UNIT NAME: Innovation and Entrepreneurship

Unit Code: BMO2005

Assessment 1: CASE Study-Business and Innovation

Business and Innovation:

Anhui Liyuan CNC Blade Mould Manufacturing Co., Ltd.

Name: 孙琦琦 刘鑫 胡名政 杨灿宇

Sun Qiqi Liu Xin Hu Mingzheng Yang Canyu
Student ID(VU): 4585780 4585775 4585770 4585823
Student ID(HU): 1710241115 1710241965 1710241732 1710241127
Due Date: 2019/11/08
Teacher: Dr Ancy Gamage & Asso. Prof. Pengfei Sheng
 Contents
Executive Summary--------------------------------------------------------------1

1. Introduction-------------------------------------------------------------------2

2. The Current Value Proposition---------------------------------------------3

2.1. The Current Value Proposition Curve-------------------------------3

3. The New Value Proposition-------------------------------------------------4

3.1. The ERRC model------------------------------------------------------5

3.1.1. Elimination------------------------------------------------------6

3.1.2. Reduction--------------------------------------------------------6

3.1.3. Raising-----------------------------------------------------------7

3.1.4. Creation----------------------------------------------------------7

3.2. The New Value Proposition Curve----------------------------------8

4. Benefits - improve the day in the life of customers----------------------9

5. Delivering Value - how could be the innovation delivered profitably?-

--------------------------------------------------------------------------------11

6. Conclusion-------------------------------------------------------------------13

7. References-------------------------------------------------------------------14

8. Appendix---------------------------------------------------------------------17

8.1. Interview--------------------------------------------------------------17

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Executive Summary

Liyuan Company is a company engaged in mold production. In recent years, the profit
margin of Liyuan Company has gradually decreased with the increase of middlemen.
In order to improve the competitiveness of Liyuan Company, this report determines
the field of value innovation through objective analysis, interview and ERRC analysis
of the company. First of all, Liyuan Company's current value factors include pricing,
metal material purity, packaging design, production standards, logistics process, after
sales service and above-the-line marketing. At present, the company adopts red ocean
strategy to challenge its competitors directly and fiercely to surpass industry rivals
and gain more market space. However, as profits fall and customers’ needs diversify,
Liyuan Company should turn to the blue ocean strategy to open up an uncontested
market and gain profits. After our research, through ERRC model analysis, the
company can eliminate packaging design and reduce the logistics process, which
saves a lot of transaction costs and logistics costs, and advance customer delivery
time. Besides, Liyuan can improve production standards, above-the-line marketing to
increase the competitiveness of products. Moreover, personalized customization can
serve as an innovation factor for the company to expand the target market, promote
product development and increase revenue. The innovation of personalized
customization can meet different needs of consumers, improve product quality which
makes products more durable. Therefore, the innovation related to personalized
customization not only enhances the day in life of consumers, but also improves the
competitiveness of Liyuan Company. At the same time, personalized customization
promotes the generation of C2M (Customer-to-Manufactory) mode, which means
customers can directly connect with manufactory. For example, Liyuan Company can
realize customers’ individualized needs with high efficiency. Meanwhile, customers
fully participate in the process of product producing and reducing the price increase of
middlemen. This mode realizes the maximization of customers' interests. All in all,

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this innovation also saves the corresponding cost of the company and has positive
effect on long-term profitability.

1. Introduction

Liyuan CNC Blade Mould Manufacturing Co., Ltd. is located in Anhui province, and
it focuses on the production of blade mold and CNC intelligent sheet metal mold. The
founder of Liyuan Company is Zhang yingnian. Due to the saturation of the plastic
mold market and the changes of customers' demands, he discovers that sheet metal
technology can be applied to the mold production and meet customers' requirements
for high-quality products. In addition, there are plenty of intermediaries which cause
the reduction of profits, so he decides to start a direct sales factory based on sheet
metal technology to enter the industry.

With the decline of profits and the diversification of customer demand, Liyuan needs
to carry out value innovation to open a new market. This report will start from the
company's current value proposition, analyze the variable space and try to adopt new
strategies. Then, through ERRC model analysis, the new value curve will be
established. Finally, the report will describe how innovation factors can improve the
quality of life of customers and the profitability of the company.

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2. The Current Value Proposition

According to Twin (2019), a value proposition is the value that a company promises
to provide customers when they choose to buy and use its products. Besides, the value
proposition also introduces the company's brand to consumers by telling consumers
what the company produces, how it works, and why it deserves their purchases.
Therefore, it is necessary to understand customers’ needs to determine the value
proposition of the company, which will make products and the market more
compatible (Kyhnau & Nielsen 2015). As the largest customer group of Liyuan
Company, the machine tools manufacture companies, they are pursuing to buy high
quality molds at a reasonable price. This is mainly because using good quality molds
will increase the protection of their machineries and equipment production and reduce
the frequency of mold damage. In addition, the raw materials used by Liyuan
Company's molds are of high purity, and they are sold at a moderately low price,
which forms the competitive advantage of their products.

Compared with developed countries, China's mold industry has developed late, but it
has developed rapidly in recent years. At present, Liyuan Company adopts red ocean
strategy. The company challenges its competitors directly and fiercely to surpass
industry rivals and gain more market space (BRETCU 2018). At the same time,
foreign mold companies with technological advantages squeeze into the domestic
mold market and seize market share. The small and medium-sized manufacturers
imitate each other, so the phenomenon of product homogenization is serious, and the
competition is increasingly fierce (Qiu 2019).

2.1. The Current Value Proposition Curve

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Liyuan Company's current value proposition takes into account pricing, metal
material purity, packaging design, production standards, logistics process, after-sales
service and above-the-line marketing. The value proposition differences between
Liyuan Company and the whole industry can be clearly seen from graph 1. The use of
higher purity metal materials is where the company is superior to the industry. Due to
the insufficient after-sales service and marketing strategy, these two aspects are lower
than the whole industry level. This also directly reduces the pricing of the company's
products. However, Liyuan Company’s production standards are not up to the industry
standards and exist a big gap, which may also explain why its price is lower than the
industry price. Furthermore, packaging design and logistics management are at the
same level as the industry.

Graph 1: Liyuan Company's Current Value Proposition

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0
Pricing Metal material Packaging design Production Logistics process After-sales Above-the-line
purity standards service marketing

Industry Liyuan 1.0

3. The New Value Proposition

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Fierce competition from companies selling similar products has forced many
companies including Liyuan Company to lower prices to maintain sales levels, which
results in a decline in their profits. Besides, customers are becoming more demanding,
and they are not satisfied with the standardized products provided by the
manufacturers.
Therefore, in order to open up an uncontested market and gain more profits, Liyuan
Company needs to develop and use blue ocean strategy. According to Kim and
Mauborgne (2005), blue ocean strategy pursues differentiation and low cost through
value innovation. Most blue oceans are formed within the red sea by expanding
existing industry boundaries. Liyuan Company can focus on the diverse needs of
customers to provide personalized customization service. Moreover, it needs to
expand its customer base such as small workshops. During the process, the company
can apply ERRC model to rebuild its value proposition to attract potential consumers.

3.1. The ERRC model

Eliminating and reducing competitive factors in an industry can save costs. In

addition, raising and creating potential factors can increase customer value (Kim &
Mauborgne 2017). Conclusions analyzed through the ERRC model are shown in
graph 2.

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3.1.1. Elimination

Removing some assumptions taken for granted in the industry can reduce costs
(Agnihotri 2016). The packaging design of the product is first considered to be
removed.
In order to attract customers, Liyuan Company employs professional designers and
advertising agencies to design packaging for molds to improve the beauty and
integrity of products. However, the improvement of mold quality and popularity of
the company makes the role of packaging appearance more and more limited. In
addition, the process of packaging design consumes production cost, service cost and
human resources cost (Liu 2018). In the long run, companies have to spend a lot of
money. Therefore, abandoning packaging design can cut costs and provide funds for
developing new technologies and upgrading molds.

3.1.2. Reduction

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Reducing the logistics link to below the industry standard can effectively reduce the
cost of Liyuan Company. From product to commodity, the intermediate link in
circulation is the most profitable (Xu 2008). This means that the reduction of
intermediate links can greatly reduce the logistics costs of enterprises. Therefore,
under the condition that customers receive molds, Liyuan company can cancel the
cooperation with the primary wholesale market or even the secondary wholesale
market. Through the logistics company and the distribution workers of Liyuan, the
products can be directly delivered to the terminal consumers, which can save a lot of
transaction costs and logistics costs. At the same time, because the number of times of
handling is reduced, the company avoids the damage of goods and waste of resources,
and also reduces the burden on the environment. In addition, customers will receive
the goods in advance and the circulation efficiency will be improved.

3.1.3. Raising

Raising certain elements above industry standards can enhance buyer value and
differentiation (Agnihotri 2016). Liyuan Company will raise production standards,
above-the-line marketing and price. First of all, the precision of the mold determines
the precision of the parts produced (Li 2019). The funds available through cost cutting
will be invested in product development. Therefore, the company can improve
production standards by improving the purity of metal materials, increasing the
complexity of manufacturing parts and reducing the range of product errors. The
improvement of production standard can improve product quality and service life and
increase product competitiveness. Secondly, the company will strengthen above-the-
line marketing to improve product awareness and attract customers. Because on the
network platform, enterprises can participate in the competition on an equal basis,
eliminate part of the sales link, and comprehensively display commodity information,
so that enterprises can shorten the distance with consumers (Stojanov 2016). Finally,

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the price of the product will rise due to spending on R&D and marketing. However,
prices will rise slightly as cost cuts offset most of the increase. Therefore, within the
range of consumer acceptance, the company's mold price will increase by about 5%.

3.1.4. Creation

The introduction of customized services by companies can provide differentiation for

transactions and establish direct communication with consumers with specific needs
(Zhurylo & Prygara 2018). Unlike the standardized products produced by Liyuan in
the past, customized products are manufactured according to the individual needs of
customers. Customers will provide the appearance, function configuration and other
aspects of the requirements, and participate in the mold production or design process.
After the design and manufacturing are completed, the molds are sold directly to
customers. Because the circulation link is reduced, the cost of repair and return due to
the inattentive product service will be reduced (Ying 2019). At the same time,
strengthening the two-way communication with customers is conducive to the
establishment of stable cooperative relations with customers and the maintenance of
the company's long-term interests. Although the standardized product scale is larger
and the profit is stable, the profit is lower, and the technology is obsolete. If Liyuan
adds customized services on top of this, it can attract individuals or small factories
and companies, which means the target market of the product will expand and the
source of revenue will increase. Furthermore, the need for diversification will
encourage the company to continue product R&D and technology combination, so
that mold production will be more professional, precise, special and innovative, which
is conducive to the establishment of the company's competitive advantage.

3.2. The New Value Proposition Curve

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According to graph 3, Liyuan Company eliminates packaging design, which will
reduce design costs and in turn will cut down the company's production costs.
Besides, a notable feature is that its production standards have been greatly improved,
together with the use of higher purity metal materials, which will give customers high
quality mold products. The company creates personalized customization service for
consumers, which will enhance its competitiveness. In addition, by adding above-the-
line marketing and after-sales service, more people will know about Liyuan Company
and enhance brand awareness. Eventually, reducing intermediate links improves the
enterprise's supply chain management, reduces logistics costs, and shortens the time
for customers to receive goods.

Graph 3: Liyuan Company's New Value Proposition

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Industry Liyuan 1.0 Liyuan 2.0

4. Benefits - improve the day in the life of customers

According to Pan (2018), innovation is a decisive factor of an enterprise's core

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competitiveness. Therefore, Zhang Yingnian should attach great importance to the
innovation during the development of Liyuan Company. Innovation is conducive to
improving the quality of life of customers and meeting their needs. It will be the
inevitable trend of social development that diversity and personalized customization
demand will become more prominent. Besides, the production mode of personalized
customization will be developed, which will bring new opportunities to the
development of mold industry. Therefore, the innovation related to personalized
customization can enhance the day in life of consumers.

Firstly, personalized customization can meet different mold needs of large companies
and workshops that order products, which improves their competitive advantages and
quality of life. The value of companies comes from customers (Li 2016). Thus,
meeting customer needs is important to the development of enterprises. Due to the
increasing competition, the homogenization of products is becoming more serious,
and batch production of the same products cannot meet the individual needs of
consumers. Besides, homogenization is very common in industry. Consumers of
molds are often some machine tools manufacture companies, so the demand for mold
personalization is more intense for them. Consumers need to produce different
products according to different molds, which improves their competitiveness. On the
contrary, if companies use the same molds to produce, the difference among products
in the market will be very small, which makes the competitiveness of consumers
lower. Therefore, personalized customization can meet the different needs of
consumers and improve the competitive advantage of consumers.

Secondly, personalized customization also improves product quality and makes

consumers use them more durable and convenient. Li and Zhuang (2019) suggests
that improving product quality is important for enterprise development. For example,
when Liyuan Company makes molds, it is inevitable that it may produces a little mold
with poor quality in the processing of individual products due to batch production.

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However, through personalized customization, machine tools manufacture companies
can make Liyuan produces products that meet their own requirements as much as
possible. In addition, it also saves consumers from the reprocessing process of
products produced by molds, which is more convenient. At the same time, consumers
can also improve their requirements for product quality. In this way, Liyuan Company
will pay more attention to product quality. Consumers will benefit from personalized
customization because they get higher quality products that meet their own
requirements.

Finally, personalized customization enables some small workshops to buy suitable

molds for production. Molds produced by Liyuan are usually only suitable for some
machine tools manufacture companies with large specifications, while for some small
workshops, these molds are often not practical enough. However, personalized
customization can make these workshops become consumers of Liyuan Company.
Thus, small workshops can benefit from personalized customization, because they can
ask Liyuan Company to produce molds, which are suitable for them.

Overall, the innovation of personalized customization can meet different needs of

consumers and improve product quality which makes products more durable. Besides,
it also enables small-scale enterprises to buy the mold which is suitable for their
production. The innovation related to personalized customization not only enhances
the day in life of consumers, but also improves the competitiveness of Liyuan
Company.

5. Delivering Value - how could be the innovation delivered

profitably?

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A good product can bring value to customers, and customers can get benefits or
spiritual satisfaction from products. Only when a product is valuable to customers,
customers will buy and evaluate it. On the basis of the principle of innovativeness of
industrial service, which should be the basic factor of influence on competitiveness of
the innovation-oriented international business (Nosach & Velychko 2019). Therefore,
Liyuan Company should maintain the existing consumers, in order to seize the
opportunity to attract potential consumers. Liyuan Company strives for innovation
and can take a new e-commerce mode - C2M (Customer-to-Manufactory) to compete
with other companies.

Personalized customization promotes the emergence of C2M mode and also becomes
a new path for company development. The core problem of Liyuan Company is how
to make personalized customization as an enterprise strategy to enable enterprises to
meet the needs of customers to the maximum extent, so as to maximize profits. In the
traditional business model, customers have no direct contact with the factory. It is
convenient for customers and factories to omit the process of looking for each other,
but the management cost and logistics cost are passed on to consumers, and the final
price is also increasing.

However, the innovation of personalized customization can be a new way for the
development of the company. The traditional large-scale manufacturing mode cannot
meet the individual needs of customers. The production mode of the enterprises has
been changed from the traditional inventory mode to the customization manufacturing
mode driven by the customer orders (Zhang et al. 2019). The development of Internet
of Things and VR technology makes it possible for customers to participate in mold
manufacturing. Internet technology helps factories easily receive customers'
personalized order information and communicate with each other in real time.
Moreover, Internet of Things technology helps factories to obtain users' personalized
information remotely, such as dimension data in mold. Finally, logistics services make

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it possible to transfer products in a long distance, and customers and factories do not
need to consider the inconvenience brought by distance factors.

In short, through the strategy of personalized customization, consumers directly

connect with the factory and middlemen's markups are reduced, so the price of
products purchased by customers is cheaper, which realizes the maximization of
customers' interests. At the same time, it also saves the corresponding cost of the
enterprise and greatly improves the profit space.

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6. Conclusion

This report mainly analyzes molds of Liyuan Company in the red sea strategy and the
value curve which is plotted by its value elements. Compared with the value
proposition curve of the current mold in the market, the similarities and differences
between them are presented intuitively. Because of fierce competition, Liyuan
Company should transform into the blue ocean strategy. Consequently, this report
provides a new value curve for the company. By applying the ERRC approach, a new
value element - personalized customization is created, and the unnecessary value
element of packaging design is eliminated. Besides, this report analyzes how
innovation of personalized customization improves consumers' daily life. It also
analyzes how the product is profitable under the new value curve.

Innovation is crucial to the development of company. Therefore, there is a suggestion

for Liyuan Company that it should continue to innovate, improve products, and sell
innovative new products, which can help the company to gain more profits. Besides,
the company must meet the needs of customers to continuously innovate products.
Only in this way can Liyuan Company achieve sustainable development and
maximize profits.

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7. References

Agnihotri, A 2016, ‘Extending boundaries of Blue Ocean Strategy’, Journal of

Strategic Marketing, vol. 24, no. 6, pp. 519–528.

BRETCU, A 2018, ‘Competitive Strategies between the Red Ocean and Blue Ocean’,
Analele Universitatii ‘Eftimie Murgu’ Resita. Fascicola II. Studii Economice, no. 25,
pp. 17–25.

Kim, WC & Mauborgne, R 2005, ‘Blue Ocean Strategy: FROM THEORY TO

PRACTICE’, California Management Review, vol. 47, no. 3, pp. 105–121.

Kim, WC & Mauborgne, R 2017, The W. Chan Kim and Renée Mauborgne Blue
Ocean Strategy Reader: The iconic articles by bestselling authors W. Chan Kim and
Renée Mauborgne, Harvard Business Review Press.

Kyhnau, J & Nielsen, C 2015, ‘Review of Value Proposition Design: How to create
products and services customers want’, Journal of Business Models, vol. 3, no. 1, pp.
81-89.

Li, N 2016, ‘A Survey of Customer Satisfaction Research’, Modern Business, no. 32,
pp. 18-20.

Li, TJ & Zhuang Y 2019, ‘Total quality management: the strategy of improving the
product quality of Chinese Enterprises’, Modern marketing, no. 9, pp. 119-120.

Li, ZN 2019, ‘Preliminary research on mould design and manufacturing development

at home and abroad’, Light Industry Science and Technology, vol. 35, no. 2, pp. 70-

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71.

Liao, Y & Tsai, K 2019, ‘Innovation intensity, creativity enhancement, and eco‐
innovation strategy: The roles of customer demand and environmental
regulation’, Business Strategy & the Environment (John Wiley & Sons, Inc), vol. 28,
no. 2, pp. 316–326.

Liu, JB 2018, Study on value innovation strategy of home appliance industry in

Jiangxi province, Nanchang University, Nanchang.

Nosach, L & Velychko, K 2019, ‘Creating a Competitive Engineering Product for the
Innovation-Oriented International Business’, Bìznes Inform, no. 495, p. 34.

Pan, RL 2018, ‘On the importance of talents, innovation and development to the
development of enterprises’, Ju She, no. 19, p. 210.

Qiu, SH 2019, ‘Analysis of current situation and future trend of mold industry in
China’, Metal Working (Metal Cutting), no. 6, pp. 4-7.

Stojanov, M 2016, ‘Marketing Support of the Sales’, Izvestia Journal of the Union of
Scientists - Varna. Economic Sciences Series, no. 1, p. 5.

Twin, A 2019, ‘Value Proposition’, Investopedia, viewed 30 October 2019,

<https://www.investopedia.com/terms/v/valueproposition.asp>.

Xu, LY 2008, ‘Build a smooth logistics platform to obtain "intermediate link"

benefits’, Modern Business, no. 1, pp. 60-61.

Ying, Z 2019, ‘Research on precise marketing mode of coal machine based on

customized service’, Hebei Enterprise, no. 6, pp. 118-119.

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Zhang, X, Ming, X, Liu, Z, Qu, Y & Yin, D 2019, ‘A framework and implementation
of Customer Platform-connection manufactory to service (CPMS) model in product
service system’, Journal of Cleaner Production, vol. 230, pp. 798–819.

Zhurylo, V & Prygara, O 2018, ‘Consumer Behaviour Formation in the Customized

Service Markets: A Case of Ukraine’, Baltic Journal of Economic Studies, no. 1, p.
156.

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8. Appendix

8.1. Interview

Q1: How can you identify this opportunity?

A: I find that the traditional plastic mold market is saturated, and customers are
becoming demanding. I have ever contacted with other products combined with sheet
metal technology. This makes me think that this can also be applied to mold
production, which will greatly improve the quality of molds.

Q2: What are the unique selling points of your mold products at present?
A: We combine sheet metal technology to produce molds and use high-purity metal
raw materials. The quality of our products is higher than that of our competitors, and
our prices are relatively lower, and both of them enhance our competitive advantage.

Q3: What value factors do you consider and want to pass on to the customer when
making a product?
A: I think that we have shown pricing, product quality, package design, production
standards, and the supply chain management, advertising marketing and after-sales
service also present in the product.

Q4: The molds produced by your company are generally sold to large companies. If
some small workshops want to design molds according to their needs, does the
company currently involve them?
A: Our company's current consumer groups are mainly large companies. We do not
include small workshops. Because our company is mass production, so sometimes we
could not meet the needs of small workshops. Besides, we do not involve in the
production according to the needs of customers. In addition, personalized

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customization is relatively rare in the whole industry.

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