16 November, 2013

1-1-9-10 value creation, the forms of value: Option

Oh, this one is a bit tricky so bear with me:
Let's say that you went to buy a product

-         If you take it off the shelf, pay for it, and left: that is you buying a product. You pay for the asset as soon as you acquire it
-         If you enter the shop, pay for it, take a ticket that you can snatch it off the shelf (usually over a specified amount of time), that wouldn't exactly be "buying a product". That is more like: buying the option to have a product, if you don't want it feel free not to, but you will lose your money
So, if this is still vague for you, think of buying a movie ticket: you are not buying the movie or the seat or something. You are buying the option "THE RIGHT" to see the movie "DO THE OPTION", for a specific amount of time "A DEADLINE"

Another example: coupons
1-    You identify the action that people may want
2-    Offer a potential price to have that option
3-    Set a deadline (no meaning if there is no deadline)
4-     Convince customers that it is worth buying this option
5-    Buy it, and collect some money :)
Notice that:

  • The main difference here about buying an option, that the customer may use it or don't. In case of other value forms: the customer pays after he actually acquires the value
  • Some options are refundable, some aren't
  • Usually it is not important for the option maker if the customers use the option or not, he already has the money