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This is part 8 of our 10-part blog series on Ecosystems. You can find the other blogs in the series here.

It’s imperative to gain a comprehensive understanding on the key elements of a business ecosystem before considering how organizations can create value by following an ecosystem-based business model.

Different Types of Ecosystems

BCG points out that there are fundamentally two types of ecosystems:

• Solution Ecosystems: A “core firm orchestrates the offerings of several complementors. For instance, during the development of a new solution, suppliers to the core firm or to important complementors can also be part of the ecosystem because they are independent, and their innovation activities must be coordinated with the other players. Once the basic groundwork is accomplished, such suppliers may be restricted to a reduced role in a hierarchical supply chain. Examples of solution ecosystems include credit card systems such as VISA and Mastercard (linking merchants, consumers, and banks), smart home solutions (combining climate, lighting, entertainment, and security products and services, etc.”¹
• Transaction Ecosystems: A central platform links independent producers of products or services with independent customers. Examples of such platform businesses are Airbnb, Uber, eBay etc.²

Figure 6 – Different Types of Ecosystems – from the BCG article Do You Need a Business Ecosystem?

But with the shift from vertically integrated organizations to horizontally integrated organizations, and with ever-evolving business models, we believe that there are other types of ecosystems – which are a direct outcome of the above two models.

Consider the Apple ecosystem for their phones. The Apple ecosystem, with the manufacturing of iPods, started with a strong vertically integrated model where the supply chain before in the upstream is akin to a traditional manufacturer and was similar to the solution ecosystem outlined above.

But, with the emergence of iPhone and the success of the iOS marketplace, the Apple “experience” which is the offering that Apple provides is a mix of the two models shown above. This is a new model of an ecosystem – a combination of the solution and the transaction ecosystem.

There is also another kind of ecosystem which does not necessarily put the producers and customers on a different side. If the transaction ecosystems focused more on matchmaking, the focus for this ecosystem is to generate more transactions. Here, in many cases, the producer and the customer are the same, with the revenue coming not from the producers or the customers, but from third parties. YouTube, and Facebook are examples of this kind of an ecosystem- a Prosumer Ecosystem.

Level of Control in an Ecosystem

An important realization the organizations will have to accept in an ecosystem business model is that the success of an ecosystem is not defined by the amount of control and the line of authority, but by the degree of influence and the level of flexibility within the ecosystem.

Apple, even though being pioneers of the marketplace model for their App store, follows a highly controlled, and closed ecosystem model. Google, which produces Android phones, follows a more flexible and open ecosystem model.

To decide the degree of openness required in an ecosystem, it is important that the following three aspects are considered ³ –

• The level of access required
• The level of participation required
• The level of commitment required

Open ecosystems drive faster growth and greater adoption, whereas closed ecosystems need a ground-breaking product to continue being relevant. Take the examples of Android, a highly open ecosystem with several phone manufacturers being part of the ecosystem, and Apple, which manages a highly closed ecosystem for its mobile devices. While the Android ecosystem has a relatively higher market share, the Apple ecosystem also points towards greater profitability.

While open and closed ecosystems provide a different set of advantages and carry another set of disadvantages in a B2C ecosystem, the advantages offered by an open ecosystem in a B2B environment is comparatively more vis-à-vis a closed ecosystem. Closed ecosystems, in a B2B environment may not be optimal for each of the modular solutions, and simultaneously can increase the risk associated with growing partnerships.⁴

On the other hand, the level of control that the central platform or the “keystone” has in an open ecosystem is greatly reduced vis-à-vis a closed ecosystem. The reduced level of control, without the help of other factors, may lead to a reduction in the value that the stakeholders derive from the ecosystem and may increase dissatisfaction with the ecosystem. This may also increase the chance of failure for an open ecosystem.

Hence, the right level of openness for an ecosystem will depend on factors such as – level of access, participation, commitment, and juxtaposing it with the targets for scalability, revenue growth and market share of the keystone or the prime orchestrator of any ecosystem. It is also possible that ecosystems start off at one end of the spectrum and move towards another end of the spectrum – either because of market trends or because of change in priorities.

Sources

This is part 7 of our 10-part blog series on Ecosystems. You can find the other blogs in the series here.

A business ecosystem consists of many players. As outlined in the book The Keystone Advantage¹, the key players in a business ecosystem are the dominators, the landlords, and the niche players, and not all of them will be present in an ecosystem at one single point of time. Keystones act as the hub in a network of ecosystem interactions and are seen as the platform for an ecosystem; the dominators of the ecosystem absorb and integrate external assets into internal operations, whereas landlords emphasize vertical and horizontal integration and focus on extracting maximum value from the system. Niche players develop and provide specialized capabilities that are highly differentiated from the other niche providers in the ecosystem. The best example of a keystone is Microsoft, the erstwhile Enron is an example of a dominator, Apple is an example of a good landlord.

While the role played by the different stakeholders vary across ecosystems, we believe that all ecosystems follow a three-tiered layer architecture, which can be called as the 3-I layer – the interaction layer, the intelligence layer, and the integration layer.

The Integration Layer
This layer consists of all the stakeholders in an ecosystem connected with each other through a series of interactions and rules. These interactions may be through the APIs or through other mechanisms defined as part of the governance of the ecosystem. We can consider this ecosystem as a network which integrates all the participants of the ecosystem. This layer consists of the participants of the ecosystem and the rules that govern the ecosystem and therefore we can consider this layer as the foundation of the ecosystem.

It is important to understand that the primary goal for the integration layer is to drive connectivity between the ecosystem stakeholders in an optimum way, so that outcome is maximized at the optimum cost while ensuring the right balance between various ecosystem models.

Let us consider the example of Amazon e-commerce marketplace. The integration layer consists of Amazon, the buyers, the sellers, the different partners that Amazon works with to drive the supply chain, the regulators, and other partners of Amazon. Each of the participants in this Amazon ecosystem are connected through a set of rules – be it the APIs or a set of contracts between the different parties.

The Intelligence Layer
While the integration layer defines the participants and the connections between them, the success of any ecosystem depends on how the participants of an ecosystem use the resources available to them to efficiently create maximum value to all the stakeholders.

The intelligence layer consists of a set of machines and systems that help the ecosystem achieve its goals. The intelligence layer acts as the de-facto brain of the ecosystem and drives the flow of information between the participants by being part of the transactions that happen between them.

The intelligence layer measures, monitors, and manages each of the transactions, and helps the ecosystem deliver maximum value to its stakeholder and drives self-alignment and sustainable growth of the ecosystem.

The primary goal of the intelligence layer is to drive efficiency and continuous improvement.

In the case of the Amazon example that we saw earlier, the algorithms that drive the Amazon marketplace, including the A9 algorithm², the AWS platform, rating engine in the Amazon marketplace, are all part of this intelligence layer. The intelligence layer and the success of it in achieving its stated objectives is what creates a sense of differentiation from other ecosystems.

The Interaction Layer
While the integration layer provides the foundation and acts as the network for all components of an ecosystem, and the intelligence layer acts as the brain of the ecosystem, there is a need for a layer in the ecosystem which interacts with the outside world. This is where the interaction layer plays a pivotal role.

The interaction layer is not meant to be a one-way communication tool. The interaction layer is a platform to provide transparency about the progress of the key components of the ecosystem.

While the goal of the integration layer was to create connectivity, and the goal of the intelligence layer was to create efficiency, the goal of the interaction layer is to ensure simplicity and transparency.

This is part 6 of our 10-part blog series on Ecosystems. You can find the other blogs in the series here.

The fourth industrial revolution, primarily a technological revolution, created a disruption that is transforming the entire order of production, management, and governance and businesses, small and large, across the world, with an access to digital ‘platforms’ for research, development, marketing, sales, and distribution. These platforms are ousting well-established incumbents faster than ever by improving the quality, speed, or price at which value is delivered. A key trend of this fourth industrial revolution, as World Economic Forum points out, is the development of technology-enabled platforms that combine both demand and supply to disrupt existing industry structures, such as those we see within the “sharing” or “on demand” economy, thereby creating entirely new ways of consuming goods and services in the process.¹
So, what are the drivers of the ecosystem that are evolving at quicker pace than ever?

The Inverted Firm

The changes due to the fourth industrial revolution mandates that organizations adopt a mindset that is different from the traditional mindset where organizations preferred that the final value delivered to the end customer was only through their own products and services. As organizations accept that their primary goal is orchestration of value rather than internal creation of value, and firms are getting inverted, they are becoming more open to accepting an ecosystem model of business that involves multiple stakeholders.²

This fundamental shift in mindset and the ground-breaking concept of the “inverted firm” has been driving the rapid growth of adoption of business ecosystems. The foundation of this concept is the acceptance of the fact that there are more customers, and far more customer needs than one organization can serve through its employees and hence needs the support of a network of partners to satisfy this increase in demand of value.

It is also surprising that it is not just digital behemoths such as Amazon, Facebook, or Google that are at the forefront of this transition. Klöckner, a more than century old steel and metal distributor in Europe and United States, established XOM platform, a marketplace for metals buyers. XOM not only includes Klöckner’s own products, but also lists products from their direct competitors, thereby creating a rapid increase in value for its customers.³

This shows that every industry is inclining towards bring collaborative and co-innovating.

Scaling up Strategically
Resources are limited. As organizations grow, and more organizations jump into the fray, the competition for resources increases. It is at this point that the question for a business shifts from increasing the revenue and profits to increasing the revenue and profits from far lesser assets. Every stakeholder of an organization, from the shareholder to the customer is driven by this goal – how can they move forward by creating more output with lesser input, or in other words, how can the stakeholder get the best value.

An increasingly greater number of organizations are attacking the same business problems and creating solutions that are highly innovative, thus creating the need to become the leader in a faster way is the topmost priority for any organization. Ecosystem-based business models offer greater return for the assets they hold.

For instance, Airbnb became the world’s largest hotel chain without owning a single property. Amazon hardly manufactures any product they sell. Netflix does not create most of the content they stream.

Even the world’s largest encyclopedia, Wikipedia, was able to go past the famous Encyclopedia Britannica because Wikipedia hardly owned any assets and focused on crowd sourcing rather than building information by investing heavily on premium authors and research.

The market also understands the same. In 2015, Uber took only five and half years to surpass the valuation of the century old General Motors.⁴ As of July 2020, Uber is valued at more than USD 57 billion whereas Ford is valued at USD 24 billion.

As we witness such companies breaking through conventional modes of operation to create maximum stakeholder value, an ecosystem model of business is gaining traction.

Access to a Broader Range of Capabilities at a Far Cheaper Cost

Organizations are realizing that going alone to create value to the end stakeholder may not always be the best solution and there is greater value in sharing the pie.

There are organizations today, both large and small, who offer highly specialized services and products. This means that a large player just needs to identify the right product or service that it can leverage to create greater value for the end stakeholder.

For example, Uber didn’t need to create an independent mapping system to monitor its rides. It leverages the power of Google Maps. Uber didn’t need to create a payment mechanism. It leverages multiple payment products to ensure the transaction is complete.

In a digital ecosystem, the rise of APIs and the cloud economy has ensured the cost of leveraging these capabilities are minimal and is continuously reducing.

Easier Methods of Collaboration and Co-Creation

The rise of the API economy has made it possible for service providers to come together and maximize value over the last few years. This period also saw the rise of Service Oriented Architecture across software products and witnessed the emergence of products and services that focused on modularity.

All of the above, coupled with the increased use of a communication network that was able to transfer increasingly larger amounts of data in shorter periods of time meant that collaboration and co-creation was much easier than ever before.

We are also in a stage where the ability to measure the value of most of the transactions are easier than ever before. Organizations have incorporated a feedback loop in most of the transactions, thereby ensuring that the efficacy of most of the transactions are measured.

The above factors have contributed to the blurring of boundaries between organizations and have provided organizations with an easier platform to collaborate and co-create products and services in a way that was not possible a decade back.

Ability to Solve Problems That Are of a Larger Scale or Are Completely New

Ecosystems, by virtue of their structure, can bring together the best of minds and the best of capabilities to help solve problems. The logic here is that the total sum of an ecosystem is larger than the sum of its parts.

Therefore, this confluence of the best minds and the best capabilities can also help in disrupting an industry and creating a new industry. Companies like Amazon, Uber, Airbnb, Netflix, and YouTube did things much different from industries that preceded them. Not only did they disrupted the existing industries, but they were also able to create new industries by addressing the fundamental needs of their customer – like the need for mobility, the need for accommodation with a local experience, the need for customized entertainment, and changing customer perceptions and behavior altogether.

Sources

This is part 5 of our 10-part blog series on Ecosystems. You can find the other blogs in the series here.

Ecosystem-driven business models isn’t a new concept. We’ve seen some of the biggest brands inspired by these models. The success of companies like Amazon, Google, and Alibaba has only increased the focus on ecosystem-driven business models in the recent years. This is because these models allow businesses to meet a larger share of customers at ease, co-innovate offerings with partners, tap into each other’s strengths and drive better customer value.

So, what is a business ecosystem?

James Moore defined a business ecosystem as “An economic community supported by a foundation of interacting organizations and individuals—the organisms of the business world. The economic community produces goods and services of value to customers, who are themselves members of the ecosystem. The member organisms also include suppliers, lead producers, competitors, and other stakeholders. Over time, they co-evolve their capabilities and roles, and tend to align themselves with the directions set by one or more central companies. Those companies holding leadership roles may change over time, but the function of an ecosystem leader is valued by communities because it enables members to move toward shared visions to align their investments, and to find mutually supportive roles.”¹

The idea of business ecosystems can be better understood with keywords such as– community, interactions, value creation, stakeholders, shared vision, etc.

Keeping all this in mind, we can define an ecosystem as a business model with the following characteristics:

1. An economic and interconnected dynamic group of businesses and the external environment.
2. Delivers value to its different stakeholders (including customers, partners, employees, regulators, and shareholders).
3. Has a defined set of rules and a governance mechanism for its interactions usually defined by an ecosystem orchestrator or a set of central players.
4. Can evolve in a sustainable way.
5. Has shared ownership for assets and data and involves both collaboration and competition.
6. A shared vision that drives it forward to cater to customers better.

Using the same set of characteristics, we can understand why the Internet, which is certainly one of the biggest ecosystems² we have, is not a business ecosystem because it is not an economic community. And that is also why Uber is a business ecosystem.

While the concept of a business ecosystem is clear, it is important to differentiate business ecosystems from business communities and business marketplaces. Similar to how communities consist of the living organisms in an ecosystem, and is a subset of an ecosystem, in the same way, business communities are the group of organizations and do not consist of the external world that it operates in.

Sources

This is part 4 of our 10-part blog series on Ecosystems. You can find the other blogs in the series here.

Value shouldn’t be defined in terms of the benefits a product, service, or an organization offers, rather, it must be defined in a way that explains why the value offered is more than the value offered by a competitor. “Why should our firm purchase your offering instead of your competitor’s?” is a more pertinent question than “Why should our firm purchase your offering?”¹

When making a decision, customers prefer to compare the value offered to them against a competing product. Even when there is no competing product, the customers try to compare a product/service against the closest examples to always get the best of what they invest in.

In this article about Customer Value Propositions in Business Markets², the authors draw out a three-point approach in which different value propositions can be compared:

1. Points of parity are elements with essentially the same performance or functionality as those of the next best alternative.
2. Points of difference are elements that make the supplier’s offering either superior or inferior to the next best alternative.
3. Points of contention are elements about which the supplier and its customers disagree regarding how their performance or functionality compares with those of the next best alternative. Either the supplier regards a value element as a point of difference in its favour, while the customer regards that element as a point of parity with the next best alternative, or the supplier regards a value element as a point of parity, while the customer regards it as a point of difference in favour of the next best alternative.

When it comes to value, the more is not always the better. There are factors that we may never understand fully – the snob effect, the bandwagon effect, the Veblen effect, etc. These factors do not offer a rational explanation. We may come across customers who are brand conscious, or attached to certain principles, and may decide on a product or service based on these inherent factors. For example, there are people who buy notebooks with fully recycled paper even if they cost three times the price of a normal notebook because they are environmentally conscious, and not because the recycled notebook offers them greater value. This is because the belief in one value element may supersede the benefits gained from other value elements or may even offset the negative impact of some value elements altogether.

So, What Does the Future Hold?

The way customers will perceive value in the future will drastically differ from how they do so today because of the following reasons:

• Greater transparency will drive a shift towards ‘true’ value – Gone are the days when one had to rely on word-of-mouth and big travel guides to book hotels for a holiday. With the advent of sites such as Hotels.com, Booking.com and review platforms such as TripAdvisor, hotels cannot hide behind a veil of secrecy. Transparency is the new norm. Similar trends are happening in the B2B industry too. This will create a shift towards the perceived value being closer to true value, and hence the difference between the perceived value and obtained value will reduce significantly as industries transcend towards becoming increasingly transparent.
• Innovation will have a greater say in defining value – The value of products and services today is dependent on the economies of scale, but the value creation in the future will depend on economies of creativity, or better known as innovation – not mass production, but mass personalization; not delivering at the lowest cost, but the ability to satisfy a need in the most optimum way. (Hughes, May 2013)
• Value obsession will complement customer obsession – Jeff Bezos introduced the world to the term ‘customer obsession’ and went so far in making it a trend and organizations across the world have similar sounding terms in their corporate playbook. We believe that the future will not just see an obsession towards the customer, but this obsession will drive a fundamental shift in the mindset and make organizations also obsessed towards the value they deliver to the customer – either through the product they offer, or through complementary products.
• Value networks and enterprise value chain management will supplant supply chains and revenue management (Menghini, October 2017) – Supply chains, the backbone of the global commerce, start from the supplier and end with the customer (Dr. Dan Shunk, March 2006).  This is counter-intuitive because today’s businesses follow a ‘customer-first’ approach. Value chains, or value networks because of the ecosystem businesses, will be driven more by the value delivered to the customer, and less by the product features and benefits. This would also mean that organizations will think beyond revenue as the single biggest business driver and focus on enterprise value chain management of which revenue generated by the individual components will be one of the factors.

With drastic shifts in global ecosystems, perceptions on value creation, and delivery are all bound to change. While customers fast track their perceptions on value, businesses must be in sync with these aspects to continue staying relevant and dependable.

Sources

This is part 3 of our 10-part blog series on Ecosystems. You can find the other blogs in the series here.

In a business ecosystem, the most important stakeholder apart from the customer are the partners and hence for them, we need a value-driven framework that considers their unique needs.

Here’s a framework that outlines – The Elements of Value for Partners.

These 25 elements of the pyramid feature the different attributes that an organization should consider while working with partners and their ecosystems to achieve its purpose and drive better value to the stakeholders involved in the customer value chain.

For example, when Uber partners with a mapping software, they do so because it provides a great support infrastructure, reduces costs, and ensures quality.

When Salesforce and Amazon came together to become a part of each other’s ecosystem, they did so not because it offers “superior customer service” but because this partnership also positively impacts their market share.

When organizations grow their partnership network, they look at four key aspects to build a mutually beneficial partnership:

• Functional Needs: This aspect involves factors such as support with infrastructure, streamlined operations, manpower, risk management, ensuring compliance, etc.
• Incremental Needs: These include enhanced competency, faster time-to-market, being insight-driven, and innovation.
• Market-Driven: Ensuring customer delight, building strategic partnerships, driving leadership and market penetration, and other such aspects that help ground the organization’s presence in different market landscapes and further grow the geographical footprint.
• Visionary: Partnerships and ecosystems are built on the idea of heading closer to an organization’s vision. Which is why, as organizations partner with other partners or ecosystems, it’s integral to consider if the entity functions as a visionary and can propel all stakeholders towards achieving their vision.

This is part 2 of our 10-part blog series on Ecosystems. You can find the other blogs in the series here.

What Defines Value for a Stakeholder?

Value is often seen from the perspective of a customer. This article encompasses the approach to decoding value from a broader organizational perspective, including partners, employees, regulators, and other stakeholders- who are equally important to the longevity of an organization. The true objective of any organization should be value creation for its stakeholders, and as McKinsey pointed out from over a decade ago, “the guiding principle of value creation is that companies create value by using capital they raise from investors to generate future cash flows at rates of return exceeding the cost of capital.” So, how can organizations exponentially drive value? “The faster companies can increase their revenue and deploy more capital at attractive rates of return, the more value they create. The combination of growth and return on invested capital (ROIC) that is relative to its cost is what drives value. Companies can sustain strong growth and high returns on invested capital only if they have a well-defined competitive advantage. This is how competitive advantage, the core concept of business strategy, links to the guiding principle of value creation.” ¹

Value is essentially the difference between the output received by the stakeholder with respect to the input put in by the stakeholder. The output, which is the sum of tangible and intangible benefits, will be driven by numerous attributes and the success of an organization lies in understanding these attributes and their relative importance.

These attributes, or elements in which a customer, or any stakeholder values a product, service, an alliance, or even an ecosystem can be spread across multiple factors and can be a combination of two or more factors.

We also need to understand that value is not binary and not absolute. There is no such thing as a product with value and a product without value. Value is defined across a continuum and is always relative.

For example, a company may value a relationship with supplier A more than the relationship with supplier B. They may value product C more than product D. Even though there are multiple models that propose to define value accurately, value must always be measured across a spectrum and must be used only as a relative measure.

To achieve this, value can be obtained by any stakeholder of an organization – customer, partner, regulator, employee, and shareholder, through two concepts –
1) What are the elements of value for the stakeholder?
2) How do they compare with other competitive or complementary products/services?

Here’s a model to answer the above questions, albeit separately, and we can leverage the same to define the value for different stakeholders.

As mentioned earlier, what constitutes as value can differ from customer to customer and is a function of total tangible value, total intangible value, perception of the customer about the benefit, time at which the product or service is used, characteristics of the customer, and the context of the purchase.

Eric Almquist, John Senior, and Nicolas Bloch, partners at Bain & Company, have come up with a framework which identifies the elements of value for customers that can help companies gain an edge. They came up with 30 elements of value that show the fundamental attributes in their most discrete form, which can be broadly classified into four categories – Functional, Emotional, Life Changing, and Social Impact.²

The Elements of Value Pyramid

Products and services deliver fundamental elements of value that address four kinds of needs: functional, emotional, live changing, and social impact. In general, the more elements provided, the greater customers’ loyalty and the higher the company’s sustained revenue growth.

They mention that the value of a product or service can be attributed to one or more of the elements in the value pyramid. As they point out, “when someone says her bank is “convenient”, its value may be derived from a combination of functional elements such as – saves time, avoids hassle, simplifies, and reduces effort. And when the owner of a $10,000 Leica talks about the quality of the product and the pictures it takes, an underlying life-changing element is self-actualization, arising from the pride of owning a camera that famous photographers have used for a century.”³

Most of these value elements are relevant even for other stakeholders too and not solely restricted to understanding value for customers. However, it is also important that we make it more relevant for each of these stakeholders.

Now that we are aware of the roles that customers play in a business ecosystem, in our next article, discover the fundamental role of partners in an organization, and in the ecosystem to maximize value.

Sources

This is part 1 of our 10-part blog series on Ecosystems. You can find the other blogs in the series here.

Everything is worth based on what its purchaser will pay for it – Publilius Syrus, Latin Writer

So, what exactly is value? And how can one define value?

While the below definition is comprehensive, it is important to make it relevant to recent times. We can define value as a function of the ‘tangible’ and ‘intangible’ benefits that a customer perceives to receive while buying a product, service and/or on using the product or service. This value can change over time and differ based on the unique characteristics of the customer and is not only dependent on the price that is paid while purchasing it.

Nearly two decades ago, James Anderson and James Narus were in the same predicament when they pondered about value in their HBR article, ‘Business Marketing: Understand What Customers Value’. This article outlined how value can be defined.

“Remarkably, few suppliers in business markets can answer those questions. And yet the ability to pinpoint the value of a product or service for one’s customer has never been more important. Customers—especially those whose costs are driven by what they purchase—increasingly look to purchasing as a way to increase profits and therefore pressure suppliers to reduce prices. To persuade customers to focus on total costs rather than simply on the acquisition price, a supplier must have an accurate understanding of what their customers value and would value.” They finally defined value in business markets as “the worth in monetary terms of the technical, economic, service, and social benefits a customer company receives in exchange for the price it pays for a market offering.”¹

Let’s look at a few key concepts to define value for customers and enterprises:

A Function of Tangible and Intangible Benefits

Imagine a customer who buys the latest version of the iPhone. To buy the iPhone, the customer pays the retail price for the product for which he/she not only gets the iPhone (the tangible benefit) but also gets to experience a high-quality phone along with a potential increase in societal status (the intangible benefit). Or, in this case, an organization which integrates their processes with a software which takes care of the invoicing process. The number of employee hours saved by using the software is the tangible benefit that the software offers, but the intangible benefit that the organization gains can be anything from the increased satisfaction of its employees with automated and seamless processes, or the increased satisfaction for the organization’s vendors and partners because of the ability to process the invoices quickly.

While it is easy to put a monetary value on the tangible benefit (if an organization can carefully monitor and measure every transaction made), it is highly impossible to measure the intangible benefit in an accurate way because of the high number of variables involved.

We must understand that the total value cannot be expressed as a sum of individual tangible and intangible values involved nor can they be expressed in any direct formula. The total value can be a sum of the tangible and intangible benefits and can also be a product of the tangible and intangible benefits.

Here are two facets of value to better understand the concept:

• Value perception
  Value cannot be objectively perceived by putting a mere number on it. This calls for a subjective approach to delve a little deeper into its importance for your organization. As outlined above, every product/service offers a tangible and intangible benefit where the tangible benefit ‘can’ be measured. Just like the benefit associated with any product/service, there is an associated cost for the product/service. At times, even with tools, organizations may inaccurately estimate the costs and benefits with the latter on a higher side for products and services. Customers often perceive value based on their beliefs about the product/service and how well it meets their needs. This is an integral factor that can impact the price and the demand. If the benefits are higher than perceived costs, the customer shows positive perceived value.

The goal for organizations must be to maximize this gap in expectation between benefit and cost and get closer to the positive perception factor as much as possible. It is also important to take into consideration that the customers judge a product’s value not by its actual cost but by the cost they consider for the product.

• Value is subjective and not dependent on the price that is paid
  Imagine three customers Rob, Brian, and Tom. Consider their purchase of a bottle of mineral water – Rob at the 7-Eleven store, Brian at a fancy restaurant, and Tom from his room at a luxury resort. Even though the product bought by all of them is the same, is the value the same? The prices that each of them pays for the same bottle of water may differ even though the primary need was to “quench their thirst”. Here, the value that the bottle of water would be same to the three customers if all of them were equally thirsty. But imagine if Rob, who bought his bottle of water from 7-Eleven was thirstier than the others. Wouldn’t he value the bottle of water more than the others? This is because the context of the purchase differs in each of the three cases.

A small difference in the context of the purchase can change the ‘perceived’ value drastically.

This will be a crucial factor for banks to consider as they embrace ecosystem-driven business models. It’s not just about the products and services they offer, it’s also how good of an understanding they have on their customers, what they value, and how they can contribute to deliver the same. Banks must collaborate with service providers who understand the nuances of delivering value based on the shifts we see in the ecosystem.

In today’s volatile world, the credit card industry is encountering new challenges in the form of changed customer behavior induced by the COVID-19 pandemic and new innovative business models. The emergence of Buy Now Pay Later (BNPL) model is also a significant disruptor that the industry must address. According to Mercator Advisory Group, the volume of BNPL transactions in the US alone will be around $100 million annually by 2024. Andrew Walduck, COO, Latitude Financial Services observes, “People like the transparency of no added fees, and a pre-determined instalment plan helps them budget.”  

Banks like Wells Fargo, Citibank, and Bank of America have now launched new elite cards with generous benefits including welcome bonuses or cashback on purchases. This was a good move because customers today expect higher levels of empathy and want to be understood better based on their goals, lifestyles, likes, and preferences. Banks need a solution that offers the right insights to get to know their customers better and offer products like credit cards that are relevant to them. To effectively target prospective customers with such offerings, banks and financial services institutions must break down data silos to run campaigns and offer products and offers that are personalized and contextual. 

For banks to do well in the credit card business, engagement with the customers is key. Credit cards are no longer just a physical plastic product that is delivered to the customer and renewed occasionally. Banks must take a leaf from the technology playbook and other providers like payment apps, thereby preventing customer attrition. Hyper-personalization will be key in the credit card segment. Providing benefits in the form of loyalty points, rewards, offers, and being a part of the larger ecosystem of non-finance offerings will make cards attractive to customers. 

SunTec Xelerate platform helps banks position their credit cards program to attract and retain customers and earn higher wallet share by meeting customer expectations. With SunTec Personalization Solution, banks can dynamically curate products and offers based on insights drawn from customer behavior and their unique needs. SunTec Benefits and Loyalty Management can create targeted and distinctive loyalty programs that are one-of-a-kind with insights that matter. These programs can enable relationship-driven reward programs that foster positive customer financial behavior. SunTec Ecosystem Management and Monetization can be effectively used to monetize business ecosystems by partnering with finance as well as non-finance partners.  The offerings and rewards that are co-innovated with ecosystem partners can help increase the bank’s revenue and profitability.