Value Creation
Value Creation
The process of producing Value for the customer at a Cost that creates a favorable Value Margin.
Offer Physics does not treat adding Value as sufficient. Value is created economically when the Value produced for the customer exceeds the Cost required to produce it, and Value Margin is the governing principle of that work. Value Creation therefore runs in two directions at once: increase Value (Promise discounted by Credibility and diminished by Toll) and control Cost. The design test is not “does this add Value?” but “does this change increase Value by more than it increases Cost?”
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Related concepts
Value
The value created and realized for this customer by the offer: the Promise discounted by Credibility and diminished by Toll.
Cost
Cost is the economic cost to the seller of creating and delivering Value.
Value Margin
The spread between Value and Cost: Value − Cost.
Promise
The outcome the customer expects the offer to produce.
Credibility
The degree to which this customer believes the Promise.
Toll
Toll is everything other than Price the customer must bear to obtain and realize the Promise.
Value Capture
The portion of the Value created that the business ultimately captures, principally through Price and the rest of the offer economics.
Market of One
A Market of One exists when an offer is sufficiently distinct in the customer's decision that no readily substitutable alternative provides the same relevant configuration of Value.
How this concept behaves
Qualitative relationships from the framework registry. None of these are formulas.
Value Margin · governs · Value Creation
Value Margin is the governing principle of Value Creation, not a stage after it. It indicates whether Value was produced efficiently enough to be economically generative: Value provided is not necessarily Value created in the Offer Physics sense.
Value Creation · composed of · Value, Cost, Value Margin
Value Creation works in two directions at once: increase Value (Promise discounted by Credibility, diminished by Toll) and control Cost. The design test is whether a change increases Value by more than it increases Cost.
Value Creation · distinct from · Value Capture
Value Creation produces the spread from which capture becomes possible; Value Capture decides how that spread is divided between customer and business. Creating a large Value Margin does not by itself determine the division.
Market of One · unlocks pricing basis · Value, Value Creation
A Market of One unlocks Value as the basis for pricing. It does not create Value: Promise, Credibility, Toll and Value operate whether or not substitutes exist. What the gate governs is whether Value, rather than comparison with substitutes, can serve as the principal basis for setting Price.
Where this concept is treated at length
What Makes an Offer Valuable?
Value is customer-side: a Promise, discounted by Credibility and diminished by Toll, including why choosing which customer receives the Promise is itself a way to increase its value.
Value Creation: Why Adding Value Is Not Enough
Value Creation has two halves: first imagine Value for the customer unconstrained by Cost, then engineer and select against Cost using Value Margin, where the design test is whether a change increases Value by more than it increases Cost.
Value Margin: Create More Value Than It Costs to Deliver
Value Margin is the spread between Value and Cost. A canonical treatment of why adding value is not enough, how Value Margin governs the engineering phase of Value Creation, and the levers that widen the spread.
Where to use this
Value Margin
Interactive treatment of Value, Cost, Value Margin and Value Capture.
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