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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:

1. The perceived benefits are increased, the costs remain the same, and the value goes up.
2. The perceived benefits remain the same, the costs are reduced, and the value goes up.
3. The perceived benefits go up, the costs go up, and the value may or may not go up (see discussion below).
4. The perceived benefits go up, the costs go down, and the value goes up.  

external forces

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.

click on image to enlarge

by Kenneth Rudich 

What do a personal computer, a supermarket, and clothing apparel all have in common?   

Answer: the concept of modular design.  

In simple terms, modular design subdivides a larger system into smaller independent parts or modules.  The modules then become discrete parts that get plugged in and out of a larger system or platform.  

What’s important about this approach is that you can integrate the modules according to your particular design preferences or needs.  For example, you can swap out an old computer hard drive with a new one without having to buy a new computer.  Supermarkets can take one product off the shelf and replace it with another more profitable one without having to change the whole store.  And you can mix and match clothing apparel and accessories to change the look of an outfit.   

This kind of thinking – modular thinking — is the basis for mass customization.  

modular thinking versus industrial age thinking  

Modular thinking differs from the thinking that dominated the industrial age, with its mass production of standardized goods based on a single product design.  Back then, efficiency stemmed from reducing the variety of parts that needed to be produced and assembled.  

The downside of this mindset is that it translated into few product choices and a “what you see is what you get” proposition for customers.  Hence, Henry Ford’s rumored quip about the Model T, when he reportedly said, “You can have it in any color as long as it’s black.”  It is noteworthy to mention that this mindset endured right up until to the early 1980′s. 

the ascent of modular thinking 

Near the end of the industrial age, people began to look hard at doing the exact reverse by asking if a product might be broken down into component parts that could be mixed and matched together, and yet still rein in the costs of producing it?  

The reason for entertaining this question rested with the recognition that, if it could be done, it would create new value by offering the benefit of making the product customizable.  Individual customers could fashion it into whatever they desired rather than have to take – or leave – what the manufacturer decided to offer.   

If that happened, then the locus of control would shift over to the customer, and the providers of products and services would have to become “customer-centric” instead of “product-centric.”  That one change in mindset alone would invariably work to benefit the customer.   

the answer  

The answer to this question, it turned out, lay not in creating a product per se, but in creating a system or architectural design that allowed the mixing and matching of components into the specific configurations preferred by the individual customers.  This realization marked the rise of modular design.     

Modular design permits customization combined with cost containment — because you can change or modify a module without having to modify the larger system or platform.  For example, you can install and uninstall all sorts of software on one operating system such as a Mac or Windows platform.  By the time everyone has finished doing this, it’s conceivable no two desktops will look exactly alike.   

Professor of Strategy and Technology Management Ron Sanchez says, “Businesses need to create product and process architectures that are capable of providing the flexibility to customize products for individuals and to upgrade them when better components come along.”  I would add that the same holds true for services as well.  

specialization and systemization 

Modular thinking strategically combines specialization with systemization.  At the module level, for instance, there will often likely be a reliance on specialization.  For example, the Intel processor is a specialized part that can be plugged in to many different brands of computers.  Similarly, a small business may need expert guidance from an accountant or lawyer on a contingency basis rather than as part of the regular staff.  

At the system level, strategy will dictate how the specialized modules are interfaced or plugged together to create the larger whole.  Thereafter, the system will change only to the extent that changes in the individual modules or pieces alter it.  This kind of flexibility, when aligned with low costs, broadens the horizon for creating value.   

the value chain for marketing   

The value chain for marketing encourages modular thinking for managing value creation across time.  Some components of it might be tweaked to increase the benefits offered while others might be used to lower costs.  For example, some marketing activities might be outsourced rather than handled in-house, if it is more strategically sound to do so.  

The various combinations of value creating opportunities that are available as one moves across the chain, via the mixing and matching of the pieces, can produce different scenarios of value creation.  I’ll explore the different scenarios for value creation in the next post. 

related posts: 

creating value…or climbing up a water fall 

a value chain approach – part 2

fun imagery

by Kenneth Rudich              

Part 1 delved into using imagery and metaphors to help establish and communicate your brand.  The capacity to employ them wisely can build a strong emotional tie between your products and services and the people who buy them.             

the creative aspect

There is a creative component to doing this well.  It entails the art of producing imagery and metaphors that vividly and concisely convey an embraceable message, one that people can and will connect with.              

Some folks are more talented than others when it comes to doing this type of work.  A person that is adept at writing good ad copy, for example, will clearly stand apart from someone with a lesser ability.  A graphic artist or photographer with an astute eye will always find ways to create images that make amateurs pale by comparison.    

Never shy away from seeking the help of others with complementary skills, aptitudes, expertise, or experience.  Leverage the collective wisdom of the people you trust.  More often than not it will make a material difference, and you’ll be awfully glad you did it.             

the technical aspect

There is a technical facet to this as well, and it has nothing to do with technology per se.  By technical, I mean executing the communication strategy with clarity, consistency, and continuity.  This is something almost everyone can do as long as they remain vigilant about it.  It requires staying abreast of each key area:              

• clarity: making sure all imagery and metaphors clearly convey the desired message, tone, or image.
• consistency: once you’ve decided on a desired image or message, stick with it; treat it like an ongoing campaign; remember, it takes time and continual reinforcement to firmly establish a brand.
• continuity: make sure the same message is delivered across all your marketing platforms.

While this may seem simple on the surface, be forewarned that it is easy to lose sight of it over time.  We all get busy, and sometimes things inadvertently fall off our radar screen.             

a real world example 

The client is a sports bar and grill located in a city that is a popular tourist destination.  Consequently, tourists represent one important piece of the customer base.  Local clientele, particularly the regulars, comprise another.  None too surprisingly, the owner is interested in generating new traffic from both sources.             

The image or theme he wants to project is: “A Place for Social Interaction.”             

the physical premises

The physical premises reflect the work of an owner with close to thirty years experience in the business, almost ten at this location alone.  Operating from the notion that everything a customer sees and experiences will affect his business reputation, not a single detail has escaped attention:          

• the place is clean and appealing to the eye,
• the menu contains a good variety selection with reasonable prices (and daily specials),
• the staff is friendly (on a first name basis with customers) and service-oriented, 
• the general surroundings provide a veritable haven for sports enthusiasts – complete with modern amenities like 48 new flat screen tv’s, all sorts of satellite reception capabilities, a robust sound system, a billiards area, a rectangular bar with an unobstructed view of everything, a separate dining area, a patio overlooking a park with a small lake and disc golf course, three tabletop shuffleboard stations, and a section discretely set aside for accommodating private groups of up to 40 people.

Ultimately, the diverse clientele offers the best testament of just how inviting it all is.  They run the gamut, from young families to seniors to everyone in between.   And yes, it has a lively social atmosphere.            

the internet presence

The ad copy contains an exhaustive list of the bar’s features, like how many tv’s there are, or that the beer is kept cold, as opposed to focusing on giving customers a sense of why their experience here promises to be memorable.  It seems to say, “We built it so you should come,” rather than, “You’ll have a great time if you come.”  Plus, the landing page looks cluttered due to a poor layout design.
 
Perhaps livelier copy would be better suited for arousing interest:     

Oddly, the same copy neglects to mention certain key features like the capacity to entertain private groups, or how the owner gives back to the community through active participation in local civic affairs (which amounts to a lost opportunity for creating good will).        

And speaking of imagery, the “photos” page is entirely filled with pictures of an empty establishment.  It looks clean and modern, but empty.  Does the sight of empty chairs, empty tables, and empty stools insinuate “a place for social interaction” to you?  The imagery must match the perception you want to create.  In this case, there should be lots of pictures of lots of people having lots of fun in all sorts of ways.
 
Lastly, there’s an opportunity to further advance its socially-driven image through the launch of a strong social media strategy.  Such a strategy could become the virtual extension of “a place for social interaction” and become a nice vehicle for spreading word-of-mouth promotion, for holding contests, sharing information about daily specials and other notable events, and for getting new and current patrons even more invested in the social atmosphere.             

your brand, defend it

 A brand is the sum total of the experiences and exposure people have with it.  It’s in your best interest to always remain vigilant and defend it in every single piece of the marketing and promotion of it.

creating new value takes vision

by Kenneth Rudich

In the last post, “An Economy Built on Quicksand,” I revealed how the start of a global economy back around 1982 has forever changed the U.S. economy.  One economist even went so far as to describe it as moving from an economy built on bedrock to one being built on quicksand.  This post follows-up on that theme by discussing the complexity of delivering value in an economy built on quicksand. 

the two drivers of value

There are two generally recognized drivers of value.  One is when a person or organization creates value; and the other is when there is a demand for value.  Though separate, these two go hand in hand while striving to satisfy people’s needs and motives.  Together, they form the backbone for delivering value.  But because they are separate, they also add complexity to the task of trying to consistently deliver value across time.       

Let’s look at what has become a very common scenario. 

A new innovation comes along and it fills a need or desire that people didn’t know they had before it became available.  It creates value. 

With the passing of time, the demand for that particular innovation may grow even though the value it delivers remains essentially the same.  In this way, the created value gets transformed into a demand for value, which was the purpose for creating that value from the beginning. 

Once that demand hits a critical mass, however, it motivates others to try offering a comparable product that claims to do an even better job of producing value fulfillment.  Perhaps it will cost less while delivering the same benefits, or cost the same but deliver more benefits.  Or maybe it costs more but also excels at delivering more.  However it happens, it creates new value, spurs a shift in demand, and steals customers away from the original. 

Then, possibly, an altogether new and alternative product emerges and it trumps the entire group of comparable products.  It may even be disruptive enough to make them obsolete.  So now the comparable group must either create new perceived value to reclaim their old competitive stance, or lose out as a consequence of the substitute product taking their place. 

In other words, there’s the challenge of continually keeping pace with changing perceptions of what constitutes value over time.  And to be sure, people are fickle, and markets are fickler. 

Examples abound of course, but let’s briefly review just one. 

How many people currently own a manual typewriter and use it daily? 

The manual typewriter was a great invention in its time, but was later trumped by a comparable product that offered relief to otherwise weary fingers – namely, the electric typewriter.  That was then followed by the wordprocessor, which offered still more functionality.  And then the personal computer came along and it, well, it’s now become the runaway favorite — at least for the time being.        

the quicksand analogy    

This is where the quicksand analogy enters the scene, insofar as it refers to the rate of speed with which we have begun to rotate through these cycles of change. 

It took nearly a century for the manual typewriter to lose popularity.  Roughly thirty years for the word processor to replace the electric typewriter, and less than two decades for the pc to overtake the word processor. With each successive round of innovation, the product shelf-life got shorter.  Just as importantly, this particular timeline coincides with the metaphorical shift from bedrock to quicksand when you consider that the economy changed its trajectory about same time the word processor came out. 

Moreover, this innovation cycle is exceedingly slow by today’s standards.  Imagine if we could somehow see the same timeline unfold in our now highly turbo-charged global economy.  That would change it from evolutionary in character to revolutionary in character. 

I’m guessing the manual typewriter would have lasted probably ten years, maybe three for the electric typewriter, and less than one for the word processor.  As for the pc, the ceaseless eruption of new applications pretty much keeps it in perpetual flux (Not to mention it’s entirely conceivable the pc will soon be displaced by something else, given all the new devices that keep coming out). 

ramifications for individuals and organizations

This trend imposes significant implications for individuals and organizations alike.  Key among them is the notion that if you’re not moving forward, you’re moving backward.  As a result, there’s a big onus on individuals to keep themselves marketable by constantly upgrading their current knowledge and skills; a good majority may even find it necessary to re-invent themselves several times over in the course of their adult working lives.  For businesses, it entails the obligation to endlessly innovate in order to remain competitive.  Staying nimble is incalculably important in this environment, because a lapse will always carry the risk of losing the ability to deliver value better than someone or something else.    

And who knows where this ever-escalating race might yet lead?  Will today’s hot algorithm become tomorrow’s quaint antiquity?  Will you wake in the morning using software version 1.0, spend the better part of lunch installing version 3.21, and then 5.0 over dinner?  Will your job skills be current during the appetizers and obsolete by dessert? 

The bedrock you see in the rearview mirror is remnant of the industrial age.  Up ahead — quicksand.                  

what to do?

The intent of this blog is to delve deeply into the question of what to do (or at least what to try) to stay marketable, whether as an individual or an organization.  All future posts will be focused around that objective.  Your contribution to that dialogue is more than welcome.  Won’t you join in?

value defined

by Kenneth Rudich

My dog Reddi constantly burdens me with costs in terms of time and money.  I have to walk him, feed him, train him, bathe him, and play when he gets restless.  There are vet bills and licensing fees, plus squeaky toys and special treats.  And then, too, there’s that perennial chore of having to tidy up in the wake of his path, if you get what I mean.  

Every single day he’ll exact a price, but never once have I resented it.  The truth is, when he looks up at me with those adoring eyes and wags that slender tail, or greets me with a splendid show of canine jubilation, or curls up beside me just to be nearby, I am rewarded with a sense of satisfaction that far exceeds the costs of keeping him.  At moments like these, he is, in every way, the very definition of a marketing concept called value.  

the concept of value

Economists define value as the perceived benefits relative to the price or cost, as shown in the formula: Value = Perceived Benefits/Price or Cost.  

The perceived benefits are usually traceable to some underlying set of human motives, which may be social, functional, physiological, or psychological in origin.  

Sometimes these motives are of equal priority; but more often they will vary in importance, such as divided into primary and secondary ones. Thus a person may agree, albeit reluctantly, to forgo one or more secondary motives if the primary motives are met.  For example, a financially strapped individual may settle for an economy car even though a luxury car is preferred.  In this case, the primary motive of securing transportation (functional) outweighs the secondary motive of prestige (psychological).  

The price or cost represents what someone is willing, able, or authorized to give up in exchange for the perceived benefits.  

It too may have motives attached to it, such as the amount of money, time, or energy a person is willing or able to invest.  For instance, some people will gladly pay a premium for convenience or prestige.  Others would rather exert extra time and energy to hunt for a bargain. Economists refer to this as price elasticity, and it can help with establishing the optimal price people will pay in exchange for a product or service.  

Ultimately, the satisfaction of motives, not just needs, is at the heart of delivering value.  If the price or cost exceeds the perceived benefits [a key motive (or motives) is under-served or not served], then value is decreased or non-existent.  If the perceived benefits equal or outweigh the costs, then value exists and is perhaps even maximized, which produces a level of satisfaction known as value fulfillment.  

Ipso facto, my dog Reddi delivers value fulfillment for me because the perceived benefits of having him around clearly overshadow the costs (bear in mind that he’s fortunate I’m not counting on functionality as a primary benefit, given his gross negligence with matters like housecleaning, doing laundry, or picking up after himself).  

create value, build brand

In the last post, “As the Marketing World Turns,” I touched on the idea of building a memorable brand from the customer perspective.  If you follow where I’m now going with this post, then you’ll recognize that value is the foundation upon which such a brand rests.  

The better you know and understand the people you serve, the better the foundation you’ll be able to build for your brand.  Here is a short list of questions you might want to deliberate when assessing the value of your product or service:  

• what value creating attributes or activities can enhance the connection with your brand?
• what underlying motives seem to be at work, and how do they get prioritized?
• what role does cost or price play in the perceived value of your product or service?
• how can value creation help to position your product or service in other people’s minds?
• how does your value proposition stack up against that of your competition or of other substitute products and services?

This article titled “Marketing Strategies by World Hotels for Customer Retention” is an illustration of value creation from the perspective of the lodging industry.  Notice the attention to detail for identifying, and then catering to, specific motives.  

Brand management and marketing must rigorously entertain questions about delivering value on a regular basis, and then tweak the value proposition accordingly.  To do anything less will result in the equivalent of trying to climb up a waterfall. No matter how hard you work, you’re not likely to get very far with making your brand stand out.  

In future posts, and with a hopefully generous amount of input from others interested in the same topic, I would like to explore in-depth some of the better tools, techniques, and ideas for managing and marketing value across time — whether for realizing individual goals or helping an organization to meet its objectives.  My vision is that the eventual pooling of insights will lead to a rich form of creative cross fertilization, in which we not only inspire one another, but also achieve greater success because of it.  

Insofar as the usability of this blog is also important to me, I would like to invite suggestions along those lines as well.  

Welcome everyone.  And may we all deliver value with dexterity and skill!