Business

Are You Making the Maximum Out of Your Product’s Value System?

product value

This guest column is by Anjali Chopra, Business Analyst, GreyB Research

Running a successful business in today’s era of cutthroat competition is a difficult task. Hundreds of competitors to beat, target audience to reach, sales goals to meet and set standards to breach- taking your organization to the top amidst the chaos is not easy as composing couplets or haikus.

It takes a lot of planning and effort to get things right- to meet sales goals, to receive positive feedback from your audience, to beat the competitors in the game and join the list of top players in the industry.

To the founders and C-level executives reading this,

Your efforts deserve a round of applause. You’re doing great!

Now before you indulge in your moment of self-appreciation, allow me to pull the curtain off on a facet that – chances are – never received your attention. While you were busy doing all the big things, you might have ignored the simple but extremely necessary step of understanding the value system of your product.

The discussion here is not on value chain analysis, the strategy tool that analyzes the internal activities of a firm. Rather, it is about looking at the big picture- What your product undergoes once it leaves your organization?

The value system analysis, in short, is an overview of the performance and application of your product in various value chains, including that of intermediaries till it reaches the end-user. You might wonder why is the big picture important? How will you benefit from understanding the application of your product in the value system?

Talking Money Wise, understanding the value system and making changes in the system accordingly can increase revenue for your business. Instead of going ahead with the theory, let us take an example to explain how value system analysis generated millions in revenue for Apple Inc.

July 10, 2008 is a very important date in the history of Apple, as Apple launched the app store via an update to the iTunes. On the next day, Apple released iPhone 3G which came preloaded with iOS 2.0.1 with App Store support. The launch of the App store opened doors for thousands of 3rd party developers to release their applications on the store without jailbreaking and earning a significant revenue, whereas users were more than happy as they could download the apps of their choice without the need to rely on package managers.

While thousands of developers were busy developing apps for the software platform, Jack Dorsey, the co-founder of Twitter had a very different idea. In collaboration with Jim McKelvey, Dorsey started Square Inc, in February 2009. After raising a capital of 10 million dollars in series A round in November of 2009, Square launched its very first product- Square Reader, an add-on to the iPhone which enabled Apple users to accept payments via credit cards.

square

The square reader was indeed a huge success in the market. The sales soared and the company continued to grow, accruing millions in funding, while building on Apple’s IP. During this entire time, Apple had no idea how Square was making money.

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When Apple realized the value addition Square provided to its consumers, it played its better-late-than-never move. Knowing fully well, the potential mobile payment market holds, Apple launched its own version of Mobile payment, Apple Pay. Apple pay attempted to imbibe the functionality of Square into the core of Apple products enabling Apple users to make payments using their latest favorite gadgets.

Though a CNN report cited that Apple pay won’t add to the profits of Apple, months after its release; the tables turned in 2016, when the third fiscal quarterly report came to light.

According to the report published on AppleInsider, CEO Tim cook announced that Apple Pay’s users were up over 400 percent. He further cited “three million retailers accept Apple Pay in the US alone whereas 3 out of 4 contactless payments being made in the US are made from Apple pay instead of its competing services.”

When it comes to revenue, the dollars earned from Apple Pay contributes to the services category of the company’s financial report. The report revealed that there was a 20% increase compared to previous years’ results. Since “Services” account for 11 percent of Apple’s overall revenue, Cook claimed that if Apple Pay was separately accounted for, it would qualify for a Fortune 100 company at some point in 2017.

From a better-late-than-never move to a potential Fortune 100 company, Apple pay indeed was a billion dollar move for Apple. This became a possibility since Apple understood its value system and innovated accordingly to fetch those additional revenues.

Now some of you might think that- Apple is a technology giant. Imbibing a new product into their portfolio would never result in a loss. With its large user base, any of its products would be well-received. The same might not be organizations working in other niche industries.

Not true.

Inspite of being a technology giant, Apple had faced its fair share of failures. But let’s not get into that argument now. An organization, no matter its size or industry, can improve its processes and open new doors for revenue generation by understanding its value system.

Let’s take another example to understand this.

Amazon, the American electronic commerce company made its humble beginning as an online bookstore. It later expanded its operations to include other products catering to users’ everyday needs, enjoying an exponential growth. As of today, Amazon ranks 11th on the Forbes most innovative companies in the world list.

From an online bookstore to a company with a market cap of $292.6 billion, what did Amazon do differently to reach such great heights? They innovated, and did it in a manner fulfilling user needs while eliminating various value chains. Consider, Kindle for instance. When the era of digitalization started its journey towards the peak, Amazon knew full well that print books would be replaced by their electronic versions. For a company that made its beginning as a bookstore, Amazon played a move that helped them remain one among the top players in the industry.

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In 2004, Jeff Bezos commanded his deputies to build the best book reader in the world. 3 Years later, the first Amazon Kindle was released which according to an engadget report sold out within 5.5 hours of its launch. The Kindle was not just another addition to Amazon’s electronic products portfolio, but also gave a boost to Amazon’s book business. In this era of online shopping, Amazon is the go-to place for any book lover, irrespective of their choice- digital or print.

But how did Kindle open new doors to revenue generation?

Leaving the aspect aside that sale of digital books brings in massive revenues for business, here’s how Kindle helped Amazon earn millions.

Being a writer was very difficult in the pre-Amazon era. As if writing a book ain’t any lesser than slaying a dragon, once you had the manuscript, the next step was to reach out to the publishing houses. With thousands of writers wanting to publish their pieces, only the work of the best ones (or the ones who were influential) took the shape of a book. Considering the high printing costs, this was quite understood but the disappointment levels were high too.

With Kindle, the game changed. Amazon used Kindle to its advantage and started Kindle direct publishing, giving authors around the world a chance to publish their pieces for the world to read. Not only the commission brought in billions for Amazon, it eliminated the need for the writers to seek publishing houses to print their work. Now, instead of a book being published by a publication house and digitized by Amazon for its Kindle readers, Amazon eliminated an entire value chain within the system, making additional billions  to invest on further innovation.

And since we’re talking Amazon and innovation, how could we forget drones?

Understanding your value system and innovating in the direction is something worth learning from Amazon. Instead of restricting to being an online marketplace, Amazon is trying to change the way in which the products are being delivered to consumers. In an attempt to eliminate the value chain of 3rd party delivery services, Amazon is testing its drone delivery service for prime users.

A few years down the lane, there is a good possibility that a drone might be delivering the Harry potter book set on my door steps within a few hours of ordering it. “Wingardium Leviosa” might be the spell fuelling it, maybe.

Long story short, Value system analysis has the potential to open new doors of revenue generation, leading to better products and innovative services. No matter which industry you operate in, study the value system of your products/services and innovate in that direction.

You never know, what might open doors to millions in revenue.

Alohomora!

Image Credit – Lynda

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