New Value Creation Model

value-smart-shopping

I received an email from Dr. Marcus Blakemore about a very fascinating website called Fiverr.com. At first, I was very skeptical because freelancers like technical writers and web designers were offering their services for $5. In fact, these services were listed well below market prices.

Yet, the site also offers bizarre services like someone writing something on his or her lips to a person dressed in a clown suit willing to send greetings to anyone. Loaded with my conventional wisdom of ‘you get what you pay for,’ I gave the website a chance. Through this effort, I found some vendors were outstanding while others were mediocre.

Amazingly, the owners of Fiverr.com had created a niche for themselves with freelance websites, such as Elance.com or Guru.com. However, a new value proposition was also developed.

For experienced sellers, Fiverr.com provides a promotional venue where they can sell more expensive services down the product line, newbie sellers can turn their hobbies into financial gains, and value-seeking buyers can secure some quality services well below market value.

With the pressures of globalization all around, organizations are finding that creating value becomes a necessity. This article examines the concepts of value creation in today’s competitive environment. 

Twenty-first-century organizations can no longer implement value creation in a vacuum. Ken Favaro, author of Put Value Creation First, further suggests that placing a priority on value creation gives businesses two advantages over their competition: The first is capital and the second is talent. Favaro argues that successful value creators never suffer from capital shortage.  

Value focuses on the relationship between the customer’s expectations of a product or service and the amount paid for it. C.K. Prahalad and Vemkatram Ramaswamy, authors of The Future of Competition, further reasoned that twenty-first-century corporations must adapt their value creation system to fit the global scale.

They noted the new system is an individual-centered, co-creation of worth between consumers and organizations.  Few executives take the time to explain their values, but this will be increasingly important if companies hope to expand success in their global market. 

For many people, the concept of value creation is vague. An exact definition of value depends on the individual, but it could be defined as the net bundle of benefits the customer derives from a product or service.

According to Businessdictionary.com, value creation denotes ‘the performance of actions that increase the worth of goods, service or even a business.’  Consequently, value creation for customers encompasses developing products and services that customers find consistently useful.  

Mark Johnston and Greg Marshall, authors of Relationship Selling, argue that an individual must understand the customer to establish value.  Furthermore, Paul Peter and James Donnelly, authors of Marketing Management, argue that the starting point in the buying process is the consumer’s recognition of an unsatisfied need. The customer must remain the focus for any sustainable business success. 

Value creation must also be a strategic and deliberate concept for professionals. Mark Johnston and Greg Marshall maintain that perceived value is in the eyes of the customer. Therefore, perceived value will vary. A professional’s biggest challenge is in selling this value with consistency. Being strategic about these business relationships is not simple. Organizations must clearly understand the external motivation within their market in order to create lasting customer value. The external environment is considered anything outside of the organization’s control. External environment factors include economic stability, legal-political shifts, technological growth, social-cultural norms, and natural changes.

With businesses losing market sharing to companies abroad, organizations must establish clear value propositions to their customers. Paul O’ Malley, the principal of Paul O’Malley Associates (Newton, MA), argues the crucial need of value creation for companies: “The most successful organizations understand that the purpose of any business is to create value for customers, employees, and investors, and that the interests of these three groups are inextricably linked. Therefore, sustainable value cannot be created for one group unless it is created for all of them.”

Furthermore, today’s professionals always need to provide value for their employers and customers. In tough times, organizations want to keep their best people. In order to sustain lasting success, value creation must be an important ingredient of corporate business strategies during economic turbulence.

Describe an opportunity or problem in an industry where a new product or service would be benefical to customers because it would provide new value for them.

© 2013 by Daryl D. Green

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21 thoughts on “New Value Creation Model

  1. Norfolk Southern Corp. has just recently began offering Industry Development Services. The three goals of this service according to Norfolk Southern (2012) are “Locate rail-served industries along our lines by providing plant location services tailored to our customer’s needs. Aid our existing industries in their expansion efforts. Work with our allies to promote economic growth in the communities we serve”. By providing this type of service it opens new opportunities for Norfolk Southern to gain access to business, as well as help businesses to relocate or expand into other communities they may not have explored before. In doing so this creates jobs for the railroads and the communities around them.

    Norfolk Southern. (2012). Industrial Development. Retrieved from http://www.nscorp.com/nscportal/nscorp/Customers/Industrial%20Development/

      • Professor Green- Your question was-“Are there disadvantages for this business to offer for a tailored value?” Yes. If there is a customer who would like to do business with the railroad but it has no lines that run where the client wants to take their business. Then how can the railroad offer a tailored value if they cannot customize each request? It seems that the company would not be able to live up to the promise it has made. The core of brand loyalty, according to Consumer Reports (n.d.), is the realization that to a customer the brand is not only a symbol of the product but of the company itself. Repeat business involves being able to count on the company to meet the business needs of the customer again and again.

        Reference: Consumer Reports (n.d.). Brand Loyalty’s influence on Customer Behavior. Retrieved January 15, 2012, from Consumer Reports.com: http://consumerreports.com

  2. With growing number of electric cars in the market, and people constantly looking for alternative to gas there is opportunity for electric serving stations to create value for businesses and recreate value for gas stations. Businesses are constantly looking for ways to get customers in their building. Electric serving stations can do just and allow business to cash in on people wallet during the charging time. Yan (2012) explains in her article, “placement of public stations is vital — not just for drivers, but for businesses that can cash in by luring drivers to their stores” (para 14). Electric cars’ service station can create value for owners of electric cars who are limited to distance of travel by charge. In addition, the value of installing service station in front of store will make people visit the store while charging their car. Addition, to educated place service station in business parking lot there is value in electric service station for energy companies such as BP who provides gas service stations. These companies can look into investing in electric service stations to replace their gas stations and continue to benefit from cars either gas or electric.
    Reference
    Yan, H. (2012, October 24). Public charging stations fuel desire for electric cars. In CNN Cable News Network. Retrieved January 14, 2013, from http://www.cnn.com/2012/10/24/us/public-car-chargers/index.html

    • Brad,

      Great idea!

      How do you get over the initial cost investments for businesses with the electric serving stations?

      Isn’t that what is preventing green energy from being a viable option?

      Professor Green

    • Brad,
      You Stated:
      “the value of installing service stations in front of store will make people visit the store while charging their car”
      My Response:
      The fact that this is exactly what customers do at gasoline stations is the precise reason why it will create value for owners and customers at electric car service stations. Smart Retailing (2012) provides that “customers’ expectations for the service they receive are affected by all of their commercial experiences.” The best way for electric service stations to smoothly transition into the everyday life of consumers is to take what is familiar and adapt it to meet their business’s needs.

      Smart Retailing. (2012, May 22). Consumers’ changing service expectations. Retrieved from http://smartretailingrx.com/staffing-hr/consumers-changing-service-expectations/

  3. Teaching people basic computer skills who have never been exposed to the technical process of using a computer is tough. Imagine you were teaching an elderly person who is a shut-in and has little exposure to the outside world except the information given by their visitors. If that person could have someone come into their home to teach them basic computer and internet skills then the whole world would be at their fingertips. Rosetrees (n.d.) reports that it is not a good idea to try to teach anyone the Internet if they do not have a basic working knowledge of the computer already. Family members teaching the computer to their loved ones can be difficult. Therefore, according to Rosetrees (n.d.), when teaching a family member it is important to stay calm and to avoid the whole scenario if possible. An impartial third party teaching your loved one takes the family friction out of the equation and helps the person gain a new skill while making a friend.

    Reference: Rosetrees. (n.d.). How to Teach My Parents Basic Computer Skills and How to Use the Internet-They’re Afraid of Technology. Retrieved January 15, 2012, from hubpages.com: http://rosetrees.hubpages.com

    • Kathy,

      You stated:
      “An impartial third party teaching your loved one takes the family friction out of the equation.”

      My Response:
      I agree with you! My mother doesn’t have a clue how to operate a computer. One day she asked me to come help her learn how to use it. I thought this would be a productive day. I was wrong! She had no clue what I was talking about. I referred to the mouse, windows and desktop and all I got was a blank look in return. I knew this was going to be a long day. I went from being excited to teach her to being frustrated because I couldn’t explain it to her in a way that she could understand. For this reason, I think a third party is the best option. According to Gorzka (2007), “Once seniors are able to relax and have realistic goals about what they can learn in one class or session, they seem to both enjoy the computer instruction and get more out of it.”

      Gorzka, M. (2007, December 14). Teaching seniors computers – 10 tips for teaching seniors how to use a computer. Retrieved from: http://ezinearticles.com/?Teaching-Seniors-Computers—10-Tips-For-Teaching-Seniors-How-To-Use-A-Computer&id=882773

  4. Kathy,
    You stated that it would be beneficial “if a person could have someone come into their home to teach them basic computer and internet skills then the whole world would be at their fingertips”. This got me to thinking about Apple. When my grandfather purchased his new Mac at 86 years old he had no idea how to use it. Apple provides an interesting service that comes with the purchase of all new computers. Customers receive 6 months to a year of free training on their new computer if they so wish. According to Apple (2012) “when you buy a new Mac, you can sign up for One to One training and take your skills to the next level”. Of course you have to go to the education center to receive the service, but I still found that it adds value to Apple’s product line.

    Apple. (2012). Learn. Retrieved from https://www.apple.com/retail/learn/

  5. It can be difficult to create a competitive advantage in the retail pharmacy industry. Companies like Walgreens and CVS are constantly attempting to one-up each other in an effort to attract new patients and build upon their customer bases. While customer service is always at the top of the short-term goals list, speed of service is quickly gaining momentum as an area where a retailer can create value for perspective customers. According to Smart Retailing (2012), “Consumers now expect everything faster, and they expect it to be accurate and personalized.” I believe that the first company that can find a way to expedite the prescription and retail sales processes in their organizations while maintaining high levels of customer service will find themselves with a huge competitive advantage over others in this industry. At least until the competition finds a way to best them.

    Smart Retailing. (2012, May 22). Consumers’ changing service expectations. Retrieved from http://smartretailingrx.com/staffing-hr/consumers-changing-service-expectations/

    • Josh,

      Great points! Dr. Clayton Christenson discusses how it is difficult for established companies to stay innovative. That situation is why they are often overtaking by less sophicated companies. Dr. Clayton calls this effect ‘Disruptive Innovation.’

      Professor Green

  6. Sleep apnea is a growing concern for millions of people. It is a disorder where a person stops breathing several times during the night. As a result, the body and brain is depleted of necessary oxygen. Untreated apnea can be detrimental to one’s health (Nabili, 2012). For this reason doctors are requiring patients to be tested for it.
    Testing involves the patient staying overnight in a sleep center while a technologist watches for changes in breathing patterns, oxygen levels, etc. The sleep technologist will prepare the patient for the study by hooking them up to electrodes. These electrodes are placed on the head and body and connected to long wires plugged into a port. Patients complain that this is uncomfortable for them while they try to sleep. Wires can be pulled loose by the patient. Once this happens, the tech enters the patient’s room to fix and replace the pulled wires. To alleviate this problem, it would be valuable to have wireless electrodes. This may promote a more restful night for the patient. As a result, they may refer their friends and family for testing, thus increasing business.

    Reference:
    Nabili, S. (2012, September 25). Sleep apnea. Medicinenet. Retrieved from: http://www.medicinenet.com/sleep_apnea/article.htm

  7. Herbs for medicine
    Using herbs for medicine is of particular interest to me Dr. Green. As I am not sure what chemicals are used in traditional prescription medications, not to mention the many side effects that occur as a result of taking these drugs. I believe in eating well, exercise and consuming fruits, vegetables, herbs and spices. According to medical doctor Josephine Briggs the five most searched for herbs during 2012 were evening primrose oil, St. John’s wort, fenugreek, echinacea, and aloe vera. This states that there is a part of the population looking for natural ways to cure illness. There is definitely an interest in natural products and people want to learn more.

    Briggs. J (2013) The top 5 searched for herbs of 2012. Retrieved on January 25, 2013 from http://nccam.nih.gov/about/offices/od/2013-01

  8. In 2011 credit card fraud was the third most common type of business-to-business payments fraud targeted by fraudsters (Association for Financial Professionals, 2012, p. 3). Credit card fraud in restaurants is on the rise. Fraudsters are willing to pay servers a nice per card fee for credit card numbers. One way restaurants can address this problem is by implementing portable credit card swipe machines. The portable swipe machines would allow servers to swipe cards in front of the diners; the diners could sign the receipt on the portable device which would also protect the customers’ signatures. To enhance this process, the portable device could be a “tablet” of sorts which would also allow the server to send a group’s order directly to the back before leaving the table. The ordering process would work similar to the systems in the fast food industry. In doing so restaurants would add value to diners by protecting their credit card numbers and by providing faster service and more accurate orders.

    Reference: Association for Financial Professionals, AFP Research Department. (2012). 2012 AFP Payments Fraud and Control Survey. Retrieved from http://www.AFPonline.org

  9. The first thing that comes to mind when I think of an opportunity where a new product creates value would be plant a tree program. I am employed with the Town of Farragut and we offer this program to Farragut residents. What this program does is it gives residents the opportunity to purchase a tree to remember or honor a loved one who has passed. I think this is an excellent program where residents benefit from this product and I feel they value the service that we provide as well. According to Collins (2012), “Businesses significantly improve the quality of life by providing goods and services that fulfill consumer needs.” I think this statement says and it all and we should continue providing products and services that benefit our customers and provide them with value.

    Collins, D. (2012). Business ethics: How to design and manage ethical organizations. Hoboken, NJ: Wiley

    • Tammy,
      Thanks for sharing your insight on plant tree program offer my by the Farragut community. This is new program to provide and your post gave a good glimpse of it.
      You stated
      “We should continue providing products and services that benefit our customers and provide them with value.”
      My response,
      I agree with you that companies should continue to providing products and services that benefit their customers and provide them value like the plant the tree program provide by Farragut. Ball (2010) “reiterates the criticality of ensuring sustainable value creation in any model of strategic technology and innovation management can benefit companies in this downturn economy” (para. 485). Therefore, just as the town of Farragut provides a tree planting service to honor family members in the community. Business can apply the same concept to their strategies. If a business wants to be able to ensure sustainability, they have to develop service and products that provide value to their customers and keep them coming back.
      References
      Ball, D. R. (2010). A Technology, Innovation, and Operations Strategic Model for Both Domestic and Global Sustainability. Proceedings Of The Northeast Business & Economics Association, 485-491.

      • Ashley,
        Thanks for sharing your insight on plant tree program offer my by the Farragut community. This is new program to provide and your post gave a good glimpse of it.
        You stated
        “We should continue providing products and services that benefit our customers and provide them with value.”
        My response,
        I agree with you that companies should continue to providing products and services that benefit their customers and provide them value like the plant the tree program provide by Farragut. Ball (2010) “reiterates the criticality of ensuring sustainable value creation in any model of strategic technology and innovation management can benefit companies in this downturn economy” (para. 485). Therefore, just as the town of Farragut provides a tree planting service to honor family members in the community. Business can apply the same concept to their strategies. If a business wants to be able to ensure sustainability, they have to develop service and products that provide value to their customers and keep them coming back.
        References
        Ball, D. R. (2010). A Technology, Innovation, and Operations Strategic Model for Both Domestic and Global Sustainability. Proceedings Of The Northeast Business & Economics Association, 485-491.

  10. I believe a company that is currently creating value for customers is discount stores such as Dollar General. Discount stores such as Dollar General and Family Dollar are showing significant growth over the last few years by capitalizing on an alternative to Wal-Mart and other large retailers, offering discount prices on a limited amount of goods. Everyone understands the frustration of going to large, over-crowded retailers such as Wal-Mart just to pick up a few grocery items.
    According to a recent article in The Tennessean, Dollar General plans to hire 6,000 new employees in 2013 as it opens 600 new stores throughout the country. Mark Montagna, a analyst with Avondale Partners was quoted in the article as saying, “The economy needs more stores like this. When you look at the end of the payroll tax cut, you’re going to see more people looking to trade down from places like Kroger and Walgreens to a place like Dollar General.”

    Reference:
    White, J (2013). Dollar General’s growth to add 6,000 jobs nationwide. Retrieved on January 23, 2013 from : http://www.tennessean.com/article/20130123/BUSINESS01/301230134/Dollar-General-s-growth-add-6-000-jobs-nationwide

  11. In today’s world of growing technological influence, users turn to apps for their smart phone, ipad, or android device as a way of gaining new information. During a survey in 2011 some people had as many as one hundred apps installed and in use. There are many people out there with great ideas for useful apps but do not have the knowledge to create them on their own. On the internet it is simple to create a website using premade templates which can be purchased along with a domain name for relatively cheap. I think it would be beneficial to create an app template, which with a few user inputted items can be transformed into an app with a low level of difficulty. I believe this would be a useful product for both those looking to create an app and those who use them in everyday life.
    Pan, W. Composite Social Network for Predicting Mobile App Installations. AAAI.org, 2011.

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