This is a summary of a short presentation that I delivered today at the 7.45 Breakfast Club in Jersey.
Any business needs to provide some sort of value to the clients its serves – if it doesn’t it won’t last very long. This value could be a product that its customers desire or a service.
We can look at value with reference to the diagram of The Value Pyramid below. At the base level a business needs to provide value for money; if customers do not perceive they are receiving value commensurate with the price they have paid for that product or service then they will go elsewhere.
The Value Pyramid
As we move up the value pyramid we start to move into the area of capturing value from that product or service. We use our knowledge or experience to improve the product or service we deliver, thus capturing more value from it. This could be to produce the same product more efficiently and thus lower costs, it could be to improve its quality, or it could be to increase its features or benefits to the customer. We also may look at our competitors products to see how we can improve on their products and services and to address a gap in the market.
This process of capturing value does have a limit though. There will come a point when all the value has been captured and you and your competitors are all providing a very similar product. As the market matures and becomes increasingly commoditised you main differentiator will be price – this is not the type of market most suppliers would wish to be in so you need to look a creating value in other ways.
When creating value your business is producing a new product or service, possibly one that your current customers do not even know they need! This is also known as disruptive innovation, because it disrupts the previous market that has already captured all the value it can. I will go back a hundred years or so for an example of this.
Around the turn of the 20th century most people used animals as their main means of transport. Perhaps you would have had something like the one below:
If you had asked people what they wanted at this time they would likely have said “I’d like a faster horse”!
This is a great example of capturing value – the cart horse has been refined to produce the race horse – but it is still a horse. To create value we must look at what the customer is trying to achieve and solve this problem in another way.
A man called Henry Ford did exactly that when he invented the Model T Ford bringing a whole new way of travelling to the masses.
We may think of Apple in the same light today creating new value when they introduced products like the iPod, iPhone and iPad. Their competitors are now doing very well capturing value from these innovations, but what will come next?
Where are you on The Value Pyramid and where do you need to be to achieve greater success?
It would be interesting to get some feedback on how you are capturing and creating value in your business. If you need some help to think differently then get in touch, I’d love to hear from you.