The same applies whenever a service is delivered to a buyer
Then again, seller and buyer have different perceptions of “value”. “The Magic Pallet” is a graphical presentation of a business transaction. It demystifies “value” and explains the different elements that build up to those perceptions.
SELLER For the seller, value is the sales price of his goods minus the cost of means (fixed and variable costs); the net profit on the transaction BUYER B For the buyer, value is the worth in monetary terms of the perceived benefits in return for the price he pays plus the additional costs incurred, called “total cost of ownership”. This is the “value proposition” of the seller. Value
The Magic Pallet uses concise concepts with precise descriptions to identify the elements that constitute the value proposition of a firm Articulation
VALUE CHAIN The chain of activities performed by a single firm, which add value for its customer TECHNOLOGY PRODUCTION LOGISTICS MARKETING SUPPORT VALUE SYSTEM The set of value chains that come together including suppliers, manufacturers processors, distributors, traders, etc. CUSTOMER VALUE The sum of perceived benefits – in monetary terms- in turn for the total cost of ownership Let us first agree on some definitions….
The costs of means are the comparative resources of a firm or sector. For most, these costs are a given - hard to improve upon We start loading the pallet…… MINDS = Cost of people with a higher education and/or creativity. MONEY = Cost of money: own financial resources or financing MAN POWER = Cost of labor: skilled, proficient or experienced workers MACHINES = Cost of machines, infrastructure and other means. MATERIALS = Cost of raw materials, seeds, ingredients a/o
……..…..contains the value added; the value chain of a firm or sector, which is the source of competitive advantages. Not the comparative “What do you have?”, but “What do you do with it?” The second crate……. TECHNOLOGY = Creating new, developing or adapting existing products PRODUCTION = Transformation of inputs into a final product LOGISTICS = All in-bound, in-house, out-bound movement of goods MARKETING = Attracting new and retaining existing customers SUPPORT = All pre/after sales support, personalization of processes
VALUE CREATION TECHNOLOGY SUPPORT PRODUCCTION LOGISTICS MARKETING 1900 1950 1950 2000 Value, a historical perspective
Materials-fabric, button, tread, etc.$ 4,18$ 7,54 Production –“Cut, make and trim”$ 1,40$ 1,74 Logistics –in bound/out bound$ 0,27$ 0,31 Taxes -quota, duties$ 0,11$ 0,14 Sub-total$ 5,96$ 9,73 Technology-design, fit, color, model$ …….$ ……. Marketing –branding, promotion$ …….$ ……. Retail price -exclusive of VAT$ 39,00$ 89,00 ABC The value of production
Seller’s value equals buyer’s total cost of ownership…….. Next crate: cost of ownership COST = Purchasing price on a DDP basis CHRONO = Time involved in purchasing, control and corrective actions CHANGE = Change and adaptation to new products, processes or suppliers CHANCE = Number of potential suppliers, reliability, barriers, distances CONFLICT = Disputes on incompetence, unresponsiveness, non-transparancy
……………..perceived benefits from the purchase. These benefits can be of technical, social, economic or any other nature and are related to the product and processes The last crate contains the………. PRODUCT = Design, shape, color, taste, feel, texture, packing ACCESS = Compliance with product and process standards and norms SPEED = Availability and/or delivery time, convenience of purchasing IMAGE = Contribution to profit by reputation supplier/country or brand SERVICE = Level of pre- and after sales service, customization of processes
Higher cost of means (MMMMM) will cause higher cost of ownership (CCCCC) without necessary increasing perceived benefits (PASIS) Higher value added (TPLMS) will lead to higher benefits (PASIS). Therefore, higher cost of means (MMMMM) need to be compensated by higher value added (TPLMS). Competitiveness….
If total cost of ownership (CCCCC) is higher than the benefits (PASIS), the buyer will not buy, postpone the purchase or look for other suppliers. Business or no business ……
The value proposition of a seller is composed by his cost of means –comparative advantages- plus value added –competitive advantages That value proposition should contain product, process and vendor’s benefits, which are higher than the total total cost of ownership for the buyer Competitive advantages Comparative advantages The business equation
Value addition and profits Capturing Value in Global Networks: Apple’s iPad and iPhone, Distribution of profits iPhone 2010, Kenneth L. Kraemer, Greg Linden, and Jason Dedrick, University of California, Irvine, University of California, Berkeley and Syracuse University Though not designed to be a mathematical model, The Magic Pallet serves to give indications of value to players in global supply chains
ValueMagics applied…. In the SWAT analysis, we show how to use The Magic Pallet to find the most successful road to global markets. See SWAT analysis on www.valuemagics.com www.valuemagics.com