So what is value?
I believe that depends on where you sit from the customer’s point of view.
While there are many different value points along the way to delivering a service or product to a customer, it is the customer that will determine the value by what the customer is prepared to pay.
I’ve looked at several business plans in the last week.
The plans are great on describing the business idea – the technology, product or service that will be taken to market. The analysis seems right, the descriptions of how things work and will be delivered are passionately explained. The strategic thinking behind the offering seems thorough.
The major focus of each of the financials is revenue and then profit, with a reasonable explanation of the cost structure. The financial strategies to turn the idea into profit seem to make logical sense.
Cost structures seem clear, mainly because they have a price and an invoice attached to them.
What is more difficult to explain is the value proposition and how dollars flow in the value chain that delivers the benefit along the way to the customer. While it may be relatively easy to develop financial projections, the strategies can only be implemented when enough customers see value in the idea and are prepared to pay for that value.
If we buy something for $10 is it because that is the cost, or do we buy something for $10 because we get some intrinsic benefit or value we can attribute to the purchase that is equal to or greater than the price?
It is important a business thoroughly understands the value proposition from the customers’ perspective when determining the appropriate pricing model and developing the strategies to take the offering to market.
The strategy should be developed on the understanding that the customer must receive at least the value they are paying, or there will never be a long term relationship.