by Kenneth Rudich
The last post, “Creating Value with Modular Thinking,” discusses how the principles of modular design apply to the concept of creating value for customers, and how the generic value chain for marketing encourages modular thinking to effectively manage value creation across time.
This post outlines some of the key value creating scenarios likely to be explored when using the value chain for marketing.
the value creating scenarios
Throughout this blog, I interchangeably use terms like “components” and “modules” to describe the different parts of the generic value chain for marketing. Regardless of the term used, let me reiterate that value can be created from within an individual component or it can be enhanced by strengthening the relationships between components. In each case, the added value comes from making a change either in the perceived benefits, the cost, or possibly both. This will hold true regardless of whether it happens within a component or in the relationship between components.
With that in mind, the four most probable value creating scenarios, as shown in the diagram above, are:
- The perceived benefits are increased, the costs remain the same, and the value goes up.
- The perceived benefits remain the same, the costs are reduced, and the value goes up.
- The perceived benefits go up, the costs go up, and the value may or may not go up (see discussion below).
- The perceived benefits go up, the costs go down, and the value goes up.
The external forces will have a significant role in determining what actually happens with the implementation of any given scenario. This is shown in the lower right hand corner of the above diagram. As you may recall, the generic value chain diagram shows the external forces as exerting an influence on it.
For example, let’s say a competitor successfully executes the fourth scenario against your organization’s execution of the first one – so that the perceived benefits between the two products remain comparable but now they sell it at a lower price. Under this circumstance, your organization may have increased the value of its product, but it wasn’t as much as the competitor was able to do. This creates a possibility for the competition to now have a market advantage.
the curious “?” in the third scenario
Notice the question mark in the value outcome cell for the third scenario? There are several sub-scenarios that can explain this.
For example, it may be a prestige item where some people are willing to pay extra for the brand image because it matches the perceived psychological benefits they get from having it. It therefore derives its value based on the value of the psychological benefits.
Or maybe it’s a case where the rise in cost is only marginal and seemingly fair in light of the perceived increase in benefits.
Or maybe there is a basic version of the product line and a deluxe version, and each individual is left to decide which one represents a better value.
Finally, there is the risk that a higher price will overshadow the perceived benefits and the sales of that item will suffer as a result.
Consequently, the third scenario is more likely to unfold in a manner that is distinctly different from the other three, with all else being equal.
the two perspectives of value creation
Lastly, there are two perspectives from which to view these value creating scenarios, and they will come into play when tracking the outcomes against the objectives. I will introduce and explain these two perspectives in the next post.