Understand Value........ #21
- Adrian Dionisio - business737 owner
- May 13, 2021
- 4 min read
Updated: Mar 27, 2024
As a business coach I often talk about creating value, adding value and the actual value of goods and services. Value goes beyond the price paid or associated costs. This article will clarify what exactly is it and why is it even important. Please continue reading and all will be explained,
Value is a measure of the benefit of a good or service. It is hard to measure value because it involves the perceived characteristics of something that make it desirable or useful.
It is equally hard to define value because it is in the eye of the beholder. What one person deems valuable may be practically useless to another.
"Value is everything that your customer is willing to pay for"
The foundation of all business
The creation of value can be seen as the foundation of all business.
The purpose of a business is to create value and then to sell or trade it to customers while capturing some of that value as profit. It is quite straightforward but it is an essential concept to understand.
There are numerous and ever-increasing ways to create value, so how do we decide which type to pursue?
As ever we must refer back to our customer (read more). We must know and understand our customers and the market(s) we are targeting. With this in mind you can offer things that will be useful and desirable to them.
Defining the value of a product or service
Below are the principle values people consider when making purchasing decisions:
Efficacy: How well does it work, usefulness and capability to produce the desired result.
Speed: How soon does it work, how long will you have to wait?
Reliability: Can you depend on it to do what you want?
Ease of use: How much efforts does it require?
Flexibility: How many things does it do?
Status how does this affect the way others perceive you?
Aesthetic appeal How attractive or pleasing is it?
Emotion: How does it make me feel?
Cost: How much do I have to give up to get it?
A Winning Formula for your Business
Offer one or more of these values in a way that is "better" than anyone else. Know what particular customer you want to attract. Know the wants and desires of this type of customer. Know how your particular niche or market functions. By understanding your customer and market you can offer what is specifically valuable to them. The more value you can offer the more customers you will attract. Implementing this strategy will see the business grow and become more profitable. Remember the perfect option does not exist so people have to choose the next best scenario. Understand the customer you are aiming for and offer them what they want.
The well known value trade off has traditionally been price VS quality. This can be expanded as we realise how value can also be increased because of efficacy, speed, reliability, ease of use, status, flexibility, aesthetic appeal and emotion.
A simple toaster example
One type of customer may want the cheapest toaster available (cost)
Another may want one that is reliable and known to be durable (reliability and efficacy)
A different customer just wants to buy a toaster wasting no time nor effort in doing so (speed)
Another may want a toaster that has a specific look / style / colour and / or certain brand (aesthetic appeal, status, emotion).
A different type of customer may want a toaster that can toast numerous slices and has other modern functions included (flexibility).
Ask yourself what are the values associated with the toaster you have to sell? Can you offer a good price or perhaps is it a recognised well known brand? Has it got multiple functions or perhaps a uniquely attractive design? Once you understand this you know what type of customer to target.
Conversely if you have a specific type of customer you can assume what toaster they will prefer and provide it for them. Another option is to offer a range of different toaster for different customer types.
Whatever strategy one follows the principles always remain true. Recognise and develop the value offered and understand what the customer values. The more value you offer the more successful you will become
The European institute of purchasing reported that typically at least 30% of buyers will only ever buy on price, that’s how they are and how they are motivated and rewarded. To build relationships with these people is a waste of time. Instead focus of the remaining 70%.
In a world of every increasing choice and options more and more people are understanding the concept of value. Whilst the buying side has become more sophisticated than the supplying side is lagging behind because supplier has not realised this yet. Don't let your business be one of these suppliers who will be left behind.
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