The goods economy is how we traditionally are taught about, and experience, our economy. It centres around goods being valuable and services not (or in a less strict interpretation they are less value/problematic). A view that reaches back to Adam Smith and his 1776 publication on the Wealth of Nations.
The focus of economic activity in the goods economy is the point of sale – the exchange of value for, usually, cash.
We see manufacturers embedding/adding value at each step. A car, for example, is more valuable than the parts that make it. And its wheels, engine and body parts are more valuable than the raw material used to make them.
Then we exchange the embedded value at a point of sale. For example, the car manufacturer exchanges cash with its suppliers for the engines and body parts. And the consumer exchanges cash to own the value embedded in the final car.
Now the end user owns the value, what do they do? They go about using up, or destroying, it. In our case of the car, the consumer wears down parts as they drive around. And so they use up the car’s value mile by mile. Sometimes value is more immediately used up (destroyed). Just like when you ate the croissant you bought from the cafe this morning.
The consumer might later attempt to recover value by, for example, selling the goods 2nd hand, repairing it, or reusing in another context. But it is, presently, unusual for the original manufacturer to be involved in these activities.
Finally, in the goods economy we define services in relation to goods. However, that often means we see them as problematic:
- they are intangible
- they are inconsistent
- can’t create an inventory of them
- production and consumption are inseparable
- they require customer involvement
And we see them as goods. That is to say, the provider determines their value up front. There is limited, often no, opportunity for flexibility in helping make the actual progress sought.
How, then, can we see this goods economy in relation to the progress econmy?
relation to the progress economy
We can, with some elasticity, map the goods economy to a restricted instance of the progress economy. Where there are 3 main restrictions.
restricting the service mix
Firstly, we have to view our service mix as only consisting of goods. Rather than the complete mix that might also include people, systems, and physical resources.
However, you’ll be quick to notice this restriction needs to conveniently ignore marketing, sales, transportation/supply chains etc. All of which support the exchange of value…without which the goods economy stops. But the general view taken, since these are services, is that these do not add value.
restricting the transactional nature
The second restriction comes about due to the view of value creation. It is that the transactional nature of the progress economy is much reduced in the goods economy.
In the goods economy we strive to make consistent goods (tangibles) that don’t require customer involvement. Thus our need (desire?) for interactions with customers is reduced. And this is partly coded in the 5Is describing service: they are inconsistent, require customer involvement and are inseparable.
restricting view of value (co-) creation
In the goods economy, value is seen as being set by the manufacturer (or service provider). And there is no, or very limited, co-creation of value in use. Even in service, where there is naturally an element of provider and consumer joining together during use, there is limited flexibility to stray away from a consistent, pre-determined, delivery.
Beneficiaries needs to decide up front if they believe in the value being told. And if they are prepared to pay what is being asked to own it. They have limited recourse if they are disatisfied. And the manufacturer similarly has limited timely visibility of satisfaction.
A key aspect of the progress economy is that the beneficiary alone that determines value.
The restricted transactional nature leads to the main differences between the goods and the progress economy lenses.
There are still progress seekers and entities forming to offering help make that progress. Yet the offer is fixed and has limited to be configured for the specific needs of specific progress seekers on a case by case basis. Or if it can be configured, the options are limited and come at cost (price and/or time).
We also see that the offer is fixed in time with limited feedback of changing progress sought. And turning the enterprise around to meet new or changed progress sought is a slow process.
Additionally, the focus on exchanging value at a specific point blinds the enterprise with regards to what the progress seeker does after that point. Additional opportunities to help make progress are lost. That is to say that attempt to recover value (for example taking part in the circular economy) are lost.
And finally, we are not encouraged to think too hard in terms of help to make progress offered. In they eyes of Levitt, we get myopic (“Marketing Myopia” T. Levitt (1975)). I like to call this the “one more razor blade” problem.
It is tempting to see the first restriction – service mix comprising only of goods – as slightly absurd. Given that we know there needs to be at least marketing, sales, transport services involved. But we need to remember it is a lens on the world, not a definitive set of rules. And it is a lens where services are not seen as adding value as the value is embedded in the product.