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Value is... | The value creation process | So what?


What is value? It is not the same as values. Mostly, we talk about value in terms of what customers receive when buying goods, but it is also applicable to any transaction or acquisition.

Value is...

Financial value of a 'thing' is what someone is prepared to pay for it.

Price is what we pay for something. The broader sense of 'payment' may include money, time, actions, exchanged things.

Good value is what we seek and perceive when we buy things. What 'good' means can be both objectively and subjectively defined.

Perceived value is a typically combination of low price, availability, functionality, aesthetics and social value.

Functional value is what the thing allows me to do things that I want to do, in particular meeting my goals.

Aesthetic value is the pleasure that the things gives me, either in use or in looking at it.

Social value is the benefit a person gets from the admiration and credibility from others as a result of having the thing.

Anticipated value is the value we expect to get from a thing.

The value creation process

How does a company or person create value for their customers or significant others?


The first step is to understand value as defined by the target people or person, which means understanding them deeply, including their functional, aesthetic and social needs.

A mistake companies often make is that they think about the value that they will deliver -- a better commercial definition of 'value' is that which is perceived by customers.

Understanding may be gained by asking customers about their needs. However, customers often do not fully know what they need, in which case ethnographic research may be helpful. Courageous imagination can lead to amazing new products.


The design question covers two key aspects. First, the thing, the product (or service) must be designed. Secondly, the processes by which the thing will be made, sold, delivered and supported must be designed.

It is important during design to always keep the 'value' question in mind as designers can easily drift off into creating things they like rather than things that will sell.


In order to make the thing, various inputs are needed. These include raw materials that will be used in the things and other items which are required, including plans, standards and other resources. All inputs have value, which must be understood and managed.


The thing is constructed by the use of processes as designed. Done well, this is not expensive and leads to a reliable, high quality result. Construction is an assembly of things that each have value and which contribute to the final value. A danger in the construction process is introducing defects that destroy value.


The output is the thing itself, the product or service that is delivered to customers. By itself it does not have value, just as there is no value in a beautiful view if nobody is looking at it.


To start to deliver value, the thing must be delivered and put to use. When the thing is actually used, then things happen. These events are outcomes.

Example outcomes include a person watching a show, them telling their friends and their friends being envious.


Outcomes that the customers appreciate are known as benefits.

Outcomes are not necessarily good. Neutral and bad outcomes may also occur. For example neutral outcomes of seeing a show may be that time and energy are consumed. When the customer does not care about outcomes, they are neutral.

Bad outcomes are sometimes called disbenefits. These are the things that happen that the customer does not like, for example the hassles of buying tickets and finding seats at the show.


Value can be viewed as the sum of all benefits less the sum of disbenefits when compared with the cost of acquisition. In this way, even though there are significant benefits, customers may still be dissatisfied.

In determining value, customers may weight benefits. Hence a small benefit may be weighted highly while a large benefit may have a low weighting, making them of equivalent value to the customer.


Satisfaction (or not) is what customer feels when they consider the value they have received. This is often based on a comparison of expected value and received value.


Delight is what customers feel when they receive benefits that they did not expect, and that their basic expectations have been met.

Delight has been defined as 'expectation + 1', reflecting that as long as you meet expectation, all it takes is a little extra to create delight.


Loyalty is a resultant feeling that customer experience who have been consistently delighted. Felt loyalty leads to good things for companies such as repeat purchases and recommendations to others.

So what?

If you can understand what the other person values (not what the values are), and you can deliver this to them (and a bit more), you can ask for much in return.

Manage the perceptions and expectations of value in the things you do for others or that you offer in exchange for their agreement or compliance with your requests.

See also



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