from solar panels and wind turbines" (Eisenmann & Kiron, 2012, 1).

Therefore, the company offers the benefits to both markets while keeping production costs low. This is the main 'formula' of the value-based strategy: the "amount of value that a firm creates is equal to B minus C", which is the benefit that the user experiences minus the production costs for the good or technology (Dranove & Marciano, 2005, 33). As already noted, the production costs of the Aquion technology are relatively low, which means that the company is in a good position to take advantage of this type of formula, particularly at the early stage of releasing to the public.

This conception of value-based competitive strategy leads directly into a discussion of how Aquion should approach the pricing of its technology. While the value-based approach is certainly useful for creating and maintaining a competitive edge, it is also useful for creating an adequate pricing strategy. As Dranove & Marciano (2005) note, "It should now be obvious that if a firm offers higher B-C than its rivals, then it can set price so that it simultaneously (1) offers consumers more B-P than do competitors, and (2) enjoys a higher P-C than competitors" (33).

In other words, a firm will be more successful if it offers higher value to consumers than they expect with the purchase price, and it is simultaneously able to increase profit margin because the product costs are low. In this way, the low cost associated with the Aquion technology should not necessarily affect its pricing strategy. Instead, Aquion should seek a "larger market share, profit margins, and higher profits" by pursuing the strategy above (Dranove & Marciano, 2005, 33).

By way of an example, Aquion could begin pricing its storage system at $300 per kWh, which is more than double than the low end pricing from lead-acid battery systems. Aquion could take this approach because it not only offers twice as much efficiency as the alternative, but also promises more longevity in the system. The production cost may be the same, but Aquion can reap from the benefits of the consumer by keeping the price competitive, but not so competitive as to cut into a potentially juicy profit margin.

Aquion clearly has the competitive advantage now, with its new technology. But how can this competitive advantage be maintained in the long term? As Dranove & Marciano (2005) note, "Acquiring scarce assets does not by itself assure success" (180). Aquion may have the innovation today, but what happens when competitors begin to adopt the same technology? The key to maintaining competitive advantage in the long run in light of this possibility is two-fold: first, to continue to invest in making Aquion not only the cheapest, but the most reliable technology out there, and second, to expand on both of its market opportunities.

First of all, Aquion's battery already shows an incredible amount of potential in terms of lifetime stability. This means that if the company continues to invest in making this technology stable even as it expands, it will remain specialized. Second, very few competitors work successfully both within the utilities and non-utilities markets for energy storage. As Dranove & Marciano (2005) state, "Acquiring cospecialized assets can assure success, as rivals will be unable to create the same value and will be unwilling to outbid you for them" (180). Aquion should first move into the non-utility market to prove its efficiency and longevity, and then move to the utility market and larger government contracts. This will ensure the cospecialization that should keep the company competitive well into the future.

References

1. Dranove, D. & Marciano, S. (2005). Kellog on Strategy: Concepts, Tools, and Frameworks for
2. Practitioners. San Francisco: John Wiley & Sons. Eisenmann, T. & Kiron, D. (2012). Aquion Energy. Harvard Business Review. Case Study 9-811-047.

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