One of my favorite concepts is that of “value.” It is a word we use a lot at iDE. Value chains. Value streams. Value proposition. Shared value. Value selling. Customer value. Value added.
So here’s a few thoughts about value. I start with the dead sofa on the boulevard of a Fort Collins neighbourhood – not that far from Colorado State University. I had occasion to visit Fort Collins several times over the space of a week or so. The sofa did not move; it was just there. No, it wasn’t a bus stop. It was just discarded. There was even a sign which said FREE. Still, there wasn’t even a university student on a limited budget who laid claim to it.
Since I spent half a dozen years in the upholstery business, I am sensitive to discarded sofas. In this case, the frame looked more or less intact, the fabric a bit dirty but not visibly torn. The cushions probably required replacing and a face plate on one of the arms was missing. To build a new sofa of that style would cost a few hundred dollars, at least; in the factory, we would go through a series of steps which we would consider to be value added, and end up with a product which would retail for a modest profit. The sofas we built had value, and yet, this one sits here free, discarded, unclaimed – apparently it has no value to anyone.
So here is the first observation. It is not the cost build up which determines the value of a product. It is customers who do their own mental assessment of what the perceived features and benefits are worth to them. In this case, there was no one around who perceived anything which seemed remotely attractive or interesting. Worthless in other words.
The definition of value is the ratio of perceived features and benefits relative to price. New HighDefinition television sets and new cars and countless other products are now available in a wide range of pricing. Yes, you can simply choose the lowest price product, and some people do, but many more consumers are do the value calculation – which features and benefits appeal to them within their ability or willingness to purchase.
These features and benefits may be warrantee, color, functionality, status, versatility, reputation, power consumption and a bunch of other factors. Each customer has her or own value paradigm. Successful companies, for example, Apple, understand a lot about customer values in how they put together and market their iProducts – iPads, iPhones, iMacs and iPods.
iDE’s customers are small plot farmers. The better we understand the value framework and farm economies of those customers, the more likely it is that we will offer products and services which align with those values. We can discover these value frameworks by simply observing the market response to our offerings, or we can undertake formal voice of customer exercises. Apple does it. Why shouldn’t iDE?
One of the things which iDE has learned from the 3.8 million small plot farmers we have served so far is that each and every one of those farmers is “sitting” in the middle of a value stream. Costs flow into the farmsite from upstream sources. Revenue opportunities for farm production are found in downstream markets.
We have not tried very hard to sell upholstered sofas to small plot farmers. Not only is it not our business, we doubt that the value proposition embedded in sofas would rate very high for subsistence farmers. I am sure we would fail. What does rate much higher are irrigation products and other agricultural products and services which dramatically increase family income.
In terms of water lifting, farmers have more and more choices: treadle pumps, photovoltaic pumps, solar thermal pumps, electric pumps or diesel pumps. Each has its own set of features and benefits. Our farmer customers make their own assessments. They each also review what their farm economy can afford. Then they make their own value choice.