Thursday, April 19, 2012

Trading items of unequal value

In my recent post The value of non-moneterized transactions, I wanted to illustrate that value can be created but also captured without money changing hands. Most often of course it is a combination; your first paying customer may also be your best reference customer, your proof of concept towards investors, your valuable partner in understanding the market and so on. The cost for your customer to agree to being a reference customer or provide you with data, may be close to zero, while the value for you may be substantial. When designing business models, it is important to understand what you have that may be valuable for others, and what others have that may be valuable to you.

In his excellent book on negotiation Getting More: How to Negotiate to Achieve Your Goals in the Real World, Stuart Diamond presents twelve major strategies, tools that support them, and specific applications and examples. One of the twelve strategies is the concept of trading things of unequal value, something that I also see as an important concept in designing value propositions and business models.

"All parties value things differently, and often unequally. Once you find out what they are, you can trade them."

"Find out what each party cares and doesn't care about, big and small, tangible and intangible, in the deal or outside the deal, rational and emotional. Then trade off items that one party values but the other party doesn't."

"One of the more remarkable business success stories of expanding the pie involves Brad Oberwager, the founder and CEO of Sundia Corporation of Oakland, California, producer of high-quality fruit cups… …several years ago he approached ten of the twenty largest watermelon growers in North America. He offered them part of his planned fruit cup business if they would simply let him put "Sundia" stickers on the watermelons they sold in stores. It cost the growers nothing. For two years store owners saw the stickers. Then, one day, Brad, with the growers' support, started making calls to the stores. He offered a fruit cup with higher value added with the brand they had come to know: Overnight we represented thirty-two percent of the market."

Think broadly about value creation
So when designing business models, think broadly about value creation and value capture. Think broadly about which actors exists around your company, around your customers, or even around your physical office space. And when you have decided to go for a partner, supplier, or customer think broadly about what you can provide them with besides your direct products, services, or payments, and what they could provide you with, to get the best return on your assets by trading items of unequal value.

Saturday, April 14, 2012

Is there a need for customer value creation models?

All business model frameworks have the customer and the value proposition, or offer, as key elements. The value proposition is described as the products or services offered to different customers segments, and is a function of key resources and key processes (or activities) given to the input from suppliers (or partners). In some of the frameworks, partners are also included as an element to provide external resources and activities to enable the company to provide its value propositions. One of the things I'm missing in these frameworks is the perspective of co-creation of value. Value creation from the customers' perspective is not necessarily sequential, all captured in one company's value propositions, but in many cases parallel, offered simultaneously by different actors.

The business model concept takes its starting point in how an organization creates and captures value. Since the 1960s, different frameworks have been presented to capture the building blocks of value creation. Almost all frameworks take their starting point in the organization, or the firm, and what is being provided as output from within the organizational boundaries. This made sense when competition was based on one company's dominance of some asset or mastery of production, but I don't know if it is sufficient to innovate business models today. To clearly describe or analyze Google's business model for Android, without including what other companies such as handset manufacturers or app developers provide the same customers, is impossible. (Great guest post: Is Android Evil?)

When designing business models, do not limit your thinking to the value you are creating or potentially could create combining external resources and activities, but include complementary values that others could provide, in the business model equation. Perhaps there should be business model frameworks taking the starting point in customer value creation, not limited to what one business can provide?

Is there a need for customer value creation models? Are there any good ones out there?