Every consumer asks themselves “how will this product or service add value to my life?” Every CEO asks the same question of suppliers.  So why do we not think this is what our customers are asking.  It is ironic that executives who interrogate me on how I would add value to their business, don’t ask the question of how they add value to their customers.

We have become focused on extracting value.  How can I get more from the customer for doing less? I pick up a packet of biscuits in the supermarket to find I had paid the same price for one less biscuit in the packet.  The biscuit manufacturer was trying to extract value from me.

How does it make you feel when you are being short changed as what the biscuit manufacturer did?  Angry, annoyed, disgusted, distrustful.  There are no positive takeaways from this strategy.  It may all seem clever at the time, but the long term reputation of the company is trashed.  We destroy loyalty and we turn our customers into enemies.

In this climate, how are you going to increase sales? How are you going to grow the business? How vulnerable are you to market disruptors?  I challenge every CEO to ask this question.  In a buyers’ market a customer has choice.  So how do you grab market share by ripping off a customer and let’s face it that is what we are doing in extracting value.

If you think I am talking about being cheap, you are wrong.  People will pay more if they feel they are getting added value.  Would you not pay more for an airline seat with a bit more comfort in premium economy?  Would you not pay a bit more for a finer dining experience? I am talking about increasing growth, increasing sustainable revenue and increasing margin by focusing on adding value.

In the current culture of extracting value organisations have become caught up in a price war that delivers ever diminishing returns. It has all become about price.  To be the cheapest we have to apply every trick in the book to gain an advantage.  Margins are plummeting. Organisations are cost cutting and trimming staff.  Growth has flat lined.  There is no way anyone can tell me that the extracting value business model is working.  It is just a pure survival model.

Think about this. Today we see companies do far more work for far less return because of the focus of extracting value.  How much work went into the factory line to reduce a packet of biscuits by one biscuit? The design work to make more spacing in the packet to look the same size. The change of processes. How much really did the company save?  Then ask the question, how much the company has lost in treating the customer like an idiot?

A year after the biscuit manufacturer pulled this stunt, they have paid a fortune in trying to recover sales. They have been doing half price deals and massive advertising to get the customers to come back.  They have lost money in sales, they have lost money in increased discounting and they have lost money in increased advertising.  All this to extract a penny from a customer by short changing them.  This highlights the problem we have with the current extracting value business model. We are running businesses into the ground.  As a director of any organisation, this should be an issue front and center of strategy. Is the culture of extracting value from customers damaging share value and income?

Disruptors are perceived to be adding value.  Whether it is price, better service or an easier way to access the service, the customer feels they are getting value.  If they can give the finger to their prior provider while they are getting better value, all the better.  If you want to see new growth businesses, they are all around adding value.

Think about this! People are paying more for one macaroon than they are paying for a whole packet of biscuits. Why?  People feel they are getting value from something based on taste, quality and experience.  Is there far better margin on a macaroon than there is in the packet of biscuits?  Do you see suppliers of macaroons in a price war, compared to the major biscuit vendors?

Here is where valuism is beating capitalism. Where a business model adding value is increasing growth and profits compared to a business model that is extracting value.  Where the tired model of extracting value is not only shrinking margins, but it is also causing reputational risk.

If you want to drive exceptional growth and profits in a downturn then think about valuism. It is the key differentiator market disruptors have. It is what the new growth industries are doing.