Another way of thinking about how you are going to create value is to work out where you are in the supply chain.
Supply chain logistics analysis can get super-complicated – but in the Value Capture Machine we like to keep it as simple as…
Make. Send. Sell.
That’s the supply chain right there.
- Some people make things.
- Some people send the things that have been made by other people to other people.
- Some people sell those things to end consumers.
That’s as complicated as we need to make it for now.
Your business will sit at some point in that supply chain. It might do just one of them, or it might do all of them (makes something, ships it and sells it to the end consumer) which is increasingly common. The reason we consider this right now is that knowing where you are in that chain will help you know what kind of value you should think about creating for your customers.
Or what kind of value you can create for them, so what you should focus on.
if you are making things that go into other things, then your value creation will focus on being cheaper. Other people are likely to do what you do, so selling more will depend on doing it cheaper. Or objectively better at the same price. Your value will really have to be all about being cheaper.
If you are sending things, you will also have to be cheaper, although there is also room to be objectively better (faster, less mistakes), but that often just translates into another form of cheaper.
In both of these positions, it is hard to get away from being cheaper, because your customer knows exactly what they want, and they know how much to pay for it, so you will have to take the price they are willing to pay. There is very little ability for you to tell the customer what price you want them to pay for your product, so your business will have to be all about efficiency and cheapness.
If you are selling things to end-consumers, you will have the opportunity to create subjective value, emotional value, or “unreal” value, as we called it before, and so you should have more flexibility to raise your prices.
- Your cakes may taste better or look better than anyone else’s.
- Your shop may be prettier, smarter, better located than anyone else’s.
- You may have the hottest male shop assistants who are happy to strip their clothes off to the waist to sell your clothes!
That last one sounds ridiculous, doesn’t it, until we remember that was actually a clothing company’s main marketing gimmick for a few years!
If you know where you are in the chain, you can know what kind of value you can create to make your customer like you, and so you know where your efforts should go.
Remember that wasted effort is wasted cost, which is lost profit, which can mean the difference between your business succeeding or going bust.
Don’t waste effort creating value the customer won’t pay for, but do devote effort to creating the value they need, even if they don’t know it.
Answer these questions, and we’ll discuss people who aren’t your customers.