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 and their money, risk, time, staff, business, and needs.
Value implies trust so start by building trust. Always underpromise and overdeliver.
"I'll get it to you within one week."
"It will cost about $1,000."
"I will need thirty minutes of your time."
Have it delivered in three days.
It costs $950.
You use twenty minutes.
Be known for keeping your promise and then some. Be honest. Never promise what you cannot deliver.
Don't confuse value with cost. In fact, 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 worth only $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.
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.
Right? 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 = 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 many 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.
By the way, always deliver real value too.
Adding Value: Here are a few ways to add value
How do you provide more value to your customers? Customers buy both real and perceived value, and often they don't
know the difference. You might point that difference out when your competitor is perceived to be superior. When you
are perceived to be better, enhance that image.
Notice that in the Total Value equation cost is a factor - but only one. In a commodity market cost becomes the
dominant factor because function of competitive products is similar and perceived value is ignored. If you compete
on price then be aware of the market you will attract.
What is quality? Buyers of Honda Civic, Ford Taurus, and Rolls-Royce all claim to buy quality. And they are all
right. The secret of quality is to deliver what you promise. To delight your customers, meet their expectations,
and deliver a little bit more. When we speak of quality, we often confuse reality and perception. At one time
buying IBM products was the smart decision to make, even if they were not the best. The name implied quality. Was
that quality real or perceived?
The competitive advantage of the new millennium is time. This means respecting your customers' time. How long does
it take for your customer to get through to you? How long do you take to respond? How long does it take them to
fill out your silly paperwork? How long does it take to receive the product? How long does it take for you to
upgrade and develop new products? Identify and emphasize at least one area in which you can beat your competition
Your personal and company image can add to or detract from the perceived value of your product. Do you reach into
your pocket for a cheap pen or a Mont Blanc? Do you arrive in a limo or a cab? Image is a strange thing. We might
say it is not important, yet we find ourselves judging others on their image. Watch it! Your prospects are judging
you. Does your 'client list' improve your image? Do you project an image of success? We prefer to deal with
successful companies. Think of image as the packaging of you, your product and your business.
This is another term that is hard to define. Do you smile when you greet your customers, even on the phone? Are you
easy to reach with a problem? How quickly do you respond and satisfy the customer? Do you make your customers feel
inadequate when they complain, or do you welcome the feedback? Today many companies stress customer service yet
some still have room to improve. Discover what your industry does to annoy its customers then eliminate that
annoyance from your business.
You should notice that each of these five factors can impact both perceived and real value. Find ways to increase
value to your customers by working with both sides of the total value formula. The total value you add will be
measured by the growth in your sales.
George Torok brings practical insights to business. He is co-author of Secrets of Power Marketing, the first
guide to personal marketing for the non-marketer. As host of Business in Motion he has interviewed over 400
business leaders. He is available to deliver keynote speeches and business seminars. Contact him at 905-335-1997 or
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