Understanding Value Creation Vs. Value Extraction

In this competitive business landscape, the proliferation of companies on a global scale is a continual and rapid occurrence. According to Statista, approximately 333.34 million companies exist worldwide in 2021, a slight increase from the figures recorded in 2019 and 2020, which hovered around 328 million companies.

Drastic technological advancement has become integral to business operations, allowing businesses to leverage and enhance their overall customer engagement. A survey by explodingtopics.com,  confirms that 33% of companies have started using modern technology( AI), whereas the remaining plan to incorporate such technology into their operations to upgrade their services. 

Despite the transformative benefits, traditional thinking still lingers in the business landscape. These lingering ideas, much like familiar but outdated routines, act as hurdles, hindering businesses from truly connecting with today’s users. As a result, many brands find it challenging to sustain in the market as they fail to cater to their customers. 

That is where the question arises: Does your brand prioritize people over profits or profits over people? Most businesses are committed to putting revenue first but often struggle to thrive in the competitive economy. However, doesn’t this seem confusing? Aren’t companies supposed to earn profit? Well, in simple terms, companies must emphasize creating value, not just extracting profits. This article aims to shed light on Value Creation Vs. Value Extraction, its definition, real-world examples framework, and what steps to take to become a high-value business. 

What is Value Creation vs. Value Extraction?

Usually, there are two fundamental types of businesses in the market. The first is committed to Value Creation, and the second is those who focus on Value Extraction. While you may have encountered both in practice, distinguishing between them may not be immediately apparent. So, let’s quickly break down Value creation and Value extraction one by one to gain a better understanding.

What does it mean to create a value? 

Value creation refers to upgrading the company’s overall value to offering top-notch products and services or experiences to its customers that they appreciate. In simple terms, businesses inclined toward creating value for consumers and prioritizing their satisfaction beyond merely exchanging goods for money are considered value-creation businesses. 

By generating value, brands can expect to maintain a deeper connection with the consumers, leading toward loyalty, positive brand perception, and sustained growth overall, enhancing the worth of their business. 

In a business landscape, it is crucial to comprehend that boosting the brand’s value doesn’t happen by chance but involves deliberate effort. It’s worth mentioning that consumers only opt for brands that deliver tangible benefits through their products and services. So, the more value a business delivers, the more customers are attracted to it. Remember, it’s a basic formula; however, quite a few brands follow it. Still, plenty of enterprises follow the value extraction model and consider it for the long-term sustainability of the business. 

What does it mean to extract value? 

Mariana Mazzucato, an Italian economist, in her recent book, “The Value of Everything,” highlights value extraction as something when the brands aim to maximize their profit by not manufacturing anything new; instead, they sell their product or services at competitive prices, generally through leveraging a monopoly. Unlike value creation, Value extraction is a concept where businesses emphasize making money from customers without prioritizing their satisfaction. 

Remember, the nature of the business results in a massive difference in how customers react and engage. Opting to prioritize enhancing customer value over mere profit generation is not just a wise choice; it’s a fundamental necessity for business success. Focusing on creating genuine value for customers cultivates customer loyalty, fosters a positive brand perception, and contributes to sustained business growth. This strategic approach makes good business sense and is pivotal in establishing a meaningful and mutually beneficial relationship between your business and its clientele.

Real-World Examples

The following are real-world examples of Value Creation and Extraction in business, discussing how brands work and navigating the balance between customer-centric strategies and profit-focused approaches. 

Value Creation

Apple Inc

Apple Inc. is recognized as an American computer and consumer electronics brand renowned for its iPhone, iPad, and Macintosh systems. The brand strongly emphasizes creating innovative and high-quality products that provide unique value to its customers. 

For eleven straight years, Apple has dominated the American Customer Satisfaction Index (ACSI), marking its dedication to customer service excellence. Despite a modest 3% decrease in the latest report, Apple’s dedication to value creation is evident, emphasizing presale expectations, perceived value, issue resolution, and overall customer loyalty.

This fantastic commitment, especially in desktops, laptops, and tablets, highlights Apple’s focus on delivering comprehensive and satisfying customer experiences. The company’s success is not just about cutting-edge products; it’s about consistently surpassing customer expectations and building lasting loyalty through top-notch offerings.

Value Extraction

UrbanBound

UrbanBound is a B2B relocation management software brand focusing only on the value extraction model. Unfortunately, the relocation management company did not see the results of their content efforts as they were not actively interacting with their audience. The company incorporated customer feedback and developed high-value content through a customer-focused campaign. 

As per UrbanBound’s approach, they discover the topics they must emphasize. The company utilized UrbanBound tapped information from sales to figure out the following points: customer pain points and frequently asked questions, along with top customer concerns. The company also wanted to craft various content, including blogs/articles, Infographics, Social messages, 

Ebook and webinars (with slides posted to SlideShare). 

The following are the outcomes: 

• 37% rise in blog traffic
• 35% increase in leads
• 102% rise in marketing-qualified leads
• 66% growth in interactions (when individuals reconvert and submit multiple forms)

Value Exchange Framework

It is vital for businesses to deliver substantial value to customers. When consumers receive value from a brand, the likelihood of their return increases significantly. However, In today’s competitive landscape, businesses that wish to stand out must emphasize offering their customers substantial value. This customer-centric approach has enhanced customer relationships, fostering loyalty and sustained success. 

Distinguishing between businesses centered on value creation and those inclined towards value extraction reveals a significant contrast in their priorities. Transitioning from a value extraction model to one centered on value creation necessitates no drastic measures like employee layoffs or management reshuffling. Instead, it involves a shift in perspective and priority, often initiated by a straightforward change in mindset. 

Characteristics of Value-Creation Business.

The following are the five vital positive priorities that characterize a value-creation business.

1. Your business is inclined towards refining your products or services to offer top-notch services to the customers. Besides providing top-notch services, you are open to taking customer feedback into account to enhance your performance in the market. 
2. You actively emphasize integrating modern technologies into your operations to deliver the best value services to your customers.
3. You always prioritize customer feedback and maintain a solid online presence to engage your audience to answer their queries and respond to their complaints. 
4. Your business is committed to educating and assisting consumers to reach their aims. The best example is Hubspot, a brand that publishes free quality content tailored to different individuals, providing substantial value to its audience.
5. Your marketing strategy highlights and emphasises the advantages and positive outcomes your customers can expect from using your products or services.

Characteristics of Value-Extraction Business.

The following are the five vital priorities that characterise a value-extraction business.

1. You always emphasise pricing schemes and design your product/services solely aiming to maximize profit. 
2. You are less worried about your customer feedback and don’t pay attention to your online presence or engaging with your audience. 
3. Your business is inclined towards maximising the profit levels through competitive pricing or cost-cutting rather than innovation.
4. Limited integration of modern technologies into operations may indicate a focus on extracting revenue without a solid commitment to enhancing customer experience.
5. Instead of generating free and value-generating content for your audience, your business relies upon sensational tactics such as clickbait to grab the user’s attention and maximize short-term profits.

Undoubtedly, the distinction is not always absolute. In practice, your company may embody characteristics from both value creation and value extraction approaches. Although businesses typically gravitate toward one approach, observing a mix of traits is common.

How to Become a Value-Creation Business

Now that you know the potential traits of value creation and extraction business. You can quickly identify your business type. In case you recognize your business aligns more with value extraction, don’t panic, and it doesn’t mean your business is bound to fail. Fortunately, a few potential ways can help you shift from the value extraction to the value creation model. The following are some of the ways that you may consider:

• Comprehend customer needs 

Understanding customer needs is essential for creating lasting value in your business. Conducting market analysis helps identify what customers seek when making purchases. Your business can provide significant value by tailoring your offerings to meet these unique needs. 

This deeper understanding enhances product offerings and builds trust and reputation within the market. Meeting customer needs fosters repeat business and contributes to increased revenue growth.

• Enhance customer support

As mentioned, consumers are inclined toward those businesses that offer exceptional service and support to their consumers. For this, you may begin by evaluating and enhancing your current support operations and consider coordinating with other team members to discover potential strategies to boost customer support. 

For instance- many successful organizations leverage a combination of automated and professional support services to facilitate seamless communication, address queries, troubleshoot issues, and maintain a strong connection with their customers. This approach contributes to enhanced customer satisfaction and loyalty, which are crucial factors for the success and growth of any business. 

• Introduce Convenience features 

Enhancing convenience involves implementing methods that make it easier for customers to interact with your business, complete purchases, and use your products. Examples include streamlining online checkout processes in a shopping platform or offering bundled products, contributing to a more convenient customer experience.

• Take advantage of technology

Leveraging technology is a valuable strategy to enhance customer experience, manage relationships, and provide support. Businesses often integrate software and other technical applications to track and maintain customer accounts and information efficiently. Automating processes within customer service can further streamline operations and create value in your business. 

• Evaluate competitive prices and offerings

Businesses can enhance their value proposition by evaluating competing organizations, understanding what methods and products are valued by customer markets, and creating unique offerings based on that analysis. Additionally, adjusting selling prices to align with market averages can make these alternatives more appealing to customers, ultimately contributing to the business’s overall value.

• Help teams develop effectively

Organizations must consider boosting their brand’s value by investing in developing their sales, marketing, and customer service teams. This investment includes sales training, professional development for customer service, and skill-building workshops. Companies can effectively meet customer needs and deliver offerings that create lasting customer value by ensuring that teams have the necessary skills and expertise.

Wrap Up 

Simply put, the Value extraction model has become outdated. In fact, in this competitive business landscape, customers have an unprecedented array of choices. So, if consumers don’t like one option, they can switch easily between various options. In most scenarios, each customer possesses the autonomy to choose where to allocate their financial resources. Hence, it becomes crucial to convince your customers that your brand is worth spending on. This is why an increasing number of businesses are adopting high-value content strategies. Remember, at the end of the day, Individuals only respond positively to value and are inclined to reciprocate support for companies that provide value proactively.