Value (marketing)

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Value of a product within the context of marketing means the relationship between the consumer's expectations of product quality to the actual amount paid for it. It is often expressed as the equation :

Value = Benefits / Price

or alternatively:

Value = Quality received / Expectations

There are parallels between cultural expectations and consumer expectations. Thus pizza in Japan might be topped with tuna rather than pepperoni, as pizza might be in the US; the value in the marketplace varies from place to place as well as from market to market.

For a firm to deliver value to its customers, they must consider what is known as the "total market offering." This includes the reputation of the organization, staff representation, product benefits, and technological characteristics as compared to competitors' market offerings and prices. Value can thus be defined as the relationship of a firm's market offerings to those of its competitors.

Value in marketing can be defined by both qualitative and quantitative measures. On the qualitative side, value is the perceived gain composed of individual's emotional, mental and physical condition plus various social, economic, cultural and environmental factors. On the quantitative side, value is the actual gain measured in terms of financial numbers, percentages, and dollars.

For an individual to deliver value, one has to grow his / her knowledge and skill sets to showcase benefits delivered in a transaction (e.g., getting paid for a job).

For an organization to deliver value, it has to improve its value : cost ratio. When an organization delivers high value at high price, the perceived value may be low. When it delivers high value at low price, the perceived value may be high. The key to deliver high perceived value is attaching value to each of the individuals or organizations -- making them believe that what you are offering is beyond expectation -- helping them to solve a problem, offering a solution, giving results, and making them happy.

Value changes based on time, place and people in relation to changing environmental factors. It is a creative energy exchange between people and organizations in our marketplace.

[edit] Value Marketing

From a marketing perspective, “Value” is defined as the worth derived by the customer from owning and using the product. Attribution of value to a product is the outcome of a dynamic human reasoning process which infers from subjective interpretation the gap between the customer’s perception of the product’s quality and the expenses incurred by the customer from buying and using the product.

Several different formulas were introduced over the years in an effort to explain and represent value. Some formulas are rudimentary and simple, and some are complex and may include cultural, emotional, social, mental and psychological coefficients to indicate the highly perceptive nature of value. In all cases, the value formulas are intuitive and/or mathematical expressions; and sometimes erroneously called cost/benefit ratio which is actually a financial term (financial return for each dollar invested).

The most basic value formula is Value = Benefits - Costs[customer], where “Benefits” are product features that are desirable to the customer, and “Costs[customer]” are the aggregate expenses incurred by the customer from buying and using the product (essentially “Total Cost of Ownership” or TCO).

[Note: “Costs[customer]” are different than “Costs[manufacturer]”, which are the aggregate expenses incurred by the manufacturer in the process of manufacturing, selling, and supporting the product.]

In a sales-driven company, the sales people wish to increase the product’s value by lowering the price of the product, which is part of the costs[customer]. In a technology-driven company, the engineers wish to increase the product’s value by inflating the product’s feature set (benefits). In a market-driven company, the product’s value is proactively determined by the product planner according to market needs.

Depending on how the value formula is applied, the outcome of the application can be either “Perceived Value”, which is an unsubstantiated estimation of worth that the customer obtains or could potentially obtain from owning and using the product; or “Actual Value”, which is the measured and validated worth that the customer or similar customers factually obtain from owning and using the product.

Customers will always prefer to base their decisions and opinions on actual value rather than perceived value, because actual value is inherently more realistic and somewhat more objective. Actual value is always based on actual components (actual benefits and actual costs[customer]). However, perceived value can either be based solely on perceived components, or on perceived and actual components. To create perceived value it is enough that one variable in the value formula is of the perceived type.

Ultimately, positive value (either actual or perceived) derived from owning and using a product is what customers seek and will pay for.