In the age of value creation, the magic word to open a customer’s wallet is not “Abracadabra” but rather “Innovation” through creation of meaningful, novel customer value. So how can we create more value for our customers? Let’s have a look at what I call the Value Pyramid Model that can be applied to many industries and expands our traditional understanding of economic offerings to include modern forms of market offerings that have emerged in recent years.

Imagine a pyramid that consists of six layers of economic offerings that rise from the bottom of the pyramid to the top as follows: commodities, goods, services, solutions, experiences and dreams. Together, we will ascend the value pyramid level by level, and you will notice by comparing the illustrative examples how both the value of an economic offering (as perceived by the buyer) and the profit margin rise and how, at the same time, the number of competitors declines.

Commodities (such as oil, rice, precious metals, etc.) and raw materials are at the base of the value pyramid. On this lowest level, prices are often set in global commodity markets, and the profit margins for a producer are very thin as the commodity can easily be sourced from other suppliers. Two examples:

• On the commodity level, the price for the quantity of coffee beans needed per cup of coffee is less than 1 THB.
• Looking back at my former work experiences as a corporate banker in Deutsche Bank, simple foreign exchange transactions done with corporate customers have a commodity character; price is the sole decisive factor to determine which bank wins a deal.

Let’s move up to the second level of the value pyramid, goods. In most product categories, we notice various well-established producers who all compete on similar product characteristics and increasingly come under attack by new low-cost market entrants from emerging markets like China and India. Hence, a low price is still a major buying factor here, and there is an ever-increasing pressure on the profit margins.

• At the goods level for coffee, pre-packaged coffee sells for ca. 3–8 THB per serving of coffee.
• Looking at a typical corporate banking product: the competition for a term loan is mainly price-driven, although it may also involve some qualitative variations regarding the scope of documentation and the basic loan structure.

Services are on the third level of our value pyramid. Services offer more variety for differentiation and thus allow companies to realize a wider profit margin. Services can either be offered on a stand-alone basis (such as a cleaning service, a security service, a spa or a hospital) or can be offered as a complementing value-added to goods (e.g., training courses for a particular computer software).

• Once a simple coffee service such as selling brewed coffee in a bakery or small coffee shop is added to the equation, the coffee price rises up further to ca. 25–40 THB.
• Simple cash management transactions or trade services are examples of corporate banking services. Here, additional factors other than price (such as speed, reliability, network size) become important considerations when a corporate client selects its partner banks.

On the solutions level, a company can create further differentiation by providing tailor-made solutions to clients.

• In the past, tailor-made solutions were mostly limited to the B2B world (business-to-business). In corporate banking, sophisticated individualized client solutions such as tailor-made collection services in cash management (which can add immense value in geographically widespread areas that are prevalent in most Asian countries) are a way for a bank to achieve a very close relationship with an attractive corporate client; typically, this results in a significant revenue increase and a higher share of the client’s wallet for the bank.
• Over the last few years, we have witnessed the emergence of individualized business-to-consumer solutions from companies such as YouTube, MySpace, and Google that help individuals to express and share their individual creations with a global audience via new B2C internet solutions (business-to-consumer).

Experiences can be found one level below the top of the value pyramid. Experiences distinctly differ from services and solutions as they offer unique, memorable sensations to buyers that are personally cared for like guests in a family-like community.

• Harley-Davidson does not simply sell a product, as one of their executives emphasized: “What we sell is the ability for a 43-year-old accountant to dress in black leather, ride through small towns and have people be afraid of him.” The company has multiplied this unique experience with the creation of HOG (Harley Owners Group) communities that allow Harley owners to regularly ride out together in an impressive group.
• In our corporate banking context, a bank may create an elite club system where meaningful incentives (such as special tickets to attractive sports, cultural or business events; workshops or speaker series on interesting business topics; privileged economic or industry-specific research reports) are provided for free to its invitation-only members. The criteria for this meaningful club membership for the executives would depend on the amount of revenues and business volume that the bank generates with the client.

Finally, Dreams or “Experiences Plus” (as Tom Peters calls them) is the ultimate value-adding strategy to win the hearts of a customer. “A dream is a complete moment in the life of a client. Important experiences that tempt the client to commit substantial resources. The essence of the desires of the consumer. The opportunity to help clients become what they want to be,” notes Gian Luigi Longinotti-Buitoni, one of the proponents of the Dream Economy. Given the additional increase in value by making dreams come true and helping clients to become what they want to be, dreams command the pinnacle of the pyramid.

• One company that has already been in the Dream Business for many decades is Disney with its Disney World theme parks, where Walt Disney realized his vision to make dreams of children (and their happy parents) come true.
• What is the essential value delivered by the cosmetic surgery dream industry to its customers? The desire of looking more sexy, the dream of finally transforming into the “right” gender, and the illusion of being young again. The founder of Revlon cosmetics, Charles Revson, noted that his company “sells hope in a bottle.”
• The emergence of the space tourism industry that offers trips into the stratosphere to the extremely wealthy for millions of USD may serve as a last example of a “dreams business.” Richard Branson’s Virgin group plans to offer regular flights into space from 2008 onward for USD 200,000, thus allowing more people to realize their dreams of being astronauts.

© Dr. Detlef Reis 2007. This article was published in parallel in the Bangkok Post under the same title on 30 August 2007.