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Think about the various value chains weve created in this course. You
can add value beginning at the source. For example, with coffee you
can differentiate your coffee from other coffee by making it organically
grown. While there still may be tons of organically grown coffee, the
designation organically grown moves away from coffee as coffee to
Premium priced coffee. Why? Because it starts to look like a product.
You can further differentiate organically grown bulk coffee by making
it fair trade or cruelty free or...etc.
Lets think about packaging as creating products. A package unitizes a
bulk commodity. It takes something that is messy to handle and gives
it handle-ability, shelf dimensions, carton-ability, and cleanness. You
can price it in a way that takes away the buyers ability to determine a
price per kilo paid. Think of the difference between tea leaves in bulk
and those that come in a nice box, with pre-measured portions,
packetized in a pouch with a little string and paper handle. Its the
same tea inside the pouch as you get in bulk. But Tata or Tetleys are
able to charge a whole lot more per kilo of tea sold in packets than a
bulk tea seller gets because they have taken a commodity (loose tea)
and made it into a product (packetized tea).
Form
Think about the value chains we drew for the laptop computer. The
commodities involved were aluminum, plastics, copper, rubber, silicon,
and a bunch of other stuff in small quantities. If you think about all
these commodities in small piles, you will realize they do not add up to
much in terms of either utility or value. None of us are likely to want to
carry around a half-pound of the bulk commodities that comprise the
iPad. And yet we all want an iPad.
Why is that?
Much of the answer is in what Im going to call form. Its a bit beyond
packaging as form creates relationships among elements in ways
that make those elements more useful or more functional than they
were as stand-alone commodities. You can see how this discussion
can get complex quickly. There are a lot of levels of form. But lets just
take one: microprocessors.
Intel makes microprocessors. Structurally, these are layered crystals of
silicon and traces of impurities with patterns of lines etched into them.
These chips are packaged with protective wrappers and connectors
that can hook into other components. So is a microprocessor a
commodity or a product?
you perceive the branded water as different even thought you KNOW it
is not. There is a lovely illogic in branding.
Lets think about cars. Most cars are the same in terms of getting you
around in a predictable manner. But some cars cost a lot more than
other cars. There are, of course, differences in design and functionality
(form and function) but there is very little difference in the commodity
content of the vehicles. Iron, glass, steel, rubber, plastics, etc. Some
use more, some use less. And really, there are only small differences
in form and functionality. Yes, a BMW is a better drive than a Nano. A
bit better. But does that difference explain the huge price difference
between the two cars?
Not really. That huge price difference is based on perceptions, not
commodity content, form or function. Its about fun, prestige, feelings.
In short, these are differences created by perceptions, not facts.
Designer jeans provide a great example of this phenomenon. There
was a study (maybe several) done (I dont recall the specifics) that
showed an inverse relationship between cost of designer jeans and
quality of materials and workmanship. In other words, the more
expensive the jeans the less wear you could actually get from them.
Does that make any sense?
Why would anybody want to pay more for a commodity (pants) than
they needed to? Simple: WE want to be different. There are nearly 7
billion people in the world. Half are female, half are male. There is a
normal distribution of age, intelligence, body type, and so on. The
basic human is, in some senses, a commodity. And yet we all want to
be individuals.
How does on human distinguish himself or herself from all others?
Ill let you ponder that question. And leave you with this thought: we
are more than the sum of elements that make up our bodies. Much of
the difference between the raw materials that make us and the
persons we are today can be attributed to what Im calling packaging,
form, function and branding.
Its pretty clear that there is a huge difference in terms of value
between commodities and the expressions they take as products.