What is the value of the above item to you?
What might be the value to other people?
I intend to dedicate a number of posts to Strategy, which I define as a plan to achieve more of the goal. In order to achieve our goal we need to deliver value, which is what causes clients to buy, and by that generates value to ourselves. The value to the clients has a major impact on the competitive status of the organization, and thus it has a major impact on Strategy.
Comment: My analysis of the riddle, and the good answers I have received, would appear during the weekend. You are invited to submit answers by August 7th. There is a certain relevancy of this post to the riddle.
I suggest recognizing three different categories of value. The importance of the categories is their different impact on marketing.
Category 1: answering a practical need.
I use Goldratt’s “The Six Questions for Assessing the Value of New Technology” to define a practical need: It eliminates, or reduces, a current limitation!
Goldratt referred to new technology, but I claim his logic can be applied also to products and services. The reduced limitation could be something small like: the size of the regular package is too small, forcing me to buy two. Another example could be that the product does not contain Gluten, which exists in other products and causes health problems. We can also recognize “being easy to purchase”, due to availability at the nearest store as answering a practical need.
Category 2: Radiating a certain status.
The idea is that by owning the product other people appreciate it and by that have an opinion on the owner, which is the essence of the value. Rolex watches, Porsche cars and Gucci suits yield status of being rich. Driving an old Volkswagen Beetle creates a different image that could be desirable in certain situations. We all wear clothes that we think radiate the right image of us. You could claim that creating status is, many times, a practical need. But, being an indirect kind of practical value makes it worthy to stand as a category of its own.
Organizations also try to radiate status through their offices, the design, the space and the decoration.
Category 3: Personal pleasure of any kind.
Art, esthetics, games, watching landscape – anything that we, human beings, like to enjoy. There is no practical need for those. A picture hanging on the wall at home does not eliminate any limitation. However, a picture, like many other things give us joy in a subjective way. The big difficulty is that forecasting the demand is problematic.
Many of things that give us pleasure were originally made for a need. A watch has a certain practical need, but most watches are not carried just to show the time.
The vast majority of B2B sales are based on practical needs of the client-organization. However, there is a twist when the product targets consumers for pleasure, but the client-organization buys them to make more profit, in other words, for practical need.
B2C can be based on any of the categories of value above. The full value could be a combination. Most food products are consumed for pleasure, but the basic need is there as well. Apple’s products have the rare characteristic of providing all three categories of value.
A characteristic of the third category of value is that the customer might already have many similar products and still wish for more! Books are an obvious example. This means the basic competition in this field is about delivering high value, no matter what the competition offers. Competition exists only because clients are limited by cash or time.
This is certainly not true for the practical-need products. If you have already a coffee-machine you don’t need another. Just to be clear on the practical need: the coffee itself might be just for pleasure; the coffee-machine removes the limitation of having to go out to a coffee-house. Thus, the machine itself yields practical need.
Can you comment whether you see a practical value in considering the categories of value when you struggle with key decisions for your organization?