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The Value Creators Podcast Episode #29. Raushan Gross on Entrepreneurial Value Creation in the AI Economy

Professor Raushan Gross, who teaches Business Management And Leadership at Pfeiffer University, has focused his most recent research on the impact and influence of A.I. on entrepreneurship. He published some of this research in a series of articles at mises.org. One of them links A.I. to The Wealth Of Nations, and, of course, the wealth of nations is driven by entrepreneurship. From this vantage point, Professor Gross identifies the multifaceted impact of AI on society, economics, and business strategies, advocating for a paradigm shift in management thinking to adapt to technological advancements.

Resources:

The Fate or Wealth of Nations: AI, Robotics and Automation

Will AI Learn to Become a Better Entrepreneur than You?

Prices, Food, Employment: AI and Robotics Are for Regular Folks, Not Just the Elite

Would You Hire an AI-powered McRobot or a Human Employee?

Artificial Intelligence Enhances Consumer Sovereignty

Artificial Intelligence Can Serve Entrepreneurs and Markets

The Fear of Mass Unemployment Due to Artificial Intelligence and Robotics Is Unfounded

Show Notes:

0:00 | Intro
2:27 | Exploring AI’s Impact on Entrepreneurship
7:18 | Can AI Surpass Human Entrepreneurship?
8:48 | Exploring AI as a Service and AI Stacking
12:08 | AI as a Team Member in Entrepreneurship
15:10 | Small and Medium Businesses Can Embrace AI for Strategic Advantage
17:13 | Transition to Autonomous Decision-Making with AI
21:13 | Concerns on AI Centralization and Oligopoly
25:15 | Adam Smith: Global Scale AI is the Wealth of Nations
26:40 | Elon Musk on Value Creation: the Value Meter
29:14 | Does AI Redefine Management by Value Metrics?
32:14 | Wrap-Up: Rethinking Management in the Digital Age

Knowledge capsule

AI changes how individuals and entrepreneurial firms interact with the market.

  • We can’t be sure of the form the interaction will take.
  • But we know that we are using AI in every market transaction
  • While some individuals have doomsday visions of AI, entrepreneurs ask, “How can I use this to improve my business and how I serve customers?”

Human ingenuity will always be a critical and irreplaceable part of entrepreneurship.

  • AI is an active tool for entrepreneurs.
  • It will be a competitive factor in servingand delighting customers.
  • It’s a service to entrepreneurs to help them succeed.

Entrepreneurs can assemble and combine bundles or stacks of AI services into complete business models.

  • Austrian economics explains how entrepreneurial business consists of combining and recombining value-facilitating assets.
  • This is precisely how entrepreneurs utilize AI.
  • There’s no need to own the assets, just to control them and their value direction, and this is the business service that today’s AI tools offer.

AI can be a team member in value creation teams recruited by entrepreneurs.

  • Most productive work is done in teams.
  • AI can be a team member, bringing new knowledge, querying and challenging existing knowledge, and helping to advance knowledge-building at speed.
  • AI can also automate a lot of implementation processes, freeing entrepreneurs to focus on creativity and innovation.

AI will also play a role in technological deflation.

  • While governmental monetary and fiscal policy creates inflation, the role of the entrepreneur and technology is deflationary: making production faster and lower cost with improved quality.
  • AI will contribute by lowering the costs of doing business.
  • Entrepreneurs will be more empowered and the general level of well-being will rise.

Any risks lie in the danger of centralization of AI.

  • Will governments centralize AI under their singular control?
  • WIll the massive investments required in building AI server farms and databases and LLM’s result in a few corporations controlling AI for the whole economy?
  • It’s more likely that entrepreneurs will be able to build their own models using base LLM as a platform.

One of Elon Musk’s innovations points to AI as a “value meter”.

  • Algorithmic management at Tesla includes the ability of AI to assess the real time value creation product resulting from a team’s work with the resources at its disposal.
  • The AI can simultaneously scan all the other value creation opportunities available at the same time and reallocate teams and resources to higher value uses.
  • In this way, AI acts as a “value meter” for the productive activities of a work force and factory.

Global Competition in AI:

  • There will be a global race for AI dominance among nations.
  • Those nations that are most  energetic and innovative will shape the future landscape of AI development.

Why Study Economics?

Economics is the science of human thriving. It is the study of human choices and the motivations behind them. If we can understand those simple things, we can understand every transaction between humans as consumers and humans as producers, and roll that micro understanding up into the more macro understanding of firms and economies, and how they function, succeed and grow.

Thriving is what we all want. We can define it as continuously increasing our feelings of well-being. And that’s the first indicator of the value of economics. The output of any economy, of every firm and of every exchange and every transaction is more well-being – the feeling of being better off. Yes, a feeling. Economics is not measured in numbers like GDP or firms’ revenues or profits. It’s assessed by the satisfaction of individuals as to whether things are getting better or not. A growing economy is one with improving feelings of well-being. The nearest thing to a metric for this feeling of well-being is the University of Michigan Consumer Sentiment Index.

When the index is high, it’s associated with increasing stock market valuations, economic growth and prosperity. When it’s low, it’s associated with recessions. There’s no need to search for cause-and-effect, because it’s not there. The sentiment is emergent from the system.

A successful firm is one whose customers feel increasing well-being – more satisfaction, more confidence, more trust, more relatability. A strong balance sheet is one with assets that will facilitate such satisfactions and feelings of well-being many years into the future. A strong P&L is one that shows that customers are generating the cash flows that result from their willingness to pay for those satisfactions at the price the business chooses to set and results in profit.

How does economics teach us to increase well-being? Development economics as its called – the study and theory of how economic growth is generated – is a highly underdeveloped field. It has no answers because it’s looking for those cause-and-effect conclusions that just can’t be found. It’s better to look at system effects: what is the system most associated with increased well-being? It’s free market capitalism.

More entrepreneurship.

Entrepreneurship is the function that drives growth in the free market system of capitalism that brings prosperity. Entrepreneurship is misunderstood by most economists and all policymakers. Entrepreneurship is the economic function that creates new value, and value is what we all seek. Value is the feeling of being better off after experiencing a good or service that’s been prepared for us or sold to us. It’s the feeling of betterment – better off today, and better off tomorrow because of all the great offerings entrepreneurship brings to us. Entrepreneurship is what drives capitalism. It can take place in a startup or in a giant corporation, so long as the intent is to improve customers’ lives. It is highly restricted in an economy where government regulation strangles innovative opportunity, or where government directs investment funds to one industry rather than another – for the simple reason that entrepreneurship is experimentation to find out what customers prefer, and regulation often doesn’t permit experimentation. What drives growth? Those of us who are not entrepreneurs don’t know – we leave it to entrepreneurship to run the crazy experiments that will help the rest of us to find out.

Production before consumption.

The conventional wisdom of economic pundits and government planners is the opposite of the entrepreneurial view. They believe that consumption – what they sometimes call aggregate demand – is the driving force of the economy. If the economy, as they measure it, slows down or stalls, their answer is to put more spending power in the hands of consumers so that they buy more products and services. They believe that demand brings production into being. Without demand, there’d be no production. The opposite is the true case. Entrepreneurs reveal to consumers that there is more they can want – better goods and services, new technologically innovative products, faster deliveries and lower prices. By demonstrating the availability of more – by producing, that is – entrepreneurial businesses generate demand for their offerings. Demand does not bring businesses into existence; businesses bring demand into existence. Any and all restrictions on production should be lifted to bring productive growth to any economy anywhere in the world.

Less quantitative, more qualitative.

Economics is usually presented as a quantitative science. Economic “quants” focus us on numbers like GDP or economic growth rates or trade imbalances or debt levels. They want us to think of economics as a science on par with physics and mathematics. But it’s not. Economics is about well-being, and how humans increase well-being for themselves, their families, their firms and their communities. Well-being is subjective, a feeling on the part of individuals. It can’t be measured, enumerated, ranked or stacked or trended. Economics aims for a world in which we can consciously and deliberately raise and expand and extend well-being, without always trying to capture the improvement in numbers. Feeling better off is a qualitative phenomenon.

Less economic policy.

The word policy should never be conjoined with the word economics. Policy equates to politics, i.e. a biased, group-interest driven perspective on economic decision-making. Economics teaches us that markets can freely determine all allocation decisions, and all selections between what individuals and groups prefer, favoring new and better and jettisoning what’s out-of-date and inferior. Politicians may not always like market choices, and may therefore introduce policy that contradicts the markets, but this always leads to less total well-being. And since there is no possibility of isolating cause and effect in a complex economic system subject to an incalculable number of influences, interactions, constraints, and unanticipated feedback loops, policy never “works” – it can not lead to the outcomes it promises.

Students of economics will understand and appreciate these catalysts for well-being – that’s why economics is worth studying.

No businesses are “small”. They’re all productive nodes in a tightly connected knowledge-building value-creating network.

There are roughly 32 million businesses in the US, of which 99.9% are what the government calls “small”. This classification of business accounts for about half of GDP and of total employment (making it just as productive as “big business”), and usually more than half of new job creation (making it more dynamic than big business). It’s often where innovation first enters the market, since small business is more open to risk taking than big business. If we remove the Fortune 500 and the Russell 5000, we’ve still got 32 million, rounded up, so let’s think of them as a community.

Within the 32 million, there is a wide range of size, whether measured by revenue or number of employees. The government in the form of the SBA (Small Business Administration) uses a range of up to 500 employees and a revenue of $7 million per year. But they also relax this range in different classification categories; their “small” financial and insurance business range goes up to 1,500 employees and $38.5 million in revenues. Clearly, there’s no consistency or integrity in their definitions, and not much useful information.

A better way to look at these businesses is as an integrated network of productivity, information flow, knowledge-building, innovation and value creation. 

Productivity:

Dr. Samuel Gregg in his book The Next American Economy identifies the decline in the formation of new entrepreneurial businesses as responsible for the significant decline in American productivity. These businesses have an intensified motivation to be productive; it’s hard to get capital, so they need to make the most of what they’ve got and find agile ways to borrow, rent or originate capital. They can’t afford productivity-sapping bureaucracy. They find ways to accelerate cash flows. They adopt new technological innovations quickly so as to take advantage of productivity enhancements. Productivity is essential for them.

Knowledge-building:

Bartley J. Madden in his book Value Creation Principles, identifies knowledge-building proficiency as the fundamental driver of firm performance. In the integrated 32-million strong network of businesses we are analyzing, information flows faster and more freely as a result of more network nodes, more connections between nodes, and lack of barriers to learning such as bureaucracy. These businesses know they must learn at speed, apply their learning fast and use it to serve customers better. There’s no learning time to lose.

Dynamic Efficiency:

Efficiency is an economic concept that hasn’t been very helpful for business in general. It tends to mean doing less with less: cutting costs, saving on inputs, not risking innovation, not attempting experiments with uncertain outcomes. But economist Jesus Huerta de Soto developed the contrasting concept of dynamic efficiency: fast adaptation to changing customer preferences, and rapid creation and adoption of new market knowledge, with an economy of time and agile decision-making.  This is the entrepreneurial method, and the way that the 32 million competes effectively with larger, better resourced but less agile firms.

Pure value creation:

Businesses generate cash flow as a result of the valuable customer experiences they enable. The value that customers perceive turns into willingness to pay, resulting in cash flow that is the life blood of small businesses who have less access to credit and debt to fund their working capital needs. The 32 million are acutely sensitive to cash flow, and therefore to customer value. They remove all obstacles to customer value, including bureaucracy, complicated service arrangements that obscure value visibility and take time, and any other obstructions they can identify. These businesses know that they must pursue pure value creation.

Customer focus:

The disciplines of dynamic efficiency and pure value creation demand an intense customer focus. The 32 million choose their customers carefully, develop a deep knowledge of them and their needs, nurture empathy to get on the same wavelength with customers regarding those needs, and are constantly listening for feedback and adjusting to any new signals that come through the feedback channel. This intensity of customer focus sustains the innovation and elevated quality of service that, in turn, secures continuity and strengthening of business relationships. That’s why these businesses are the backbone of the economy.

Unentangled with government:

The greatest barrier to all business-driven economic growth, progress and innovation is government. Both taxation and regulation are business-killers by intent. Big business becomes entangled with government. They develop big bureaucracies to comply with regulation, keeping them close to government and saddling the 32 million with disproportionate compliance costs if they’re forced to match big-business compliance practices. And big businesses assemble lobbying forces and budgets to design, write and pay for government approval for regulations that protect them and over-burden others. It’s this entanglement with government that condemns big business to permanent inefficiency, and also results in the kind of government-directed surveillance scandals that are currently being uncovered.

The 32 million is in no way small. It’s the vital, leading edge group that brings innovation, growth, development and dynamism to the economy. Let’s find another term than “small business”.

Corporate Layoffs Occur At Firms That Don’t Prioritize Customer Value Creation.

Recently (Dec 5, 2022), Pepsico announced that it would lay off hundreds of workers “in headquarters roles”. The lay-offs memo was signed by the CEO of PepsiCo Foods North America and the chief human resources officer of Frito-Lay North America. These executives stated their purpose was to “take steps again to simplify the organization so we can operate more efficiently”. Why, one wonders, were they not operating more efficiently prior to this announcement? Presumably, more efficiency is a good thing, and should be sought at all times.

Pepsico is not alone. A December 4, 2022 entry on intellizence.com has a long list of layoffs at companies including H&M (1,500 layoffs), United Furniture (2,700 layoffs), Alphabet (10,000), Hewlett Packard (6,000), Cisco (4,000), Amazon (10,000), Meta (11,000), and Credit Suisse (9,000). The list goes on.

The purpose of a firm is to create value for customers. Bartley J. Madden, in his book Value Creation Principles, expands the idea of purpose to “communicate a vision that can inspire and motivate employees to work for a firm committed to behaving ethically and making the world a better place”. This concept of purpose includes knowledge-building to learn how to serve customers better, and sustaining win-win relationships with all the firm’s stakeholders – including employees, of course. If employees are to be inspired, they should expect to be treated fairly and with respect. They should be treated as individual value creators, empowered, trained, informed, and given the autonomy to make decisions that further value creation for customers.  Fundamental to the Bartley J. Madden vision is long-term sustainability. Value creating firms ignore the demands of Wall Street for quarterly returns and the maximization of shareholder gains, and focus on building the real assets in the firm – through capital investment and innovation projects – that can continue to deliver customer satisfaction for decades and longer. Financial returns are an outcome of this commitment, but do not represent the purpose of the firm. Maximizing shareholder returns does not qualify as a vision in this worldview.

A value creating firm that aims at genuine sustainability adds to its assets when those assets are demonstrated to be value drivers. Madden points to the knowledge-building proficiency of the firm as the critical element in long-term success or failure. Knowledge-building is a learning process: learning what drives value for customers. Customer value is subjective – an experience, a feeling, something that can’t be measured via the standard quantitative metrics. But there is an indicator of customer value that can be relied upon, and that is cash flow. Cash flow is value created in the customer domain flowing back to the corporation as revenues. Customers advance through a value learning cycle that begins with evaluating whether or not any proposition has potential value for them, then comparing it with alternatives, and then arriving at the point of exchange which we can call  “willingness to pay”. If willingness to pay is positive, the firm receives revenue, indicating that the customer has committed themselves to the experience of value in the expectation of satisfaction. If the customer repeats the cycle and buys again, it’s an indicator that the value experienced met their expectations. There’s a second flow of cash to the firm.

There’s a direct connection between cash flow and value creation. Therefore, through experimentation and analytics, a firm can identify its value drivers, those assets most positively and most directly generate customer value. These value drivers can include assets like brands, specialized expertise, technologies that generate desired customer experience (like speed and convenience and ease of use), and highly refined knowledge that defines the firm as the go-to reliable expert. Value drivers can also include human capital – the people who work at the firm, immerse themselves in the knowledge-building process, contribute to its further development, and become value creators in their own right.

So why would a firm lay off hundreds of such people “in headquarters roles”? Presumably, they wouldn’t fire value creators, for that would be depriving customers of value, which is the opposite of the firm’s purpose.

Or is it? In fact, what these layoffs reveal is that customer value was never these firms’ purpose in the first place. In this age of financialization, the purpose of the firm is maximizing its returns to shareholders (who include the CEO and the Board and the rest of the C-Suite, as well as Wall Street and institutional investors, but seldom customers). Those returns are assessed at minimum quarterly and often more frequently. If those returns, or pre-indicators of those returns such as revenues or margins, turn downwards, the stock price can easily decline, slamming the brakes on shareholder returns. An easy fix is to reduce costs, to restore margins and profits, and the easiest cost to reduce in the short term is labor – people. 

Clearly, the people who have been laid off must not be in value creating jobs. They’re not driving trucks and stocking shelves. So why were they hired in the first place? The reason is that there’s a purpose of management other than creating value for customers. They want to increase their department size, and the number of people they supervise, because the incentive compensation system rewards them for that. It’s an increase in power for managers. They’re short-term thinkers, and they don’t anticipate the layoffs to come; they’ll take the power and compensation increase now, and worry about the layoffs when they come.

That’s why not only the purpose of the firm must be examined to make sure it’s truly oriented to customer value, but also management itself must be reimagined because it is too often not value creating, it’s value destroying. Middle management, especially, is value-destroying. Bart Madden points to the efficient value generation of firms like Nucor in the steel industry, with only 4 layers of management from CEO to the factory floor, and compares it with traditional steel industry competitors who might have as many as 12 layers of management.

When a firm is truly focused on customer value generation, they wouldn’t hire these bureaucratic “headquarters roles” in the first place, and then they wouldn’t resort to layoffs to solve the problem they created for themselves.

175. Curt Carlson: Value Creation as a Life Skill

Curt Carlson has devoted his life to value creation and innovation — VC&I as he sometimes characterizes it. He has been CEO of SRI, a “pure innovation” company where the business model was to create important new innovations that positively impacted the lives of many people. Examples of his innovations are Siri (ultimately sold to Apple) and HDTV (the technology that enables the streaming so many people enjoy today).

He started a consulting company called Practice Of Innovation, which established methods of innovation available to everyone and every firm. Now he teaches at University, aiming to develop a new generation of innovators.

He talks to Economics For Business (econ4business.com) about value creation and innovation as a life skill.

Key Takeaways and Actionable Insights

Value Creation is a complex adaptive system.

Value creation is a system of many agents, components, arrangements, technologies, constraints, and unpredictable emergent outcomes. There are a challenging number of variables, and there’s a requirement for highly integrated collaboration and recursive and iterative process, utilizing adaptive feedback loops and continuous readjustment. It’s hard — and quite rare — to get right and easy to get wrong.

The essential element of value creation is the mental model.

The mental model for value creation is solving important and meaningful problems for others. It shouldn’t be about launching a new business or a new technology, but about helping others. And, since people don’t think in terms of “I have a problem to solve,” the value creator must also understand the customer’s mental model. They experience dissatisfactions. They wish things could be better. They make trade-offs. They can’t always articulate what they want. They have to learn what to want, and value creators can help them to understand what they can want in the future.

Mental models are fundamentally important to the creation of value. We all have mental models of the way we’d like the world to work. The value creator is able to identify — “get inside” — others’ mental models and see the world the way others see it. This perspective is vital — the critical first step in the value creation process.

The calculus of value is subjective.

Value can only be defined by the individual who experiences it. Individuals make a mental calculation of value – it might include some numbers and some thoughts, feelings, preferences, and ideas. They are able to make this calculation in their own mind, even though the potential costs and benefits lay in the future.

The dimensions of value are many. When evaluating the purchase of a car, for instance, the price is part of the calculation, but so is the appearance and pride of ownership, the comfort, the gas mileage, the color of the seats, the cost of maintenance, and many, many more features and attributes and functional and emotional benefits.

Despite the difficulty and complexity, people are agile and adept at making this complex calculation. Value creators must be able to appreciate how customers make the subjective calculation — the calculus of value.

The removal of barriers to the experience of value is a good way to create it.

Convenience is often highly valued by customers. It represents the removal of barriers to value – easier to operate, less time taken, less physical or mental effort required. These are all valuable. The iPhone provided a more convenient way to enter data (responsive touch screen versus traditional keypad), and this played a big part in its adoption and success. The mental model is that people want to do things that are easy to do. They don’t want the clumsiness of a tiny keyboard on a phone. They don’t want to read a 20-page user guide for a new piece of software. They don’t want packages that are difficult to open or retail stores that are crowded and hard to shop. Identifying and understanding mental models like these gives skilled value creators their competitive advantage. If barriers are perceived negatively by customers, then create value for them by getting rid of barriers.

A need is not a problem to be solved. A need is a mental model. Reframing is the tool for understanding.

Curt uses the example of the slow elevator in a prestigious office tower. Residents complain. Engineers might try to solve the problem by re-engineering the elevator for greater speed. A value creator would try to identify the mental model of the complainers. That’s reframing. They are annoyed because they feel that their valuable time is being wasted; they’re bored for a few seconds. Understanding this mental model opens up the possibility for new value approaches. Add a digital screen in the elevator with a news feed so that people can use the time to catch up on the latest headlines. Or add a mirror so that they can use the time to check their clothes and hair before going into the meeting.

Most value creation challenges can be better addressed through reframing. In fact, Curt describes his innovation method as “relentless reframing”. The art of value creation is teasing out the customer’s mental model. Do it again and again, back and forth between the value creator and the customer, to get the understanding of the customer’s mental model right.

Value creation is coupled with innovation: VC&I.

The definition of innovation is not just the new idea or new product or new service. It’s the sustainability of any new solution once it’s delivered into the marketplace. Customers use it and prefer it, they pay enough for it to sustain the financial business model, they repeat their purchases and provide supportive comments and assessments. To be truly sustainable, the innovation must appeal to a lot of people, not just a few early adopters. The benefits must be greater than the costs to the user, based initially on their value calculus, and subsequently on their actual experience. And the offering must be better than competition. To get customers to change from a competitive offering, Curt says the degree of superiority must be 2X to 10X.

Curt uses the N-A-B-C process tool as a methodology for innovation teams.

On previous visits to the Economics For Business podcast, Curt has laid out the framework of his N-A-B-C model and how to use it. See our E4B graphic tool (Mises.org/E4B_175_PDF) and the Key Takeaways summary from the podcast #37 (Mises.org/E4E_37).

N = Need: Identifying and understanding the customer’s mental model, and perceiving the world as they perceive it, getting to their perspective of how the world can be improved. This is where relentless reframing applies.

A = Approach: Designing an innovative solution with a sustainable business model. The temptation is always to jump straight to the approach without truly understanding the Need, according to Curt. This always leads to error and requires a pivot.

B>C = Benefits Per Costs: This is the customer’s value calculus, very hard to get right as a result of its multi-dimensionality and combination of qualitative and quantitative measures.

C = Competition: What are the alternatives among which customers are choosing, whether direct or indirect – remembering that not buying anything is an alternative they’ll consider. Overcoming inertia requires a high degree of superiority.

Our econ4business.com toolkit (Mises.org/E4B_175_PDF) includes a full explanation of how to apply this tool.

Value Creation and Innovation is a life skill that can be taught to everyone.

Solving others’ problems is a deeply human activity. We’re all wired to do it for each other, every day. Value creation can be taught to kids of any age in school, and it can become a life skill. It can be taught to people studying any discipline in universities and colleges, from humanities to hard sciences, so that they can apply it in their field. It can be taught in every firm, whatever the line of business.

The resultant life skill is the mental model that life is about solving meaningful problems for others. It’s about understanding and appreciating others’ mental models. Reframing is the tool for gaining this understanding. Value creation is a fundamental capacity for everyone. They can make an impact on society by solving problems that matter.

Additional Resources

“N-A-B-C Innovation Process” (PDF): Mises.org/E4B_175_PDF

Curt Carlson on Innovation Champions: Mises.org/E4E_91

“Answering the Million Dollar Question (Part 1)—How Value Creation Forums Help Create Winning Research Proposals”: Mises.org/E4B_175_Article

Climbing The Value Ladder.

Value is the energy that powers the economy and its growth. People relentlessly pursue better experiences in the future than are available to them in the present and their attainment of that future experience is what is meant by the term value. People assess – or e-value-ate – their experiences after the event and decide whether they were valuable to them. They anticipate better experiences in the future, and look for goods and services they believe will be able to bring them that better experience.

It’s because people demand that the future should be better than the past or present that there is any economic activity at all. It’s the reason for innovation. It’s the reason for interest rates. It’s the reason for economic growth. It’s the reason for supply chains and retail stores.

The experience of value is a good feeling. It’s satisfaction. It’s the replacement of one state of well-being for a better one. It’s calmness in place of anxiety and contentment in place of desire. It’s also a never-ending question, because value can always be improved upon and satisfaction can always be higher.

In pursuing success in markets, businesses can improve their prospects if they bear in mind the primacy of experience. Engineers are often wrapped up in products and services features and performance. Sales and marketing often focus on these same elements when making their pitch to customers. But customers don’t want features and performance or even product attributes. They want that experiential feeling of value.

Value propositions and sales pitches will be better when the experiential value is incorporated. Instead of selling today’s features, sell tomorrow’s feeling. “When you select us as your supplier you’ll feel confident in the level of service we provide. All your information requests will be immediately fulfilled, and your customer service rep will always be available. You’ll always feel that we are here, standing by to respond or help, and proactive in bringing you new ideas, and innovations.”

  • A large financial services customer would send e-mail requests to a service provider late at night, and would keep score of how many same-evening responses they received. The providers with the best response scores were graded higher. If you are in the customer service business, it pays to check your e-mail before going to bed!

How can you add more experiential value to your value proposition?

  • Would your potential client enjoy the drawing on the special knowledge level and career experience level of your team? How would they feel in the future to be in a monthly call with your top analysts or top site foremen so as to be able to learn about the latest market conditions, especially in the midst of market turmoil?
  • Is your client frustrated with the service levels or lack of responsiveness of any of their current providers? How can you make them feel like it will be better with your company’s greater commitment to service?
  • Are there any higher values that the client is pursuing above and beyond current functionality and performance? Every client – and every individual at every client – has a ladder of values they are climbing. Have you asked them about it? Do you know their higher value preferences?
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Value is always ascendant from lower to higher. Customers seek out the functional value that reassures them that a product or service that is offered “works” for them. Then they can move up to less functional attributes – like style and aesthetics, for example. At a higher level still, they think about the longer-term future: not only how will the product perform now, but how will it fit in with their future plans. Once they believe that there’s a future fit, they’ll think about high values like relationships and ethics. Ultimately, they are seeking a better world, or a more meaningful career; if you and your company and its products can help, you’re contributing to the highest level of value. The best value creators climb the ladder and find the strongest route to the top.