When you step away from the traditional, simplistic, but ultimately growth/innovation constraining, view of value-in-exchange, we get the view above.
It’s a tale of value incrementally emerging as progress is made from progress origin to progress sought. Where propositions help increase a seeker’s progress potential (where they believe they can reach), but require them to compromise on max value creation by reaching only progress offered.
It also finally explains value #cocreation (progress as a joint endeavour). And value co-destruction – where seeker and helper’s views of progress reached and Progress potential are not he same.
editing from here down
At the heart of the progress economy is a different, and I claim better, view of what is value. One based on progress rather than exchange of money.
It explains many concepts, such as value co-creation, value-in-use, value co-destruction; appreciates seeker and helper views; reaches pre and post “sales” (enabling circular economy thinking, for example).
And, importantly, it drives an actionable definition of innovation leading to growth.
A product’s value to customers is, simply, the greatest amount of money they would pay for it.Golub, H., and Henry, J. (1981) “Market strategy and the price-value model” vis “Delivering value to customers”, McKinsey (2000)
This quote from McKinsey above captures our traditional view of value – the so-called value-in-exchange point of view. Firms in the supply chain successively embed value in products. That embedded value is exchanged with customers, usually for money. And then the customer uses up/destroys that embedded value.
Linking value to exchange of money gives a sense of measurement and comparison. But with firms seeking to maximize the amount of money they can get in an exchange they miss growth opportunities due to:
- little interest in what happens after the exchange – missing, for example, attempts by customers to recover value, the wider circular economy, and insights into (mis-)usage
- innovation efforts focus on improving existing products – myopic thinking is encouraged; yet another razor blade anyone?
- tendency to see the world as goods-forwards – viewing services as bad
An improvement: service forward logics
To address these, we need to think differently about value. That means thinking in terms of value-in-use and value co-creation from service forward logics – such as Grönroos’ Service Logic or Vargo & Lush’s Service-Dominant Logic.
Such logics, in summary, remove the exchange point and see value as being created together whilst the service is used. And that everything is a service.
However, value is a multifaceted concept. And, when examined closely, I find that value is still poorly defined in these logics. Both in terms of what does it mean and how is it really created and used. And therefore we’re unable to use these definitions to drive our pursuit of innovation and growth.
A continued improvement: value emerges from progress
What about value in the progress economy? Well, we’ll discover that value emerges from judgements of progress (moving over time to a more desirable state). The following judgements are made, repeatedly, at various points in the progress attempt (see the engagement decision process):
- How much progress has been made up to this moment in time?
- How much more progress can be made from this moment in time?
- Are the six progress hurdles sufficiently low enough to continue?
And what we call value emerges from those judgements. Have i made enough progress compared to my expectations? If it worth me continuing? Is the other party hindering progress? And so on. Both parties make these judgements. Though it is predominantly the seekers judgements that determine if progress attempt continues.
We say there is value-in-use – in truth progress-through-use – because progress achieved (value) is always made through completing a series of progress making activities. And because those activities are mostly collaborative efforts of resource integration, we call this value co-creation. There is always Co-creation. But the degree to which each party participates in this co-creation is related to where the progress proposition falls on the progress proposition continuum.
If either party impedes progress being made, we have what Lintula et al refer to as value co-destruction. And either party may attempt to rectify or decide to terminate the progress attempt. How actively a helper judges and acts on value co-destruction is an interesting question.
Value, as a measure/comparator, is no longer concrete thing. It is now a feeling. Something that is phenomenologically and uniquely determined by each seeker. And this should promotes helpers to be more relational in interactions to understand and adjust their offerings to help seekers make progress.
It also means we have to rethink the place of price and money. For example, as Kowalkowski informs us, “price becomes part of the value proposition”. We’ll leave the topic of money for another article (exploring its role as a service credit mechanism enabling indirect exchange).
Finally, thinking in tends of value emerging from judgements of progress leads us neatly to a surprisingly simple and actionable definition of innovation. Based on increasing progress made and/or reducing the six progress hurdles.
Lets explore value in more detail, starting with how we typically see value today.
Today we typically feel we exchange money for value embedded in products
I quickly surveyed some of my friends on the topic of what is value. The consensus view eventually settled on the amount you would pay for something.
That is not surprising given this is how we normally perceive the world. It’s also how we’ve been taught the world works. From Adam Smith’s “Wealth of Nations,” which saw only economic value in goods (services were worthless from a growth perspective). To the basis for numerous business school curricula.
We observe that almost everything we do involves exchanging money for something we believe is valuable. Or, conversely, handing over something valuable in exchange for money.
In fact, it’s so ubiquitous that it didn’t really have a name for this until researchers started looking into alternatives in the early 2000’s.
Nowadays we know this view of value as value-in-exchange. And it’s a key feature of what was also named at the same time: goods-dominant logic.
As a product progresses through the supply chain, successive manufacturers embed increasing amounts of value. A metal sheet is more valuable than its raw ore. A car body panel is worth more than sheet metal. And a car is worth more than its component body panels (and other parts).
Eventually, the embedded value in the final product is exchanged with the customer, usually for money of some form. Now that the customer owns, say, the car, he or she goes about consuming or destroying that embedded value. In this case, they destroy value as soon as they leave the forecourt. And then gradually use up the remaining value through wear and tear.
Whilst this perspective is based on goods, which are typically tangible items, we tend to apply the same thinking to services. Where we see providers creating services and determining their value. And where consumers exchange money to gain access to the output/outcome of those services.
Is it wrong to think this way?
We can’t say it has been incorrect to think in this value-in-exchange way.
It’s the foundation of neoclassical economics. And look at the growth we’ve had since Adam Smith’s time in 1776. Gross Domestic Product for England, if we use as a proxy for economic growth, has increased from £14.6 billion in 1776 to £1.67 trillion by 2016! (source).
But we can, and should, ask if value-in-exchange is the best way to look at value.
Let’s look at Prahald and Ramasawan framing of value creation for inspiration. It’s in their 2004 book “The future of competition – Co-creating unique value with customers”. And recreated below.
We can see in the left column that if we believe value is created by the firm, then this manifest as an internal focus. We become less interested in what is happening before and after the sale. Further, such a focus tends to mean our innovation focus becomes short sighted.
It turns out we constrain ourselves in three particular ways. We:
- become shortsighted on problems (progress sought) and solutions (progress offered)
- miss opportunities before and after the point of exchange
- close our thinking to service
Let’s look at our there constraints a bit more.
Constraint – short sightedness
If our focus is on making the next exchange, our innovation focus narrows to improving the existing product and/or improving internal processes. Radical and disruptive innovation become an unfulfilled dream. I call this the “yet another razor blade” problem. And whilst growth occurs, it’s not as much as it could be. It also is likely to stop at some point.
This also leads to what Levitt tells us is myopia in his famous 1970’s paper “Marketing Myopia”. As an example the US railroad industry focussed only on running railroads (their product) and missed the growth opportunity of air freight.
Constraint – the linear economy
And our shortsightedness caused by the point of exchange isn’t limited to the above. There’s limited incentive to understand what the customer is doing.
And what is the customer is doing? Well, in the value-in-exchange view, they are destroying or using up the embedded value. But they are often also attempting to recover value. And they attempt that in various ways.
They may attempt to extend value by repairing the product. Thinking back to our car, we get it serviced in order to extend life. Maybe they find other uses and so increase value. Or they may try to resell to recover value. Or even recycle.
As manufacturers, we’re not that incentivised into looking on the other side of the exchange. Which has two implications. Firstly, we’re missing out on opportunities. Secondly, we’re hindering progress seekers by not designing and building products to help them. Value-in-exchange, and the focus on making the next exchange, risks constraining us to a linear economy thinking: take, make, and waste.
Constraint – rigidity
Goods-dominant thinking has led us to being rigid in our products. There is often limited flexibility. We believe that tangible, consistent items that we can create inventories of and where we can separate, as much as possible, the stages of value creation from value destruction are good things.
That leads us to define services in relation to goods. Sadly that makes them sound somewhat problematic. They have intangibility, heterogeneity, inseparability and perishability (Zeithmal, Parasuraman and Berr’s “Problems and Strategies in Service Marketing”). Later becoming the 5Is, services are:
- intangible and inconsistent
- where delivery and consumption are inseparable and require customer involvement
- and you cannot create an inventory.
But Vargo & Lush dispel these “myths” in “The Four Service Marketing Myths“ arguing that they are positive attributes. Where:
- Intangibility leads to rapid scalability
- Inconsistency should be seen as customisation
- Inseparability / Involvement are required for co-creation of value
- Inventory is expensive and costly when customer collectively changes mind
It is really in the areas of inconsistent/inseparability/involvement that we lose potential growth opportunities. But inability to scale is a problem. Would you rather Spotify with its scalable digital goods (streaming songs) or a traditional music store selling CDs and records? And holding inventory is a challenge if (as they do) customers change their mind. We’re a long way from having a cat in any colour the customer wants as long as it’s black.
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A slightly better view of value
Of course, my discussion with friends also showed “value” is a bit more complicated. Karababe and Kjledgaard point to this too:
…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”
And Grönroos tells us:
It is of course only logical to assume that the value really emerges for customers when goods and services do something for them. Before this happens, only potential value existsGrönroos (2004) “Adopting a service logic for marketing”
So, what’s the alternative to value-in-exchange thinking? The first step is to think through what is being exchanged. Above, we exchange the output of a process (a product) that we believe has value embedded within it for money.
What if we instead believed we exchange the processes of creating the output. These processes are really the application of skills and knowledge for the benefit of someone else. What Vargo & Lush define as a service.
Now we start to see a world where inseparability is reduced and involvement should be encourage. Which leads to a world where customisation is the norm (although not an absolute necessity).
This naturally leads to a view where discussing value before and after the point of sales becomes natural. And that means we remove the singular point of exchange.
Value starts being something that is created in use or in context (value-in-use). And we’re co-creating value.
But we don’t really define what value means in these service-dominant logics. To some extent we keep the word since it makes it easier to contact back with value-in-exchange and where value directly related to price. But in our value-in- use view, 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 it’s not creating enough value?
Which brings us to the progress economy thinking.
Value in the progress economy
What about value in the progress economy? Well, we’re all about progress:
progress: moving over time to a more desirable state
Seekers are seeking it, helpers are offering it, and when a seeker engages a helper’s progress proposition there’s a joint attempt to make it. Therefore there’s three factors related to any progress proposition:
- How much progress could be made (progress potential)?
- How much progress has been made (progress achieved)?
- How low are the 6 hurdles to progress?
And the engagement decision process tells us a progress seeker and helper repeatedly judge, uniquely and phenomenologically, these. Once before engaging a proposition. And then repeatedly; most likely at the end of each activity in the series of progress making activities.
It is from those judgements that what we might call value emerges. Although we might be tempted to debate if value is the right word, let’s stick to convention.
Now we say there is value-in-use because progress is made by carrying out the series of progress-making activities. Each activity increases amount of progress (value created). And as we make progress together, we say there is value co-creation. However, either party may impede progress being made, resulting in value co-destruction.
But in our daily speak, we also talk about value in terms of how much it has helped us. I really appreciate that customer service agents who helped me resolve my problem. That AI image generated really saved me when I needed that image for my presentation.
And it is this aspect of value that we focus on to give us a better definition.
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.
…on price, money, communication.
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
- 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)…
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.
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”