It's all about Customer Value
Part 3 exploring the New Business Model of the 21st century, with concern about its influence and disruptive effects on our societies.
Image: Shutterstock.
In Part 1 of this series I suggested that the emerging corporate value proposition of the 21st century enterprise - the 21st century Western enterprise, that is - seems more and more to have to do with claimed virtuousness, enabling customers to bask in a self-righteous reflected glow of Right-think.
In Part 2 I argued that this has been expedited because digital technologies give all enterprises access to world-class functional resources so they have to look elsewhere for differentiation.
Here, in Part 3, I probe further, posing two questions: “What do companies sell?” and “What do their customers buy?”
Up until now, businesses always put sales goals, revenues and profit ahead of other considerations. Of course they did, that’s what businesses exist for, don’t they? To sell stuff? Businesses may also have noble aspirations but it’s the sales ledger that tracks the success or failure of corporate endeavors.
Now, however, we’re seeing the emergence of something else: now, more and more companies are putting social beliefs on a par with, or even above, their sales goals. You know, that “If you don’t share our opinions we don’t want you as a customer” sentiment.
This is new. This is not business as usual. I suggest that two of the reasons for the rise of this ‘new paradigm’ are as follows:
Particularly in the West, there is a mass formation: a spontaneous, every-so-often agglomeration of unreason that people go along with in the hope that it will provide relief from debilitating societal atomization and resulting loneliness.1
There is belief in a trade-off: the idea that digital tech provides a mechanism to audit people into ‘Us’ and ‘Them’ categories, and that ‘Us-ness’ can be directly used to reinforce brand loyalty. That is, loyalty can be assessed and built upon by getting people to respond to specific, openly espoused socio-moral positions.
These two factors are complementary and self-reinforcing, and they are rewriting the rules, not just of Western Business, but of Western Society and Politics. More about this shortly but, first, let’s use the lens of Customer Value to assess how we got here.
My involvement with Customer Value started when I joined Proctor & Gamble (P&G) in the UK in the second half of the 1960s. It was my first real job and I assumed that P&G’s customer focus was the norm. Later I learned that this was not so.
In fact, P&G pioneered marketing techniques that have long since been taken for granted. Content marketing, for example. Way back in the 1930s (and, before you ask, that really is before my time) in the U.S., P&G’s Oxydol brand sponsored a daily radio program called Ma Perkins. The idea was to brighten the lives of American housewives during the Depression and, of course, it gave us the term ‘soap opera’.
Back then, and right up to the millennium, customer value was almost exclusively thought of in terms of product value. People bought hair shampoo because it cleaned hair. Period. Why else would you buy it? Well, quite a lot of reasons actually …
‘What’s your hair type? Regular, oily, dry?’ ‘Is your hair colour-treated, permed, damaged?’ ‘Do you have a dandruff problem?’, ‘Hey, would you like it if we put the shampoo and conditioner together in one bottle?’ And on and on. Throughout the final decades of the twentieth century the levels of product sophistication increased. As a consequence, so did the ways value could be expressed.
A shift from Value-in-Exchange to Value-in-Use (these terms are explained later) started in these latter years of the Product Era. For example, a 1958 U.S. TV campaign targeting the then-new teenage demographic, linked hair shampoo to an OUTCOME. The product is Royal Drene – from P&G, of course – and the 60-second ad sets up the issue by having a group of teens (they look nearer to 30, but never mind) arrive at Kate’s house. One of them, Joe, explains …
Hiya, Kate, you got yourself a date.
The guy is at the juke-joint so let’s not wait.
But, alas, poor Kate has a problem:
Golly, Joe, I can’t tonight,
Just washed my hair and it’s a fright.
The ad then delivers the product promise:
Your just-washed hair won’t fly about.
New Royal Drene can’t dry hair out.
Leading to the all-important Customer OUTCOME:
Now you can shampoo and date the same day.
Great Balls of Fire!2, at a time when U.S. president Dwight D. Eisenhower and Russian prime minister Nikita Khrushchev were rattling nuclear-tipped sabres in all directions, and Chinese chairman Mao Zedong was imposing his murderous agrarian version of communism (the so-called Great Leap Forward officially began in May 1958), in the West, courtesy of P&G and Compton Advertising, “here were the children of the American bop night”3 being given the solution to a pressing problem in a teen’s life.
The Product Era had a while to run, but this new dispensation was beginning to make its presence felt.
What is value for the Customer?
Let’s run through the chronological Value sequence.
First generation (G1), from the Industrial Revolution onwards:
Company sells: Product.
Customers buy: Production - that is, the output of the supplying company.
In the G1 world, Value was considered objectively assessable as Value-in-Exchange for the Product. Under this regimen, the role of a company is to source or create Products. The role of its Customers is to buy them. Period. Make stuff … Buy stuff … Simple! Here’s a description of Value-in-Exchange (Goods-Dominant or G-D logic in this extract):
Consider an automobile. A manufacturing firm constructs an automobile out of metal, plastic, rubber, and other parts, arranges them precisely, and packages them together. In their raw form, the metal and other components cannot be used as transportation. According to G-D logic, the firm’s production process creates value for customers through the manufacturing and delivery of an automobile. That is, the automobile manufacturing firm embeds value in the automobile by transforming raw materials into something that customers want. In this sense, value is created by the firm in the form of a good, and this valuable good is exchanged in the marketplace for money (or possibly other goods). Value is measured by this exchange transaction.4
There we have it: in a G1 world business success is all about sourcing and selling products. Lots of them. As many as possible. Volume is virtue. Everything rests on products and their performance and an ability to Sell, Sell, Sell.
It worked brilliantly, helped by some social and political factors. For instance, at the start of the Industrial Revolution this activity was evolving from an almost zero base, which explains why, as historian G.M. Young pointed out, there were customer outcome and social benefits:
Gas-lighting of the streets was hardly an improvement so much as a revolution in public security, cheap cotton goods in personal cleanliness, paraffin lamps in domestic comfort. Finance, the manipulation of wealth and credit as things by themselves, three or four degrees removed from the visible crop or ore, was an adjunct. Production was the thing itself.5
This exactly captures the notion that, although being resolutely underpinned by the “Production was the thing itself” philosophy, early capitalism went beyond Value-in-Exchange and did actually deliver some Value-in-Use (defined later).
It all gave rise to the notion of ‘Customer’ that I suspect many of us still hold (not that we think much about it). It’s the view of the Customer as a passive recipient of products. It’s an outcome of the Enlightenment and the Industrial Revolution. And it became self-perpetuating. As historian Norman Davies pointed out:
Once the Industrial Revolution was in motion, a long series of consequences ensued. In the purely economic sphere, the growth of the money economy turned self-sufficient peasants into wage-earners, consumers and taxpayers, each with new demands and aspirations.6
This hints at yet another key factor: the expansion of commerce in the second half of the nineteenth century coincided with the rise of the nation-state as the dominant constitutional order across the western world. At this time, the United States of America, Germany, Italy and more joined the list of nation-states and found, in the business corporation, the perfect partner for success. The legitimizing basis of the nation-state was …
The State will better the welfare of the nation.7
… and the business corporation was its indispensable ally. Its indispensable ally for tax revenues on business profits. Its indispensable ally for the provision of jobs to bring prosperity to the citizens of the nation-state. Its indispensable ally to produce tax revenues from those employed, directly and via sales taxes. Its indispensable ally to produce tax revenues to finance welfare payments and retirement benefits. Author, academic and lawyer Philip Bobbitt put it like this:
[T]he corporation was a nation-state vehicle to improve the welfare of its citizens. Replacing the great trusts and partnerships of the state-nation [forerunner of the nation-state], the corporation bureaucratized the management of business, making it feasible for the State, through regulation, to temper the profit motive with concern for the public welfare, replacing the enterprising if ruthless entrepreneur with the modern manager.8
Nation-states came to depend more and more upon corporations and their Customers for their wealth. With reference to the Depression years of the 1930s, the authors of a book on World’s Fairs wrote:
Progress, in addition to its other definitions, now meant increased consumer spending as world’s fair sponsors tried to persuade Americans that they had to set aside older values such as thrift and restraint and become consumers of America’s factory and farm products. By rebuilding America’s domestic market, so the argument ran, consuming citizens could hasten America’s economic recovery and put the United States back on track toward fulfilling its utopian potential.”9
For a long time this G1, Value-in-Exchange modus operandi working in harmony with the nation-state was a rip-roaring, money-generating, society-enhancing success. Products begat ever more products. And, as the demands of customers were increasingly met, companies responded by increasing the sophistication of their business strategies (e.g. the work of Frederick Taylor, Alfred P. Sloan, Peter Drucker, Michael Porter and many more) and deploying slicker marketing and advertising (e.g. the work of Edward Bernays, Albert Lasker, Bill Bernbach, David Ogilvy, David Abbott, the Saatchi brothers, and more).
All of it was designed to serve the objective of more product sales because it was volume that delivered the economies of scale necessary for profitability and longevity. This G1 modus operandi also subliminally ‘trained’ Customers to sit back and expect businesses to present them with a never-ending cornucopia of products and services. This may sound like an entirely passive role but it does fulfill a vital function – the assessment, in any instance, as to whether or not an offering possesses ‘goods-character’:
What makes a good valuable (to gain “goods-character”) is the physical good’s quality to be used to satisfy a want. ... [I]t is unknown at the time the entrepreneur engages in production whether what is being produced will have goods-character. For this, an item must facilitate want satisfaction when offered to consumers.10
So the role of the Customer in G1 was to audit the value of any offering, the acceptance or rejection of offerings forming an independent judgement on the efforts of entrepreneurs. It all gave rise to what we term the Expectation & Entitlement model of Customer behaviour that utterly dominated the industrial age, in both B2B (Business-to-Business) and B2C (Business-to-Consumer) scenarios.
Second generation (G2) from, say, 1970 onwards
Company sells: Product Plus - the product with customizable options
Customers buy:
i) Productivity - via customization and such value-adding options as training, warranty, and so on
ii) Lifestyle enhancements
In the final decades of the twentieth century things changed so that, just prior to the millennium, management guru Peter Drucker was able to write:
The starting point for management can no longer be its own product or service, and not even its known market and its known end-uses for its products and services. The starting point has to be what customers consider value. The starting point has to be the assumption – an assumption amply proven by all our experience – that the customer never buys what the supplier sells. What is value to the customer is always something quite different from what is value or quality to the supplier.11
So, in the G2 era, Customer Value becomes Subjective: a world of Value-in-Use and Value-in-Outcome, with Goods-Dominant logic supplanted by Service-Dominant Logic (S-D Logic):
In S-D logic, the roles of producers and consumers are not distinct, meaning that value is always co-created, jointly and reciprocally, in interactions among providers and beneficiaries through the integration of resources and application of competences. Consider the automobile again. As before, a manufacturing firm applies its knowledge, skills, and capabilities to transform raw materials into an automobile. But according to S-D logic, the automobile is only an input into the value creation that occurs as a customer uses it (in transportation, self-identity, etc.) and integrates it with other resources. If no one knew how to drive, had access to fuel and maintenance, and functioned in social networks for which particular automobiles had particular meanings, etc., the car would have no value. It is only when the customer makes use of the automobile – in the context of his or her own life – that it has value.12
Actually, this had been identified and responded to a quarter of a century earlier, in the early 1980s, by Michael J. Lanning:
In 1982 I first thought and wrote about the role of ‘value’ in the business strategy. I had then been consulting for two years at McKinsey & Company after seven years in brand management at Procter & Gamble (P&G). Heavily influenced by my P&G background, I expected the business-strategy theory (in the academic and consulting world for all types of business) to be highly customer-centric. But I was disappointed and so I proposed a revised, more customer-focused approach. ... Generalizing my P&G background, I believed that such businesses can only succeed by causing some customers to experience a set of end-result benefits and costs that they perceive as preferable to alternatives.13
Thus was the Value Proposition born and, as Mike Lanning wrote:
The value in a value proposition is the value in the customer experience, not the value in the product.14
So, his P&G experience prompted Lanning to father the Value Proposition, and I’m pleased to say that I, too, also a former P&G employee, was able to make a small contribution, later on, by co-authoring a book titled Creating & Delivering Your Value Proposition15
Third generation (G3) happening right now
Company sells: Product with customizable options and virtuous social add-ons
Customers buy:
i) Productivity - via customization and such add-ons as training, warranty, etc.
ii) Lifestyle enhancements
iii) Social and political credit
Initially, I thought the likely next evolutionary stage of Customer Value delivery was going to be a broadening of offerings - enterprises setting out to provide more and wider solutions to Customers’ identified wants.
Amazon is a prime (pun intended) example to explain what I mean here. I’m old enough to remember the arrival of Amazon (founded 1994) and how much I and a majority of others, in our ignorance, applied G1 thinking to what was actually a G3 baby. Initially, Amazon concentrated on book sales. As far as we were concerned, from our overwhelmingly G1 perspective of the time, this was a ‘book sale vertical’ issue and Barnes & Noble, the largest traditional bookseller, was the victim of a precocious attack. At a 1999 London conference one of the speakers, a friend of mine, outlined the progress of digital capabilities, including this:
You can see it in Amazon’s seizure of a sector that should have been Barnes and Noble’s.16 (My emphasis)
See? Early on, we simply didn’t ‘get’ that digitization had little to do with the G1 product era and G2 added value era verticals. Rather, it promised the integration and cross-fertilization of everything! And what we certainly did not ‘get’ until more recently was that this ubiquity would enable a number of large corporations to ‘go global’. This is unprecedented growth: “We have seen nothing like it in the history of capitalism.”17 That’s from an op-ed piece in The Times, in which Gerard Baker also points out:
[W]e have never before lived in a world where so much of our daily activity is facilitated by a literal handful of companies - Apple, Alphabet, Amazon, Microsoft, Meta.
Apple, with around 160,000 employees, made $170 billion in profit last year [2022] on revenues of about $390 billion - about twice the total economic output of Ukraine, a country of 40 million people. 18
So, this is a very different world. Are we able to again learn something from P&G (a relatively modest operation when compared with the tech behemoths with 2022 and 2023 annual revenues around $80 billion and gross profit around $38 billion)? Possibly. In what I suppose might be described as an indirect return to its soap opera roots, several P&G brands have tackled socio-moral issues.
In 2019, P&G brand Gillette got huge reaction, both positive and negative, with an anti-toxic-masculinity film ‘The Best Men Can Be’. And, in 2023, its Ariel detergent brand campaign in India - #ShareTheLoad - seeks to encourage Indian men to participate more in domestic activities, specifically, helping with the household laundry.
What these examples illustrate is, of course, the active promotion of liberal Western values. Another example is the campaign in India where Starbucks positions its coffee shops as friendly locations for trans children to ‘come out’ to their parents.
These examples also, obviously, illustrate the trend for major corporations to globalize their marketing. But, do the people of, say, India want Western businesses preaching to them? Recently, a London-based executive who heads up a bank’s global marketing team told me of her surprise that they sometimes actually experience push-back when promoting liberal Western views in other countries. My surprise was that she was surprised.
Nonetheless, it appears to be the way things are going in the West: an academic paper specifically discussing gender stereotypes in advertising includes this:
We emphasize that advertising has made a significant contribution to legitimizing cultural heterogeneity, and as such, our data demonstrates that being ‘woke’ has become ‘cool’.19
So, there you have it: a goal, it appears, so far as gender equality is concerned at least, is ‘legitimizing cultural heterogeneity’. But think about it - isn’t this where world-views might well collide? For a start, isn’t the language itself confusing? ‘Heterogeneity’ means ‘the quality or state of being diverse in character or content’ but a supposed diversity focused on race and gender is actually quite selective and limiting.
It’s an approach, too, that inevitably, has enemies. For example, linking this selectivity with globalism, Russian political thinker, Alexander Dugin, writes:
So globalism is essentially and naturally associated with gender politics. That is extremely important. That is part of this modernization of the liberal society itself.20
He goes on to say “we need to extinguish Western political modernity” leading to his conclusion:
How can we get out of this epistemological field of Western political modernity? If we focus on the name Western political modernity, we already have a solution. In order to get out of these boundaries, we invite you to go beyond the West. So, welcome to the East. Welcome to the non-Western civilisations. (Emphases as per the original)
So, there is a clash of civilizations, to borrow Samuel Huntington’s label, and it was openly displayed at the 8th Eastern Economic Forum (EEF), held in Vladivostok, Russia, from 10-13 September 2023, at which Russian president Vladimir Putin said:
the Far East is Russia’s strategic priority for the entire 21st century, and we will stick to this.
So it is that, in the corner of the world where the huge territories of Russia and China, and relatively tiny North Korea, meet, their leaders have reached a very different conclusion from the West.
September 2023 has, in fact, marked an important checkpoint for everyone concerned because, not only did the EEF take place, but also, on 9-10 September, there was the G20 New Delhi summit, chaired by Indian prime minister Narendra Modi. Significantly, the Indian hosts’ G20 summit statement did not censure Russia (a G20 member) regarding its invasion of Ukraine. And CNN reportage included this:
They [the West] have realized the fast-moving geopolitical realities that the future power is in the hands of developing countries like India, Brazil, South Africa, the African continent …
So, at a time when the West seems to be ever-more obsessed with ‘legitimizing cultural homogeneity’ and making ‘woke’ ‘cool’, others retain much more of a G1+G2 mindset, unhindered by a Diversity-Equity-Inclusion agenda.
For example, favorable comments were made, in New Delhi at the G20 Summit and in Vladivostok at the EEF, to the ‘Make in India’ initiative launched by Narendra Modi in 2014. Concurrently, Western news media made it clear that China looks set to out-compete Western electric car manufacturers by the end of 2023. It seems we had better get used to some new automobile brand names: BYD, Li Auto, XPeng, and Zeekr.
Let commercial battle commence
The battle between a G3 -minded bloc (the West) and a G1+G2-minded bloc (the Rest) is surely going to be fascinating, not only in terms of the Business results but also with regard to Social and Political factors.
It is perhaps salutary to remind ourselves that the Enlightenment & Industrial Revolution view included thinking about cultural homogeneity. In his Theory of Moral Sentiments21, Adam Smith labelled it ‘mutual sympathy’. It was a recognition that Business works best when operating in harmony with Society and Polity.
Smith’s friend, David Hume, thought and wrote extensively and beautifully on this topic. Here’s an example:
In times when industry and the arts flourish, men are kept in perpetual occupation, and enjoy, as their reward, the occupation itself, as well as those pleasures which are the fruits of their labour. The mind acquires new vigour; enlarges its powers and faculties; and by an assiduity in honest industry, both satisfies its natural appetites, and prevents the growth of unnatural ones, which commonly spring up, when nourished by ease and idleness. … The same age which produces great philosophers and politicians, renowned generals and poets, usually abounds with skilful weavers and ship-carpenters. …. The more these refined arts advance, the more sociable men become … Thus industry, knowledge and humanity are linked together by an indissoluble chain …22
Okay, that may be a somewhat romantic view of Business, Society and Polity in harmony but there is surely truth at its core. When each element enhances the others there is a drawing together with the power to build positive energy. But what is happening now in the West is a fragmentation, an atomization that generates uncertainty and fear. We are leaning in to a mechanistic solution to our problems that compartmentalizes things. It won’t work because, by leaning in to the mechanistic elements, we are axiomatically leaning out from the relational elements that make for good, pleasant, flourishing societies.
In sum, Customer Value is most assured and abundant when the relational elements are aligned with Societal and Political Value.
Desmet, Mattias. The Psychology of Totalitarianism (2022)
Great Balls of Fire, sung by Jerry Lee Lewis, was recorded at Sun Studio, Memphis, Tennessee on October 8th, 1957. It sold 1 million copies in the first 10 days and 5 million+ overall.
Kerouac, Jack. On The Road (1955)
Vargo, Stephen L.; Maglio, Paul P.; Akaka, Melissa Archpru. On value and value co-creation: a service systems and service logic perspective (2008)
Young, G.M. Portrait of an Age (1936)
Davies, Norman. Europe, A History (1996)
Bobbitt, Philip. The Shield of Achilles: War, Peace and the Course of History (2002)
Bobbitt, Philip. Ibid
Rydell, Robert W. / Findling, John E. / Pelle, Kimberly D. Fair America – World’s Fairs In The United States (Smithsonian Institution Press, 2000)
Bylund, Per L. The Austrian Free Enterprise Ethic: A Mengerian Comment on Kirzsner (2019)
Drucker, Peter. Management Challenges For The 21st Century (1999)
Vargo, Stephen L. et al. Ibid.
Journal of Creating Value (2019) https://journals.sagepub.com/doi/abs/10.1177/2394964319890508?journalCode=jcva
Lanning, Michael J. Delivering Profitable Value (1998)
Cindy Barnes, Helen Blake, David Pinder. Creating & Delivering Your Value Proposition (2009)
Adam Singer speaking at Financial Times New Media and Broadcasting Conference, March 1999.
Baker, Gerard. Challenge to Google is a sign of fights to come. The Times (of London), 15 September 2023
Baker, Gerard. Ibid
Middleton, Karen and Turnbull, Sarah. How advertising got ‘woke’: The institutional role of advertising in the emergence of gender progressive market logics and practices (2021)
Dugin, Alexander. The Great Awakening vs. The Great Reset (2021)
Smith, Adam. The Theory of Moral Sentiments (1759)
Hume, David. Of Refinement in the Arts - Essays Moral, Political and Literary (1777)