Creating, Recognizing & Measuring Value
Price is what you pay - value is what you get.
Warren Buffett, Chairman of Berkshire Securities
Deliver value that your customers recognize, appreciate and
reward. If you want your customers to value what you offer - you
must demonstrate that you value them.
Value implies trust so start by building trust. Always
under-promise and over-deliver. Be known for keeping your
promise and then some. Be honest. Never promise what you cannot
deliver.
Don't confuse value with cost. A product's value is almost never
equal to its cost. For example, your product might cost you $2
and you sell it for $10. The value to you is $10. The value to
the customer will usually be more than the selling price. If it
was only worth $10 to the customer then they have no motivation
to buy. But if the value to them is greater than the selling
price, they are motivated to trade their money for something of
greater value. It may be worth $25 to the customer. Then they
will gladly give up $10 of their money for the product. The more
that value exceeds the cost of the purchase, the more the
customer will want to buy from you. Always offer value that is
greater than the price they pay. Your challenge is to ensure the
customer sees much more value than their cost.
The Value Formula How can value be so different from cost?
Examine the following formula, then discover where you can
concentrate your efforts to enhance value.
Total value = real value + perceived value
Let's take it apart to understand it. Real value comprises the
tangibles. It is relatively easy to measure. Real value can be
expressed in this manner:
Real value = function/cost
Function is what the product or service does in mechanical or
analytical terms. Imagine you are buying a new car. If you are
shopping for the best real value, you would get the most
function efficient ground transportation for the lowest cost.
You could measure the car's function factor by comparing it with
the cost of your practical alternatives; public transit, car
pooling, taxi, bicycle, limousine, various car models. You might
wish to consider the costs of these alternatives in terms of
time and inconvenience. What does your new car give you that
these other modes of transportation don't?
Having determined the new car's function factor, you can divide
it by its cost. Is its function worth more to you than its cost?
If so, the new car has real value. At the end of your analysis
you would buy the cheapest car. Not necessarily. Remember that
what you are willing to pay for your car is based on the total
value to you, which is a factor of both real and perceived
value. So, sometimes without realizing it, you assign value to
less quantifiable benefits and buy something that you like.
Liking is not part of real value, it is part of a product's
perceived value.
Perceived Value = belief x emotion
Compared with real value, perceived value is more difficult to
measure directly. Yet it can have greater impact on total value.
Perceived value is the product of belief times emotion. It is
influenced by intangibles such as image, credibility, beauty and
feelings - all the benefits you should emphasize in your
marketing efforts. Emphasizing your perceived value is the
surest way to differentiate yourself from the competition - and
gain you more profit. Perceived value is what makes a brand name
more valuable than a no-name. Nike is one example of a company
that built a fortune on perceived value. As individuals we think
differently, perceive differently, and place different values on
things. Beware of that. Use it to your advantage. When your
prospect wants to negotiate price, remember to build up your
product's perceived value.
How can you enhance the value of what you sell? If you are only
looking at the cost of paper and ink then you are forcing
yourself to compete in the commodity game. Instead find ways to
emphasize the value of your relationship, the creative, - the
intangibles. Always deliver real value too but compete on the
perceived value.