Value creation

Lecture handout: Value creation*

The purpose of this session is to realise that value comes from satisfying people’s needs, and that this leads to a broad and insightful realisation that:

  • Competition is when anyone else tries to satisfy the same customer needs that you do.
  • Innovation is trying to find better ways to satisfy your customers needs.
  • Entrepreneurship is successful when you understand your customers needs better than they do.

You can read more about David Reynold’s model here and here. In 2013 Barry King tried to beat Reynold’s record by constructing a model of Salisbury Cathedral (which is a popular tourist destination for KGB agents). You can read more here.

Steve Job’s famous advice was to not listen to your customers. This is similar to Tyler Cowen’s “law of interesting content” – which is that interviewers should have the conversation that they want, not what they think their listeners want.

Here’s an example of how Starbucks creates value for me:

This concept is closely related to “Jobs to be done”, but here’s my review of ‘Competing Against Luck‘. Here’s my bleaker application of value to Apple’s iPhone innovation:

For a more traditional, textbook treatment for demand curves, see here:

A great application of consumer surplus is here:

Can you think of something that delivers a lot of consumer surplus for you? What’s the most consumer surplus you’ve ever received?

Finally, here’s a quick quiz on understanding value.

This page ties into Chapter 1 of Economics: A Complete Guide for Business

Learning Objectives: Link a thorough concept of value with implications for competition and innovation. Derive demand curves.

Cutting edge theory: Jobs to be done

Focus on diversity: Economists typically take preferences as given, but we can provide a theory of demand reflecting “the individual’s commitment to an intelligible universe” (p.52), where goods are considered to be a visible reflection of culture. Mary Douglas (1921-2007) was one of the world’s most admired social anthropologists, and her 1979 book, ‘The World of Goods’, provided a rich and compelling illumination of consumption patterns. 

Spotlight on sustainability: Plastic packaging

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