The desirability of various goods and services in economics is subjective, personal. In economics Opens in new window, value is discussed not entirely a first person concept.
Value is determined by what other people will offer in exchange for some good or service and is usually given as a sum of money where that money could have been used to buy other things.
And while there are other objectives in life besides having more goods and services, when value is discussed in economics it is a discussion of economic goods, those goods and services that are produced for sale to others.Their value is determined according to the sum of money that one is prepared to pay.
If one object costs twice as much as something else, then it is twice as valuable.
The relative value in terms of price is what value ultimately means in economic discussion.
Defining Value from the Customer’s Angle
From a customer standpoint, value comes from a product or service of the highest quality that’s provided to the market at the right time and at an appropriate price and fulfils some unmet want, need, and/or desire, creating and delivering value when consumed.
For both the customer and the company, the value created must be greater than the investment made.
The responsibility of the organization (or entrepreneur) is to ensure this equation is monitored from both a customer and a company perspective and to ensure that waste is not created by allowing investment to exceed value realization.
When that happens, the product or service is no longer viable from either party’s perspective.But how is value identified, created, and delivered?
For the entrepreneur Opens in new window, this is a much trickier question to answer. When there are many teams, goods or services, and business units, the process of value delivery becomes more and more difficult.
Businesses create and deliver value in two distinct ways:
- inside-out approach, and
- outside-in perspective
Pushing goods and services out to customers is an approach known as an inside-out approach, where value is defined from within the organization and customers have little say in the products/services that reach them.
An outside-in perspective is an approach where the organization initiates product/service ideation and definition by working with customers and asking them what ideas would be valuable to them.
This process pulls customers’ requirements through the production system or development process instead of pushing goods and services out to the market with very little customer interaction.
The inside-out approach is a more traditional, push-based value creation and delivery system. The outside-in approach is a pull-based system.
The flow of value identification starts with the customer and the product management organization working together by pulling ideas and enhancements from the customer through face-to-face discussions, product feedback loops, surveys, focus groups, analytics, etc., and by defining what is most important, relevant, and valuable to them.
When customers make a purchase and then consume it, value is created for both the customers and the business in the form of satisfied customer wants, needs and/or desires and revenue generation or company value.
This creates a win/win situation for all involved.