By Dominic Irvine, Founding Partner, Epiphanies LLP
Value is an oft used word in business. We need to create ‘value’. But rarely do we take the time and ask ourselves, what do we actually mean by value? From a business perspective the value that matters is that which the consumer deems valuable. In this article I’m looking at value from the perspective of innovation.
Think of something you use that you really value; think about those things you really like using. For me, it’s my Nespresso machine. It’s not that I couldn’t make coffee without it, it’s just that the experience of using it works well for me. I enjoy using it and I love the coffee it makes. I’d survive without it, but I’d miss it. As a consumer I place a great deal of value on the Nespresso machine.
What would be the equivalent object for you? I took this idea from a blog written by Gideon Rosenblatt a couple of years ago. His point was that: “All products of real value are embedded with specific ways of serving customers. Through that service value is created. That which serves creates value.” In other words, if we want to understand consumer value we need to understand what the consumer values and this in turn means understanding what it is your product enables for the consumer. Nespresso machines are a great example of a company broadening their perspective from innovating the product, in this case coffee, to how the product can provide a better service for the consumer, as in the development of the Nespresso capsule system.
We get hung up on price points, caps, packaging materials and the like and forget that what matters is the service our product provides for the consumer. Value is how the tangible product provides a service. Think about the beautiful Alps. In essence, they are just a physical product. Rock, rivers, mountains, roads in an aesthetically stunning combination. It’s the way we consume the experience of being in the Alps that creates the value. Whether that be walking in the mountains, biking over the passes or skiing down the slopes. It’s the service experience that is what we value. Whether it’s mountains and lakes, or cartons of milk and juice, the principles are the same. Product service/service product - take your pick. One is inextricably part of the other.
Queuing for value
If you want to understand the power of value, look no further than the launch of a new Apple product and the consumers prepared to stand in line for hours to wait to buy something whose functional competence is probably no greater than other equivalents. However the promise of value associated with the product drives quite extraordinary scenes of behaviour. In the case of Apple products, brand really is price plus perceived value.
Value is what the consumer experiences that encourages them to spend. Value can only exist because you make something that someone else wants - one cannot exist without the other. In a commodity market where everyone pretty much operates in the same way, the value created is pretty much the same as everyone else. To be more successful requires finding ways of adding more value. i.e. finding ways of better serving the consumer in a way they value. This then is the role of innovation. To help create new opportunities for value.
We can add more value by opening up new markets - finding people who don’t use our products today. We could create more value by:
- Delivering more for the same price
- Lowering the price and delivering the same value as previously
- Delivering more for a lower price
You can change your price as much as you want. If the value remains constant, what will change is not the value but the preparedness to pay the price asked for that value.
We could, according to Seth Kahan, provide better value by increasing the quality of the value we provide. For example we might create a social medical platform with useful recipes and suggestions for how else we might consume our juice or dairy product. We could increase the intensity of the value provided. For example, using FSC board in packaging to provide value on a number of different levels.
We can also look at the stage at which we add value. There is the perceived value that exists before the consumer purchases the product as well as the actual value experienced. To illustrate this, Angelo Biasi talked about the ‘Egg McMuffin’ and the way in which the advertising had shifted to presenting the Egg McMuffin as a premium product and therefore shifted expectations over the value of the product. I’ll leave it to you to decide if you consider it to be a premium product. However, the point remains valid in that we can add value by increasing perceived value.
Value is perception
Consumer perceptions of value do not always match up with true cost. For example, bundling goods can change the perception of value. Research into the automotive sector has shown that when optional extras are bundled together consumers perceive a greater value. In an interesting report, John Leech of KPMG explained how different pricing strategies are employed for different demographics: “For example, in-car connectivity is essential to the young demographic, not for the average Toyota or Hyundai customer. The latter prioritise safety and general reliability over built-in satellite navigation systems. So identical optional extras are priced differently according to each model’s market segments.”
The valuable insight
The message is clear. Businesses that don’t create value don’t survive. Value is about service. Innovating value allows us to find new and different ways of creating something more appealing to consumers. When products continue to evolve to better meet the consumer’s perception of value so the value to the business will increase.
Trending towards value
Ask any good expert on Social Media what’s the purpose and the initial response is always likely to be to listen. If we want to add value for consumers it helps if we are paying attention to what they are saying. Social media, like no other tool before provides us with a rich stream of insight. Big data can help with innovation because we can spot trends otherwise not visible. e.g. analysis of Facebook shows people are more likely to split up on Christmas Day and Easter than at any other time of the year. We know this because of analysing all the comments for words such as 'break-up' 'divorce' etc. The trouble is people are developing a blind obsession with big data that it is the solution to all our problems.
However, some excellent analysis done by people like Gary Hamel (the strategy guru) and others is showing that we have a long way to go before we can really extract full value from Big Data because we do not yet understand enough how all the variables interplay. This is not new. There was a classic example decades ago (1936) in the States when they polled 'Literary Digest' readers by phone on the outcome of a Presidential election. They predicted Landon would win by a landslide. But Roosevelt won. The problem turned out to be that to have a phone you needed to be wealthy and middle class and therefore you were likely to vote for Landon. Thus the sample whilst huge (2 million people) was massively skewed.
In the same way, Google used evidence from searches to predict the flu epidemic. The 'worried well' beavered away researching flu and skewed the results. Incidentally, George Gallup correctly predicted from a random sample of 50,000 people the Literary Digest would get it wrong. He predicted a landslide for Roosevelt. This did a lot to help Gallup on his way.
Big data can in part provide us with useful insights. So too can other sources of information. The big macro trends of an emerging middle class and the consequent changes in diet. The demographic profiles of markets tell of what the future likely demands will be. A growing concern with health and wellbeing is influencing how value is perceived as is corporate and social responsibility. Sustainability and traceability are becoming hygiene factors in food production. In other words, you won’t get past first base without these things. The challenge is translating these global trends into value as perceived by the consumer. For example, ‘Fairphone’ make a mobile phone where the materials used are from ethical sources, i.e. minerals from conflict free zones. The phone matches the global trends and its very existence is testament to the way values are changing, but Fairphone does not have people sleeping on the streets at midnight waiting to buy their next product. The value of sustainability is not as great as the perceived value an iPhone delivers.
We need to listen to our consumers through social media and other tools to see how they are responding to the mega trends and then using innovation tools and techniques devise ways of adding value as perceived by the consumer. The broader minded amongst you will do this from the perspective of seeing your product in terms of the service it provides and be open to both product and product related innovations to find that value.
The pragmatic amongst you will recognise that the most successful innovative companies are not afraid of experimenting, getting it wrong, learning the lessons, building on these to create the next innovation (as Google have just done with their project Google Wave and Google Glass).
The wise amongst you will recognise you can’t go it alone. The future is about creating networks with other companies to innovate together to create value, recognising that the leverage of several companies working together can be so much more powerful than going it alone. The challenge is of course working out how each partner gets value, but the opportunities it affords are worth the effort.
The most successful of you will be actively listening into the consumer, paying attention to the mega trends, examining big data and using this information as the basis for innovating across the value chain to identify value for both your business and for the consumer. You will not be afraid to partner with others and experiment with new ideas knowing that even if they don’t work, the lessons will improve the chances of the next idea. Your restless and relentless curiosity will feed a constant hunger for providing consumers with the experience that, when asked what product they couldn’t live without, will have yours at the top of the list.
Whatever your approach, innovation needs a clear focus.