4 Elements of Value and How to Maximize Them

Importance of providing value

In a business environment, you are constantly trying to make all stakeholders happy. Stakeholders could be investors, employees, managers, and of course, customers. In this article, I will focus on creating value for the most important of them, the customer.

We often hear that “Customer is King”. Now, why is that?

Plain and simple, if the customer isn't happy, they will not buy your products or use your services. So how do you make customers happy?

Provide them with great products and services? Is that all they want? Not really. Let’s find out more…

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Suppose you’re producing the world's greatest laptops, but each unit costs the customer $200,000. Would customers buy it? Most probably not. Why? Because customers could probably get the second-best laptop (which provides features very close to the one you produce), for less than $1,000.

So what do customers really want?

They want great products and services at a great price. In operations, this is what is known as “Value”.

What's value?

To keep things simple, value is the ratio of what the customer gets divided by how much did it cost them to get it. This calculation of value is done almost every time a customer makes a purchasing decision.

Elements of Value

Elements of value are usually perceived through 4 main categories (as shown in the illustration below followed by the explanation):

  • Functional
  • emotional
  • life changing
  • social impact

The fourth main category of evaluation by a customer is the social impact. When a product or services directly helps the customer with self-actualization within their community, it is perceived to have a social impact that will lead to the purchase decision.

Maximizing Value

As we mentioned earlier, the Value of a product or service is calculated by dividing the benefits the customer gets by the cost they endure. This clearly indicates that the way to “Maximizing Value” is by increasing the benefits, lowering the cost or a mix of both.

Having said that, there are some actions you can consider to maximize value for your customer, which are shown in the diagram below. Each of these action items needs to be carefully studied for both feasibility and impact on the business before you decide on its use in your business.

Adding Benefits

  • Increase product quality by adding more features to it, making it more durable or improving the way it currently functions.
  • Increase comfort attained from the product by making it easier to use or providing greater access with the same service.
  • Offer an extended warranty or money back guarantee. This works well with almost any type of product or service but is usually more assuring to the customer when the purchase is done online.
  • Offer extended customer service or support for your product or service. This is known as the After Sales relationship that you maintain with your customer to help increase their satisfaction and keep them coming back to you for their future purchase.

Lowering cost

  • Cut the price if you can. This might not be always easy to do as it requires a lot of effort and process and resources optimization. It also bears the risk of your product or service being thought of to have a lower Quality compared to your competitors or even worse, creating a price war that does more harm than good. Therefore, it is always a point to look at very carefully.
  • Provide additional services that will deduct from cost that the customer originally used to pay such as free delivery, more bundled services, or reducing waiting times (as in retail stores)

Your Action Plan

In today’s competitive business, you need to be continuously on the lookout for what your competitors are they doing to improve the value they provide to customers.

Think about the products and services they sell, then analyze how they've changed over time. Is it functionality and ease of use? Is it durability? Is it added services, extended warranties, etc?.

Once you have this data, you need to engage in a realistic comparison with your product or service and work on regaining or maintaining your competitive edge.

The size and scope of your business will determine how this research and development effort should be done, which will be the focus of future articles.

About the Author Ehab

A firm believer in Quality and Excellence in all aspects of life. In my life, there is always a higher level to get to.

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