How Valuable Is Your Business?
May 22, 2024In business, value is one of the most important factors to success. It is the basis for making decisions, creating strategy, and measuring success. But what is value really, and why is it so important for business owners to both understand and deliver it?
At its core, value can be thought of as the benefit (what you get) or the utility (how you can use it) that a product or service provides to its customers. That value can be tangible, meaning you can physically touch or manipulate it, or intangible, meaning you experience it but it’s not physical. Essentially, value is what customers think is worth paying for.
Now let me give you an example you’ve probably all seen, Girl Scouts selling cookies. I want you to imagine two groups of Girl Scouts: one is selling cookies to customers leaving a buffet restaurant and the other is selling cookies to people leaving a gym. They’re selling the same exact product for the same exact price, but are they both offering value?
The first group is selling cookies to people who just finished eating. While they might like the Girl Scout cookies and buy some for later they don’t have an immediate benefit for their cookies. No current value to the would-be buyers, but there may be a possible future value.
Value in business can take various forms, including:
1. **Functional Value**: This refers to the practical benefits that a product or service offers, such as solving a problem, meeting a need, or making work faster. Whether it’s a cleaning service, a hammer, a bar of soap, or a delivery service there is a benefit to using it, which creates value in having it. For example, a car can have multiple practical benefits, from transportation and shelter to entertainment and supplying power to other devices. Ultimately the value of the item, like with our Girl Scout cookie example, is whether the customer has a need for what your product or service does. If you are trying to race, a minivan isn’t providing functional value…but if you’re trying to transport 4 or more people, a sports car isn’t providing functional value.
2. **Emotional Value**: This is talking about the benefits from creating positive feelings for your customers, such as joy, fullness, excitement, or relaxation). It’s also possible that a product or service could create negative feelings for those around your customer (jealousy, envy, resentment) and depending on your customer that could be seen as a benefit too. For example, think of someone buying a luxury car. That car may make the buyer feel accomplished, successful, rich, powerful, and respected. That same car might make his ex-partners feel jealous or remorseful. It might make his rivals feel envious or like a failure, and complete strangers impressed. For a well established brand, like Rolls Royce, Disney, Versace, or the Super Bowl, they know how to give you an emotional experience with quality, recognition, presentation, and the experience itself.
3. **Social Value**: Some products or services deliver value from their ability to facilitate social interactions, connections, or relationships. One of the easiest ways to think about it is with social media. These platforms provide value by enabling users to connect with friends & family, share experiences, and engage with communities around their hobbies and interests. But how about cardboard, chocolate, and a stuffed animal? Well, if you put the right spin on it (Happy Valentine’s Day or Happy Anniversary) and you could make customers’ romantic relationships better. Put a different spin on it and you could cheer up a sad child, a sick teenager, or a hospitalized adult.
Now there’s a flip-side to this value as well. Social value is more about what you enable someone to do, they have to apply your product or service the right way and at the right time in order to get the benefit from it.
For example, let’s say you told a crude joke to your friend, in private, off-hours, and outside of work. It could be very funny and bring you closer together. Now if you tell that same joke to a different friend, but you do it where others can hear and be upset or the joke offends them personally, it could hurt your friendship. Same product or service, but the value is decided by when/where/how the buyer uses it and how the recipient receives it.
As competitive as the market is, businesses must focus on creating and delivering value to their customers just to stay in business, let alone grow. This involves understanding the needs, preferences, and desires of your target customers and designing products or services that meet or exceed their expectations.
Key strategies for creating and delivering value include:
1. **Customer-Centric Approach**: Business owners and workers should place the needs, preferences, and desires of customers at the center of their decisions. This involves getting to know your customers, gathering customer feedback, and continuously improving your products, services, and other aspects of the business to better align with your customers.
2. **Differentiation**: To stand out in your industry or even just in your location, you need to be different and better than your competitors by offering added or unique forms of value. This could involve innovation (find a way to do it differently or combine things they like), different ways to buy, different ways to receive (online or delivery), or great customer service. The goal here is to set the business apart from the competition and create more or different value for customers.
3. **Consistency/Quality**: Now consistently delivering “high-quality” products or services helps build customer trust and loyalty. But depending on your business, consistency may be more important than quality or the other way around. Walmart and McDonald’s aren’t exactly known for high-quality products, but if you walk into one anywhere in the world, you have a pretty good idea of what to expect from them. Five-star resorts can have wildly different experiences from location to location, but their high level of quality is what can keep customers coming back to those brands. Determine which is more important to your customer base and make sure you are giving them the experience or quality that makes your customers satisfied that they bought from you.
4. **Value Pricing**: Pricing plays a huge role in shaping whether customers' see value in your product or service. This mostly depends on whether you are delivering functional value and have lots of competition, delivering emotional value and have less competition, or are offering something unique and have no competition.
For a number of reasons, value and price should be treated as separate things, people often conflate them. The factors that make customers see your offers’ value rise or fall (such as speed, severity, quality, experience) are not the same things that may cause your pricing to rise or fall (scarcity, urgency, inflation, material shortage). For that reason it’s important to think of value and price separately, so you don’t confuse them.
In conclusion, value is a core concept in business that covers the benefits and utility that your business’ products or services provide to customers. By understanding the various forms of value and how to create and deliver value effectively, your business can attract and retain customers, differentiate themselves from competitors, and ultimately achieve success in the marketplace.
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