Value Surface

Introducing value through the eye of the consumer

Whilst the endeavours of the innovator are the source of the information that communicates the value of a product, it is the consumer who provides the definitive judgement on this value.   So an analysis here must bridge the producer-consumer divide to include both the creation of value and its perception.  We should picture a value surface on which each point represents a single contributor to an economic society and the height above a base plane indicates their personal perception of value.  This provides a graphical representation for the creation of value across a population of individual consumers. In the absence of any perceived value, the value surface is a flat plane at zero height.  We now visualise value creation as the elevation of this value surface for the population of consumers for any particular commodity.  The variable height of all the points on this value surface describes the variations in perceptions of value across the consumer population.

The concept and evolution of a value surface is best demonstrated allegorically.  On the 13th November 2013 a diamond known as the Pink Star was sold at auction in Geneva for $83m.   We will consider how the value surface evolved with time from the discovery of this gemstone to the occasion when it sold at auction for a record price.  Pink Star

An Example Value-Surface.        A conveyor belt carries debris from a South African mine and a prospector scans the rubble.  The prospector is an economic entity who can bestow an individual appreciation of value. But value remains negligible until the vibration of the belt disturbs a rock to reveal protruding from the newly exposed surface a translucent incongruity.  Within an instant the previously anonymous rock soars in value – for that single, individual prospector.  This is not as swift a transition as it sounds, for the prospector is but one small contributor to a vast consensus by which the value of an item is to be determined.  The rock is separated from the surrounding rubble to begin an economic journey, leaving its erstwhile neighbours to remain jostled by the belt at a status of zero value.

The recovered diamond, still in its primitive state, is taken to auction and those that become aware of its presence also attribute a value to the artefact.  The earlier act of discovery and now the auction do not change the fundamental nature of the item.  However its perceived value is changing.

The value surface in figures below charts the stages where more people becoming aware of the value of an item and how their perception of its value changes with time.  For the Pink Star diamond, a single blip of value initially distorted the vast levelness of Value Surface (1) at discovery.  During the auction further discrete blips of recognised value start to emerge.

Value Surface (1) at discovery Value Surface (2) at auction
 Value Surface 1  Value Surface 2

The recovered diamond, still in its primitive state is transported to another continent, where for over two years in the hands of expert craftsmen it is fashioned into the Pink Star jewel.  Faceted and iridescent it is placed into a ring housing to be presented to the world.  The craftsmen that have added such value to the diamond have done so by changing its information content that encourages individual consumers to appreciate its value.  The contribution of the craftsmen is registered as many more blips of increasing height appear on Value Surface (3).

Many who view the now sparkling gemstone conclude it is indeed a rare and valuable item.   Occasionally, someone may be unable to differentiate the subject of our story from other pieces of cut glass found in the vicinity.  Others may be unimpressed by its distinct lack of utility.  Some perceptions of value will be less than others.  And still there are vast numbers of potential acquirers that remain ignorant of the presence of the gemstone.

The jeweller’s sales and marketing team take matters to hand with a mission to inform as many relevant people as possible of the availability of the sought-after gemstone.  Through this advertising many more perceptions of high value are created for individuals who have yet to come face-to-face with the item itself.

Value Surface (3) with product display Value Surface (4) with product advertising
 Value Surface 3  Value Surface 4

The gemstone set within its jewel housing is unique, so the price should appear as a ceiling to all individual assessments of value represented by the Value Surface (4).  Another auction is needed to identify the single individual for whom the perceived value reaches this ceiling and for whom there is a positive difference between value and cost.  A sale-event occurs and the diamond begins another leg of its commercial journey.

If we review the economic history of the African diamond from discovery to sale, looking down onto its value surface, we observe a single perturbation at discovery which develops with further individual contributions to perceived value that gradually multiply in number and significance.  Finally, Value Surface (4) appears as a tossing sea of many variable valuations as the information content of the gemstone is continually modified and propagated with time.

Two things are driving the evolution of the value surface of the diamond over time.  First is the purposeful deployment of investment due to the economic efforts of the prospector, through the auctioneer to those of the craftsmen and the sales and marketing group.  Also in the background are other numerous agents involved in the physical editing and transmission of the information content in the evolving product which serve to create an appreciation of value for a population of potential consumers.  This is the combined effect of the deployment of investment in innovation.

Secondly, external events will continuously disturb any economic equilibrium.  The availability of alternative competing products, taxation changes or a lack of economic confidence, and individual perceptions of wealth and the need to demonstrate this, all of which can contribute to the seascape motions of the value surface that represent fluctuations of individual perceived value for the diamond product.

Overlaid on this economic journey with its various pitches and swells and twists and turns is a physical editing and transmission of the information content in the evolving product, which serves to alter its perceived value for a population of potential customers.

 

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