Value-as-experience is an insight from Austrian economics. Value is not inherent in objects or even in services. Value is not derived from functional use, but is the good feeling the consumer experiences during consumption. Consistent with the Austrian understanding of the market as a process, value is a process. It plays out in time in the consumer’s mind. Consumers learn what is valuable to them in the process of choosing and consuming and evaluating.
These insights add some under-appreciated marketing considerations to a firm’s capabilities, such as an appreciation of situational traits and of the importance of context. Irene Ng provides the E4B podcast audience with a set of contemporary tools to design new experiences and even create new markets in the era of the “Internet of Things” (IoT).
Key Takeaways and Actionable Insights.
To design experiences, start by thinking in terms of ecosystems.
Ecosystem thinking pays attention to how knowledge, people, technology, processes and the environment are connected and work together. Systems awareness is becoming wider and wider, observing the interaction and value creation among multiple service systems. Consumers’ value experience occurs within a service system, and thus the service ecosystem worldview is increasingly important for entrepreneurs in an ever more connected, digital and data-driven world.
The subjectivist viewpoint is fundamental to designing consumer experiences.
We are taught from the youngest age to have an object view of the world. We describe situations using nouns: for example, in a room, there is a chair and a piano. Meaning and purpose are identified via the nouns we use. Economics shares some of this noun-based view of the world: assets, knowledge, material things, property.
For the design of consumer experiences, verbs are more relevant, not just as descriptions but as connections between objects and people and behavior and thinking. If I play the piano or drink tea, I am connecting objects and people in action. The world becomes a matrix of verbs and interactions. What individuals do impacts on objects and on other individuals. Design becomes a matter of what a system of objects and people and connections and actions and flows can do.
IoT brings new capacities and new affordances to service ecosystems.
Irene listed 4 new capacities of IoT that contribute to new ways to design experiences:
Liquefy information: A physical object’s information can be sent across space and time. When several information flows are combined for greater information density (e.g., from multiple objects in a kitchen used during cooking) we have more knowledge on which to base an experience design.
Turn objects digital: Software and sensors embedded in an object give that object new capability. For example, a running jacket can communicate location and speed, measure temperature and heart rate, and provide programmability.
Assemble individual objects into a service system: Objects and devices connected and working together exhibit abilities that they don’t have individually. A door lock plus a camera plus a tablet plus the internet can perform as a remotely monitored security system.
Enable transactions between separate task spaces: A task network (such as cooking in a kitchen) can be linked to another task network (e.g., grocery shopping) and a transaction between the two enabled (deliver fill-up ingredients when inventory runs low).
Now a designer can think about a new set of affordances: properties of a system that show users what actions they can take. Ideally, the consumer will perceive the new affordances without the need for complex instruction.
Marketing changes its focus from consumers’ personal traits and segmentation to situations and contexts.
The design of an experience shifts from the use of objects to connected things with information flows in a system. A customer’s perception of the experience within the system may be affected less by their personal traits (as is often assumed in segmentations such as “early adopters” or “social approbation seekers”) and more by situational traits and context.
For example, the situation of “taking my morning coffee” affects an individual’s perception of how well a coffee mug meets their needs (how well does it fit under the spout of the coffee maker), along with a chair to sit in or a news service (paper or digital?) to read. How well do all these artifacts and services work together in this situation?
Similarly, context affects system perception. An individual might like a certain style of streaming music at home, consumed through a sound system while eating dinner, and an entirely different style for working out in the gym, consumed through a portable digital device and earpods.
The design of experiences considers situation and context, and can potentially accommodate a very broad range of people through personalization rather than cater to a narrow market segment.
The human being remains the best sensor in the system, and all design must support and enhance this role.
There may be a temptation for digital designers and technicians to become immersed in the capabilities of an IoT system and forget that it is the human who judges the value of the system through the experience it enables and supports. The human is not outside the system, but is the master sensor, providing both inputs, outputs and judgment. IoT systems provide support, using data to enhance the human experience. Empathy is still the designer’s number one tool to identify the market drivers — the dissatisfactions to be addressed — that underpin favorable human perceptions of the value of IoT systems.
“Designing New Consumer Experiences in the Era of IoT” (PDF): Download PDF
“The Internet of Things: Review and Research Directions” by Irene Ng and Susan Wakenshaw” (PDF): Download PDF
“Service Ecosystems: A Timely Worldview” by Irene Ng (PDF): Download PDF
“Mimicking Firms: Future of Work and Theory of the Firm in a Digital Age” by Irene Ng (PDF): Download PDF
Value & Worth: Creating New Markets in the Digital Economy by Irene Ng: But It on Amazon
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Consumer sovereignty is a principle of Austrian economics. Here’s how entrepreneurs apply the principle in business, as told by Martin Lünendonk, co-founder of FounderJar.com, as well as Finance Club and Cleverism.com.
Download The Episode Resource How To Make The Customer Your Boss – Download
Key Takeaways & Actionable Insights
“There is only one boss. The customer. And he can fire everybody in the company, from the chairman on down, simply by spending his money somewhere else.” —Sam Walton
Though they are several decades old, these words by Walmart founder Sam Walton are still very relevant, especially in today’s highly competitive world.
This is particularly true for those trying to make money online. You are already in competition with hundreds, perhaps thousands of other businesses, and if you do not put your customers first, they can easily move to the competition. It’s as easy as tapping a few buttons on their smartphone.
Great business leaders understand that businesses exist for one sole purpose — to serve the needs of their customers. If you want your business to not only survive, but to thrive in this hyper-competitive world, it’s time you started treating your customers like the boss.
Below, let’s take a look at the steps you need to take to place your customers in their rightful seat — the boss’s seat.
1. Identify the Key Problems Customers Want To Get Solved
To effectively serve your customers, you need to first identify what key problems the customer is trying to solve.
Very often, entrepreneurs set out to solve problems they think the customer has, without trying to look at things from the customers’ point of view and confirm whether the customer has this problem, and whether it is a problem they are trying to solve.
For instance, Blackberry assumed that what its customers wanted was a laptop that could fit on the palm, so they focused on improving the physical keyboard.
Apple, on the other hand, realized that what customers actually wanted was a device that was amazingly easy to use, and when they introduced a device with a touch screen and no physical buttons, they took Blackberry out of business.
So, how do you identify the problems that customers are trying to solve? There are two ways to do this:
Listen To Your Customers
The easiest way to identify the problems your customers are trying to solve is to actually listen to them. They know what they are struggling with and why they need this problem solved.
If you listen to your customers, you are unlikely to find yourself in a situation where you are solving a problem no one cares about.
There are two main approaches you can take to listen to your customers and identify the problems they are trying to solve. Here are a few…
Interview your customers: Your first option is to get proactive and ask the customers directly. You can do this using surveys on your website, by getting on the phone and talking to customers, through focus groups, and so on.
Look at customer reviews: Your customer reviews present another great opportunity for you to learn about the problems your customers are trying to solve. Here, you should place more focus on the negative comments, since these are the ones that highlight customer needs that are not being met. However, even positive comments can give insights into customer problems that you’re solving effectively.
Listen To Your Salespeople
The second approach to identifying the problems customers are trying to solve is to listen to your salespeople.
Your salespeople are in direct contact with your customers, and they, therefore, have better insights into your customers’ thought processes.
They know the pain points that drive customers to purchase your products and services, they know the things that customers like or dislike about your products, they know the reasons that keep some customers from purchasing, and so on.
By administering surveys to your sales teams, you can gain insights that will help you figure out your customers’ key problems, which will in turn help you to serve them better.
When trying to gain insights about customer problems, either from the customers themselves or from your salespeople, it’s good to try to get to the root cause of the problem. Sometimes, what you think is the problem might not actually be the problem.
For instance, at one point, Disney was experiencing lots of criticism because visitors felt the queues for the rides were too long. At first glance, the problem seems obvious – visitors spending too much time waiting for their rides.
The solutions to this problem are obvious as well. To shorten the queues, Disney would either have to invest in more rides, or reduce the number of visitors getting into their parks. Both of these solutions would cost Disney millions.
Disney hired a group of designers to help them solve this problem. After interviews with Disney visitors, the designers realized that the problem wasn’t the long queues. The problem was that visitors were getting bored because they had nothing to do while waiting in the queue.
To solve the problem, they had Disney add themed music and videos that visitors could listen to and watch while waiting for their rides. By getting to the root cause of the problem, they were able to come up with an effective solution that saved Disney millions.
Similarly, do not take your customers’ feedback at face value. Try to identify what the root problem is before you start developing a solution.
2. Make Sure Your Offering Solves Those Customer Problems
Now that you have identified the problems that your customers are trying to solve, it’s time to come up with solutions to solve those problems.
The best way to ensure that the solution you are developing solves the actual problems your customers are struggling with is to involve your customers in the development process.
One approach is to develop a minimum viable product (MVP) of your solution and show it to a group of customers with the problem you are trying to solve. You then collect their feedback, and use insights to improve your next iteration and ensure that your final solution solves the customer problem in the most effective way.
For instance, when creating DropBox, founder Drew Houston didn’t want to spend months, perhaps years, working on a product that no one was interested in, so he started with an MVP.
Drew’s MVP was a simple 3-minute video demonstrating how his product was meant to work. He shared the video on Digg, an online community of technology early adopters.
After sharing his video, over 70,000 people joined the DropBox beta waiting list within a single night, which was enough validation that his product was solving the right problem.
Another way to involve customers in the development of your solution is to form a small community of beta testers and give them access to your solution during the development process.
This works even if you are developing a service-based product. For instance, if you are a digital marketing consultant, you could create a package — say a content marketing package — and test it among a small group of customers before you launch it in full scale.
The aim here is to have a group of actual customers continually testing the solution you are developing to make sure that it addresses their key concerns in the best possible manner for them.
This way, you don’t have to worry about spending months or years coming up with a solution to your customers’ problems, only to discover that it is not the kind of solution they were looking for.
Another way to ensure that what you are offering solves your customers’ actual problems is to conduct A/B tests. This basically involves creating two versions of your offering, giving two small groups of customers access to each version, and then tracking the results to identify the version that solves customers’ most effectively.
3. Track Customer Satisfaction
Ultimately, what matters is keeping your customers satisfied. If your boss is unsatisfied with your work, you can bet that you will be out of work soon.
Similarly, if your customers are unsatisfied with your business, they will fire you – by spending their money on your competitors.
To know whether your customers are happy, you need a way to track and measure customer satisfaction. Here are five of the most effective ways of measuring customer satisfaction:
Customer Satisfaction Surveys
This is one of the easiest ways of tracking customer satisfaction. With this approach, you simply need to put up a survey asking your customers how satisfied they are with your services.
Depending on the medium you are using to administer the survey, you can add one to three open-ended questions to learn more about what they think of your services.
Customer satisfaction surveys can be served through email, through your website, or through your app.
Customer Satisfaction Score (CSAT)
The CSAT is the standard metric for measuring customer satisfaction. Here, you ask customers to rate how satisfied they are with your products or services on a scale. The scale could be 1 – 3, 1 – 5, or 1 – 10.
After receiving responses from various customers, you then find the average rating to determine your customer satisfaction score. The higher the score, the more satisfied customers are with your services.
Net Promoter Score (NPS)
This is another popular metric for measuring how happy customers are with your business and your services.
Unlike the other metrics covered here, however, NPS does not measure how satisfied customers are with your business. Instead, it measures how likely they are to refer someone to your business. This is especially useful for those in the freelance business, which depends heavily on referrals.
The NPS will ask a customer to rate on a scale of 1 – 10, how likely they are to recommend your business to their friends and acquaintances.
Promoters: These are customers who give you a rating of 9 – 10. They are willing to spread the word about your business and recommend your products and services. These customers are already satisfied with your business.
Neutral/Passives: These are customers who give you a rating of 7 – 8. They are indifferent to your business. They aren’t disappointed with your business, but they aren’t satisfied either. They are unlikely to talk about your business to others.
Detractors: These are customers who give your business a rating of 6 and below. They are unhappy with your business, and will spread negative word about your business in a bid to discourage others from doing business with you.
The Net Promoter Score is a very useful metric. If someone is willing to recommend your business to others, then this means that your products or services are good enough that they would stake their reputation on them.
Customer Effort Score (CES)
This metric measures customer experience, particularly how hard it is for your customers to get what they want from your business. Customers are typically asked to rate their effort from 1 (very little effort) to 7 (very high effort).
A high score means that customers have to work very hard to get what they need from your business, which translates to poor customer experience.
Social Media Mentions
Keeping track of what people are saying about your business on social media can also help you figure out how satisfied your customers are with your business.
Satisfied customers will take to social media to praise your business, while unhappy customers will share their dissatisfaction with their social media followers.
Monitoring the conversations about your business happening on social media will allow you to step in and respond to comments in time and control your brand perception, especially when people are sharing negative comments.
Here are three tools that you can use to track social media mentions:
A lot of entrepreneurs believe that the core purpose of a business is to make profits.
Smart entrepreneurs, those with the right entrepreneurial mindset, on the other hand, know that the core purpose of a business is to serve its customers. Therefore, their core focus is on delivering customer value.
Of course, this does not mean that businesses that put customer value first don’t think about profits. They do. What differs is their approach.
These businesses understand that when you keep your customers happy (by delivering great value), these customers will bring more business, and spread positive word about your business, leading to more business, and ultimately, greater profits.
Actually, the findings of research by Deloitte and Touche show that companies that put customers first are 60% more profitable compared to those that don’t.
So, what exactly does it mean to put customer value first?
Putting customer value first means that every single business decision made within your organization should have a positive impact on customer experience.
For instance, when upgrading its systems, a customer-centric company will choose systems that allow it to deliver the best customer experience.
Similarly, when hiring, customer-centric companies go for employees who show a knack for putting customers first. Basically, every decision is evaluated based on its impact on customer experience.
Here are some tips on how to make your company customer-centric and put customer value first:
Understand your customers deeply. It is impossible to put customers first when you don’t even know who they are. To get a good understanding of who your customers are, you need to develop highly detailed buyer personas. Actually, gaining a good understanding of the customer segments you’re targeting is a key component of the business model canvas.
Make sure that all your team members are engaged and have a good idea of the impact of their work on customer experience.
Make it a habit to collect customer feedback, and then use this feedback to gain insights on how to improve the customer experience.
Don’t just focus on getting customers to make the purchase. Focus on building relationships that will turn them into loyal customers and brand ambassadors.
Be easily accessible. Make it easy for customers to get in touch with your business when they have an issue, or when they need any sort of help.
Ready To Put Your Customers In The Boss’s Seat?
As an entrepreneur, you are in business to serve your customers, which means that your customers are your boss. If you want your business to thrive, you need to start treating them as such, by putting their needs first.
In this article, we have gone over 4 key points on how to make the customer your boss. Here’s a recap:
Identify the key problems customers want to get solved
Make sure your offering solves those customer problems
Track and measure customer satisfaction
Put customer value first and profits will follow
Free Downloads & Extras From The Episode
“How To Make The Customer Your Boss” (PDF): Get It Here
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What is a business model? It’s a question asked frequently on Google Search, so there must be doubt in businesspeople’s minds.
The reason for the uncertainty is clear. The term business model sounds like a thing – a completed canvas, a written document, a spreadsheet with macros. But it’s not a thing, it’s a lived experience, for both business executives and their customers.
The Austrian Business Model
In a recent edition of the Economics For Entrepreneurs podcast with Dr. Per Bylund of Oklahoma State University, we described a very different kind of business model framework we called the Austrian Business Model, based on principles of Austrian economics. It’s a recipe for business success. We chose the term “recipe” purposefully, to communicate these features:
A recipe is a non-linear process: there are inputs and outputs, there are many different sub-processes progressing at different rates designed to integrate at critical points, and subject to adjustment by the operator as new information is revealed (“the oven’s on fire!”; or, “this tastes like it needs more salt”).
A recipe is dynamic. All parts of it are in motion all the time – assembling, combining, mixing, cooking.
A recipe is adaptive. If the chef does not have all the ingredients at hand, he or she may substitute or leave out some elements. If a guest does not like some ingredient, the chef might work around it. New methods of cooking may lead to a better outcome with the same ingredients. There is learning from experience about what techniques work best.
Like a recipe, a business model is also a non-linear process, dynamic, always in motion, adaptive and improved with experience and learning. And, like a recipe, it unites multiple lived experiences. There is the chef’s lived experience, operating the recipe this time, as well as applying accumulated experience from previous times, and perhaps the inherited experience of family members from past time. And there is the lived experience of the recipient who tastes the output, in the context of a dinner party or a family meal. An experience is always shared.
In fact, the focus on experience is critical in a business model. Its end result is a value experience – value perceived by a customer, sufficient to justify the price they’re willing to pay for anticipated value, sufficient to deliver value in the use experience, and sufficient to support an assessment of value after the fact, looking back on whether the experience met expectations.
The experience-centric business model
An experience-centric business model traverses four phases of value learning for the entrepreneur.
The foundation of a business model is an understanding of value for a specific set of customers. There are conventional business models that talk of “creating value” – whether that is the economic value of returns on capital that are higher than the cost of that capital, or shareholder value in the form of higher stock prices, or even brand value and product/service value. But all of these routes to “value creation” are misdirections. Firms can’t create value. It is customers who create value through their experiences. Value is something customers experience after they have made the economic calculation to buy a product or service, used it, and then stepped back after usage and assessed the experience compare to their going-in expectation. Value is formed in the customer’s domain, and not by the producer.
That’s why economists refer to value as subjective. It’s a perception that varies with each individual customer, with changes in context, and with changes in time and circumstances. The task of the business model developer is to understand the subjective value preferences of a specific set of customers in a specific context at a specific time.
Producers can suggest to customers that they can help them bring about the value experience they seek. The word “help” is important. Operating a business model is not an exercise in “making things happen”, it’s the art of helping them to happen.
In the business literature, there is talk of the design process – designing experiences for customers based on listening to their feedback. That is all very well-intentioned, but it doesn’t quite capture the art of value facilitation. Customers form value through cognitive, mental and emotional processes, consciously or unconsciously, interpreting interactions and information and constructing an interpreted and experienced reality within which their feelings of value are embedded. Value is formed in people’s life experiences and it’s not the role of the producer to act as designer.
Producers and marketers must ask, how does the customer live their life? What is the life context? What are the challenges the customer faces? These and many more questions prepare the producer to humbly request to fit in and contribute to the customer’s life. If invited in, there is the possibility of value facilitation.
Your customer is going to undertake a complex subjective balancing of the value they perceive based on your proposition and their own willingness to pay, in the context of all their alternative choices and any historical experiences they have had, either with your proposition or others. You can try to understand their process, but you can’t direct it. For example, you can’t set pricing. The customer determines the price they are willing to pay, and the producer’s job is to discover that price, through testing. Therefore your revenue model must balance the price the customer decides upon, with the costs you choose to include in assembling your offering. Costs are never forced upon businesses – they are always chosen. In the Austrian business model, entrepreneurs buy as many inputs as possible on the market, where costs are known and are rendered efficient through competition, as opposed to keeping costs internal, where they can’t be known exactly and may be unstable or hard to control. Your margins are emergent from this equation of customer-chosen pricing minus entrepreneurially-chosen costs. Don’t try to set margins in advance.
The best metric to monitor is not margin or profit, but cash flow. Keep it positive, monitor it weekly, and adjust to its signals.
Once invited into the customer’s experience, the producer has an opening to act as the value facilitator-on-the-spot for the customer. As the customer lives the experience – operates the recipe – there will be questions, unexpected occurrences, errors to fix, context changes, and many more unanticipated twists and turns.
The entrepreneur’s business model secret at this stage is agility. Business models that talk about strategic pillars and similar unchanging elements risk failure in the light of customer volatility and change.
A key to success lies in good feedback loops. Your business model must prepare your firm to be dynamic in response to customer preference changes and all the new information coming to you from the market every second, minute and hour. If you don’t maintain dynamism, your business model will weaken and your grip on competitive advantage will loosen. Your value proposition must strengthen and improve continuously. Your model of customer preferences must be kept fresh. Your value facilitation must demonstrate continuous improvement at a faster rate than the customer’s value experience erodes.
Empathy, humility, adaptability, and agility. These are the components of the contemporary business model. There’s a framework you can use to shape these components for your own unique application of the model, in The Austrian Business Model video.
https://hunterhastings.com/wp-content/uploads/2020/08/shutterstock_583996549-scaled-e1598128191729.jpg11322521Hunter Hastingshttps://hunterhastings.com/wp-content/uploads/2021/03/hh-logo-blk.svgHunter Hastings2020-08-23 11:31:562020-08-23 11:47:40What Is A Business Model? It’s Not What You’ve Been Told.