Lesson 1, Topic 1
In Progress

Value As Key Construct

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The concept of Value bridges marketing and economics into one framework useful for developing strategy and setting prices. From a marketing standpoint, Value can be defined as the set of benefits perceived by the customer in relation to the price and effort invested in obtaining it. Consumers only buy products that have Value for them. It is worth noting the difference between Value and positioning: Value expresses a logical relationship between benefits and price; and positioning, although it contains the same elements, simply refers to the image, or perception, of a product, brand or firm.

The current trend is that sales should not ignore the customer´s needs in a quick and fleeting exchange of money for product (transactional marketing); what is really sought is to establish a long-term relationship that simultaneously benefits the customer and the company (relationship marketing). The reason is that securing new customers costs more than retaining them; it is not enough to just satisfy their needs, a step forward is required: retaining them long-term must be achieved (customer loyalty); this is the purpose that links relationship marketing with the concept of Value. A key issue in relationship marketing is that a product´s price must achieve customer loyalty, and be justified by the benefits it offers. This is only possible with a clear understanding of his needs, habits and preferences; thus, the product must satisfy them, without losing sight of the market context, the competition and the goals of the firm.

Value is the relationship between the sum of all the perceived benefits with the price and effort required to obtain the product. Value is the force that drives sales and market share and provides the customer with a strong incentive to make a purchase.

Effort is a subjective non-quantifiable variable, which points to the fact that obtaining a product consumes time, energy and work.

Value is also a way of representing the Value proposition: The firm promises customers a set of benefits at a given price. Value is aimed directly at customer satisfaction: it is the bull’s-eye.

Consumers will always want to maximize their gains; this means to obtain the maximum while investing the least. The firm provides output in terms of benefits and consumers provide the input in terms of their economic sacrifice (price paid) and effort. Value is therefore a marketing output / input ratio which measures the consumer’s gain, or “profitability” he obtains from his purchase.

This ratio suggests that Value increases when benefits increase or when the price and/or required effort decrease. If the price increases in greater proportion than the benefits offered, then Value decreases and the quantity demanded by the customer segment is reduced. Value remains unchanged if lower benefits are balanced by lower prices, or if higher benefits are balanced with higher prices. Negative benefits subtract from positive benefits; this reduces the Value of the product.