A product’s value to customers is, simply, the greatest amount of money they would pay for it.“Market strategy and the price-value model” Golub, H. et al, McKinsey Quarterly (2000)
‘Value’ emerges when a progress seeker makes unique and phenomenological judgements of (remaining) progress potential and progress achieved.the progress economy
What is value? In a goods-dominant logic world, it looks pretty much like the quote above on the left. And that most likely reflects your current perspective. Essentially, value equates to price. It’s embedded by the supply chain of manufacturers. And is exchanged at the point of sale.
This is known as value-in-exchange. And from it flows well-known neoclassical economics.
Whilst such a view has been sufficient for the last few hundreds of years, It’s quite short-sighted (myopic, we call it in the trade).
- there’s limited interest in what the customer does pre- and post-sale due to the focus only on point of sale
- it is one-sided – only the manufacturer is seen as being able to create and determine value.
- gives us a very simplistic view of value
This first quote connects value to price and implies there is a moment of exchange. Where something with value – an output – is exchanged for something else with value (money). This is commonly known as value-in-exchange.
But value is not quite so simple.
Use value, exchange value, aesthetic value, identity value, instrumental value, economic value, social values, shareholder value, symbolic value, functional value, utilitarian value, hedonic value, perceived value, community values, emotional value, expected value, and brand value are examples of different notions of value, which are frequently used without having an explicit conceptual understanding in marketing and consumer research.Karababe, E. and Kjeldgaard, D. (2013) “Value in marketing: toward sociocultural perspectives”
However, in the progress economy, this moment of exchange is not observed. Our foundation of service-dominant logic informs us that service, not value, is the basis of exchange. As a result, we speak of value co-creation and value-in-use.
But, if value no longer equates to price and is not embedded in outputs, what does value, in these new terms, mean? This is the central question of the progress economy.
And the answer is that value is just another name for a judgment of the amount of progress – potential progress as well as actual progress. Where the progress seeker repeatedly makes these judgements in the engagement decision process. It is a feeling that emerges rather than an enumerable property.
To round out this summary, we need to consider how price and money fit into the picture. A price is a request for service credits. Where service credits enable the indirect nature of service exchange. As a result, price “becomes part of the value proposition” (Kowalkowski). In its service credit form, it is one of the hurdles to progress, opening our minds to business model innovations. Money, is simply regarded as the most successful, to date, form of service credit and has no intrinsic value.
How we typically view Value today
Traditionally we see, and are taught that, a product has value. Where that value is something that manufacturers embed into products during their manufacturing process. They take an input, do something to it, and produce an output that has more value than the input. And often there are several manufacturers in series between extracting raw materials and a consumer ready product.
A car, for example, is more valuable than its component body parts, wheels, engine etc. And those component parts are worth more than the metal sheets they are manufactured from. In turn, those sheets are more valuable than the raw material dug out of the earth they are extracted from.
And I’ve deliberately mixed terms of value, worth, and valuable in the last paragraph. As that is how we typically see it. Value equates to price. This is something we’ll come back to. For now, we can see the price as indicating an amount of value that needs to be exchanged in order to transfer ownership of value embedded in a product a new owner – eventually the end customer. Simply put, how much cash do you have to give the manufacturer in order for them to give you the product.
[put image of value lifecycle here]
What happens to value once exchanged? In the manufacturing process it is usually increased, as we saw. When it gets to the end customer, it is used up, or, possibly more violently, destroyed by the customer.
In our car example, some value is almost inexplicitly destroyed straight away by driving it out of the car dealership. The rest is gradually used up through wear and tear of driving the car. We all know a car with 90k miles on the clock is worth less than one with 20k.
Here’s the challenges with this
It’s a very goods-dominant way of thinking.
A better way to view value
value co-creation and value-in-use
But here’s the challenge with this
We don’t really define what value means. It is no longer enumerable based on price since we don’t have value-in-exchange. But how do we choose to use one service over another? What does it mean to say I give up with this service because I’m not co-creating enough value?
The progress economy’s view on value
Based on service-dominant logic, but we define what value means – a judgement of the amount of progress. Actually 2 judgements: progress potential and progress achieved
value co-destruction…interactions between actors result in a decline in at least one of the actors’ well-being.Plé and Cácares (2010) “Not always co-creation: introducing interactional co-destruction of value in service-dominant logic”
Lintula, Tuunanen, and Salo shows us the framework below on causes of value co-destruction (“Conceptualizing the Value Co-Destruction Process for Service Systems: Literature Review and Synthesis”).
We reflect this in the engagement decision process.. Where we allow for the helper terminating service if they feel progress is being hampered by the seeker. For example through misuse of helper resources by the seeker.
Not observing value in exchange has a couple of implications. First on what price means. And secondly what is money.
Since feelings are hard to measure, we see an increased need for interaction and communication between helper and seeker if we truly want to maximise value co-creation and minimise/reverse value co-destruction.
below here is notes waiting to be incorporated/deleted
- value is really another name for a judgment of an amount of progress – potential as well as actual.
- value is a feeling (hard to measure) and not an enumerable property (measured in, typically, cash)
- it gets ”measured”/emerges at each decision point in the engagement decision process (typically before engaging a proposition – how much progress can I make with a proposition; and then repeatedly whilst engaging – how much progress have I made, how much more progress can I make) https://lnkd.in/dgVcMcwv
- we dont see value-in-exchange happening. This has several implications…
- value-in-use really refers to making progress together, as does value co-creation. Value co-destruction happens when one or more parties hampers progress being made.
- price is no longer a statement of value. It is part of the proposition and really is a request for a number of service credits to integrate with a particular service mix in an attempt to make progress.
- service credits enable indirect exchange to occur – I get credits for performing service that I can use to get a different service. They have no intrinsic value beyond arbitrating different sizes of service and timing.
- the most common instance of service credits is presently money (which has no intrinsic value; see above)
- the amount of service requests requested – how much effort do I need to give elsewhere to get the necessary credits requested for the service I want – is a hurdle to progress (one of 6 https://lnkd.in/d7Tc7aHf).
- as a hurdle, we should innovate to minimise…which encourages us into, at least, business model innovation and ecosystem innovation.
it might be that since value as a feeling is hard to measure, it drives the conversational nature of service/making progress (co-creation)…
We are taught, and typically observe, that value is an embedded and enumerable property. It is created and embedded in products by manufacturers. And destroyed/used up by customers. That implies that ownership of embedded value can change. Which is achieved through exchanging something else of value. Typically this something else is money. Leading us to equate value with price. And from this neoclassical economics, with its supply/demand and market price setting, flows.
This is also termed value-in-exchange. And is the foundation of so called goods-dominant logic: embed->exchange->destroy/use-up. It has been a useful/successful logic, from the times of Adam Smith’s “Wealth of Nations” (and undocumentedly before). However:
- our economic growth is stalling – we can’t create enough value
- innovation is failing – we fail to successfully create new valuable things (or rather mis-understand what that means and so rarely achieve)
- value-in-exchange struggles to enable the circular economy – it maps too closely to the linear economy of take->make->waste
On the other hand, service-forward logics – such as Grönroos’ Service Logic or Vargo & Lush’s Service-Dominant Logic – position themselves as evolutions that move us away from value-in-exchange. Instead of end products they put a focus on the processes – the how instead of the what. And we find ourselves in a world of value-in-use and value co-creation/production. As well as potential value co-destruction.
But what does “value” mean in these service-forward logics? By removing the moment of exchange we disassociate value from price. “Price becomes part of the value proposition” (Kowalkowski). and “price is the reward for the application of specialized knowledge and skills” (Ingenbleek). Value goes from an enumerable thing to a feeling. One which is phenomenologically determined by each beneficiary.
We use the word value, perhaps, to legitimise and tie service-forward logics back to goods-dominant logic.
And, it is that “feely” bit that worried me. What makes me think a proposition can lead to “value”? How do I chose between propositions? How do I know I am getting “value”? Why do I carry on with a chosen proposition? Why might I stop?
You might want to argue that’s a problem of such service-forward logics, such as Grönroos’ Service Logic or Vargo & Lush’s Service-Dominant Logic. But these logics service-forward logics do talk about value co-creation. So we need to think what does this value mean?
All those questions led to the insight of making progress (and so the progress economy). And that value is a name for measuring progress – remaining potential progress and achieved progress.
Should we even be using the word “value”?
Ballantyne and Varey: “the time logic of marketing exchange becomes open-ended, from pre-sale service interaction to post-sale value-in-use, with the prospect of continuing further, as relationships evolve”