You’ve probably heard it a thousand times: Adding value is all that matters in business. The value you create for customers correlates with the success you can have in the marketplace. But how is value defined? In simple terms, value is the benefits a customer gets from your solution minus the cost. If you want to be successful in the market to a significant degree, you need to deliver superior value. In this article, we’re outlining the three value drivers you need to know to be successful in the marketplace.
“Visibility without Value is Vanity” — Bernard Kelvin Clive
As mentioned in the introduction, business is all about value creation. What unique value are you creating for your customers? If you succeed at this, you will be able to capture value from your customers in terms of revenue. So the prerequisite to any working business model is the value you generate with your product or service.
There are academic frameworks like the VRIO framework to formalize the understanding of value creation in an organization. Although the framework is intended to analyze resources and capabilities, we can apply it to the offerings of organizations as well.
Firstly, is your product valuable? This is another way to say, do customers perceive your product as beneficial to them. The moment, a customer understands how they can benefit from your product is the moment a customer is interested in learning more.
Secondly, is your product rare? Rare refers to the degree of comparability with your competition. If you’re producing a commodity, you will always be in competitive parity with your competitors. That’s why a big part of the overall value generation is finding unique, and rare solutions to existing problems.
Thirdly, is your product easy to imitate? In other words, how easy is it for your competitors to copy your product? If it’s easy, you are at a competitive advantage only temporarily. That’s why innovation plays such an important role to stay ahead and capture superior value in relation to your competitors.
Lastly, is your product organized to capture value? Is it easy for your customers to engage in the transaction and is the fundament built to capture revenue? In the end, a business can only stay in business if revenue suffices to finance the operational efforts.
Although the VRIO framework might seem theoretical, it provides us with a good understanding of the importance of value creation and which aspects to consider in your business.
Fundamentally, whether a product is valuable or not can be seen along three value drivers. They are simple to understand and build the core for any further analysis.
The first value driver we’re discussing is time. Is your solution saving someone time? If so, how much. Are you making a process faster? These questions relate to the time dimension of value creation.
Why is Uber Eats so successful? The reason is quite simple: It saves you time in your busy day to not worry about cooking, nor picking up food. Uber Eats illustrates successfully how the value driver time can be used to create value for customers.
The second value driver is quality. How is your solution making things better? There are different definitions of quality. There is the quality of design: Is your product delighting your customers with thoughtful touches in their experience of usage? There is also the quality of manufacturing: Are you removing any variance from the production to consistently meet specs?
Dropbox for example is excellent at meeting both quality dimensions: Their service is designed in a way that is obviously useful (Quality of design). Further, their service is reliable without a lot of variance for errors (Quality of manufacturing). This is how quality can be a value driver for companies to succeed.
Lastly, the cost is also a relevant value driver. Especially in the B2B environment, the cost can be a very tangible decision criterion that makes value easy to quantify. The fundamental question is: How is your solution saving the customer money?
A great example of this is the rise of technology-enabled processes. When AI is used to automate processes to save human capital, value is created by making things cheaper. Think about how Airbnb was able to make renting apartments when traveling more affordable by removing middle men that are usually involved in the travel industry. Most large-scale disruptions are driven by a cheaper solution, which is why the cost is a significant value driver to consider at your company.
We’ve seen how the three value drivers speed, quality, and cost allow us to understand the solutions we build and what makes them successful in the marketplace. Bear in mind that oftentimes, all three of them are at play at once. Take Amazon as an example. Amazon is making shopping faster, better, and more affordable on many levels.
The biggest takeaway for any entrepreneur and leader is to reflect on what value drivers make their product successful, and how these value drivers can be strengthened. Usually, this is a helpful compass when it comes to innovation and breakthrough business models that can provoke large-scale change in any market.