Businesses and value creation

The basic difference between great companies and laggards lies in how they perceive their essence in business. While great companies see value creation as the rationale for their existence, the laggards see accumulation of profit as the prime reason for their being. Without a doubt, the continued existence of a business will be threatened if it does not consistently make profit. But to equate profit-making with the raison d’être of a business is to miss the mark by a mile.

Businesses exist primarily to create value for their customers. A business does not exist to make money; it exists to satisfy its customers by creating value for them. No business can thrive without value creation. A business that makes profit-making its pursuit will lose sight of its essence and will eventually bite the dust. What customers pay for is the value they perceive they receive from a product or service. They will continue to pay for that product for as long as they are not denied the perceived value. So, the primary concern of a business is value creation, not profit making. Companies that thrive are those which understand that value creation comes before profit making. So, they do everything in their powers to consistently create value for their customers so that money will flow in ceaselessly. Those who do not get the order right struggle with low patronage and poor cash flow before being swept away when patronage finally peters out.

 

Something about value

Value creation in business is doing for customers what they cannot do for themselves; serving them, solving their problems, easing their worries and generally making life comfortable for them. No one will need to buy anything if everyone could do everything. Everyone does what they can and relies on others for what is beyond their ken or capacity. When such needs are met, value is created. Every act of purchase is a transaction of value. The buyer pays for the solution he needs, the seller gets paid for the solution he provides. When a customer buys a product or pays for a service, he believes he is trading his money for a satisfying solution, nothing less will suffice. Whenever he does not get this, he feels robbed and severs relationship with the service provider unless it is a monopoly.

However, the value of a product is neither determined by the producer nor the market; it is determined by the customer. Value is in the mind of the customer. Hence, value is subjective. So, it is a buyers’ world, not the sellers’. The onus is thus on the producer who wants to deliver value to a customer to start with understanding the customer, his needs, wants, preferences and expectations. Those who do not take time to get these do not last in business.

 

How businesses create value

Businesses create value for their customers by doing the following.

 

Understand what drives customers

Creating value that a customer will appreciate and be willing to part with his money for cannot be done without paying attention to him. Some manufacturers assume they know what the customers want and base their manufacturing activities on that assumption. That no longer works. That worked when options were limited but now that the world has gone completely flat and purchase could be made throughout the year from any part of the world, it no longer works. The buyer is no longer under any obligation to lap up whatever is offered him by the producer. Now, he has the chance to pick and choose. So, the producer has to know exactly what the buyer will find compelling and deliver same to him.

In addition, the average human being is dynamic. Therefore, what thrilled your customers in the past may not necessarily delight them now. If you keep relying on old experience to serve your customers, you may soon find out that they have taken their custom elsewhere.

Great companies rely on research to determine the desire of the customer. Every company that wants to keep exciting its customers must take market research seriously. However, quite a number of companies do not base their operations on facts but on assumption. But unfortunately, assumption is the lowest level of knowledge. Consequently, organizations that rely on it hardly make any headway.

 

Keep your promise to your customers

Every purchase is based on trust. Everyone who buys a product does so believing that the product will deliver on the promise of the manufacturer, which is the value he is paying for. The relationship would be sustained and there would be repeat purchase for as long as the product lives up to the promise of its manufacturer.

In January 2018, Toyota announced that it would recall about 645,000 vehicles worldwide to fix an electrical problem that could stop air bags from inflating in a crash. The recall covered Toyota Prius, Lexus RX and NX SUVs as well as Toyota Alphard, Vellfire, Sienta, Noah, Voxy, Esquire, Probox, Succeed, Corolla, Highlander, Levin and Hilux models. All the vehicles were produced between May 2015 and March 2016. The company offered to fix the problem at no cost to the vehicle owners. Why did Toyota have to go through the trouble? It had to because an air bag that would not deploy in case of a crash was not part of the deal it had with its customers. Toyota knew that every purchase is a trust issue. When a product does not deliver on the expected value, trust is betrayed and relationship is injured. Refusing to do that could have cost Toyota further patronage from the customers.

 

Offer superior quality at competitive price

Most customers want quality products that will not push them into robbing a bank. So, any company that can offer them quality products at competitive prices will win their hearts. However, quality should not be confused with complexity. Quality for most customers means utility. As far as many customers are concerned, an inexpensive product, which is easily accessed, easily deployed and is able to deliver on expected value, is qualitative enough. That is the edge that pushed McDonald’s into global limelight.

When Maurice McDonald and his brother, Richard, opened the first McDonald’s restaurant in  San Bernardino, California, in the United States of America in 1948, they were able to sell a piece of hamburger for half of what other restaurants were selling it. While others were selling hamburgers at 30 cents each, at McDonald’s a hamburger was going for 15 cents. They were able to achieve this because they had deployed a simple but efficient system which enabled them to produce a large number of hamburgers at low prices. They also put in place a self-service counter, thus eliminating the need for waiters and waitresses. Customers were able to get their orders quickly because hamburgers were cooked ahead of time, wrapped, and warmed under heat lamps.

Through this ingenuity, McDonald’s was able to deliver high quality hamburgers to its customers at a reduced rate. This swelled its customer base as it became the preference of fast food lovers.

In 1954, Ray Kroc, who had sold malt and shake mixers to the brothers when they were starting out, visited them to see how they were doing. Seeing the great promise in their ingenuity, he offered to start a franchise programme for McDonald’s. With that, the McDonald’s brand went national before becoming global. Now, there is hardly a free country without McDonald’s restaurants.

 

Innovate

To innovate is to give the customer what he never thought was necessary but which he finds not just useful but also fascinating when accessed. Companies that innovate are those that set the trend for the market and have the edge over competitors.

A couple of years ago, Apple Incorporated became the first American company to reach the $1trillion market capitalization and the second company in history to achieve the feat. Apple has become very successful because it is totally committed to innovation. The company is always a step ahead of competition with respect to innovation. Across the globe, iphone users are always on the lookout for new products from the company because they know that Apple will always exceed their expectations. This has shored up the value of the company and the shareholders always smile to the bank.

When Volkswagen Nigeria came out with its Santana Car in the 1980s, its slogan was Santana – nothing more to add. But that slogan did not last because the company realized that it was wrong to maintain that any product could be so good that it would not require further improvement. The company later produced newer versions of the brand, which put a lie to the slogan.

Innovation is critical to having customers tied to your apron string. Companies that do not innovate eventually die.

 

Make customers’ convenience your core

Companies that are idolized by their customers are those that are particular about giving them convenience. Apart from utility, the next most important issue to customers is convenience. Customers always appreciate products and services that save them time and effort. That is the secret of the astounding success recorded by Shoprite in Nigeria.

For the middle class Nigerian, who does not have the time to hop from one market to the other, Shoprite provides the opportunity to get everything you want from fresh vegetables to household items under a roof. By solving the problem associated with shopping for the Nigerian working class, Shoprite has grown its outlets in the country to over 30 from just one with which it started in Lagos in 2005.

 

Last line

Businesses that create value for their customers never run out of value for their shareholders.