VALUE ANALYSIS
THE CONCEPT OF VALUE
The value of a product will be interpreted in different ways by different customers. Value is subjective. Just as beauty lies in the eyes of the beholder, value is highly dependent upon perspective. Frequently, the analyst will discover that the different perspectives will lead to conflicting definitions of value. But usually its common characteristic is a high level of performance, capability, emotional appeal, style, etc. relative to its cost. This can also be expressed as maximizing the function of a product relative to its cost:
Value = (Performance + Capability)/Cost = Function/Cost
Value is not a matter of minimizing cost. In some cases the value of a product can be increased by increasing its
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This is not an absolute rule, but rather an observation of the consumer products market. Few people purchase consumer products based on performance or the lowest cost of basic functions alone. When purchasing a product it is assumed that the basic function is operative. The customer 's attention is then directed to those visible secondary support functions, or product features, which determine the worth of the product. From a product design point of view, products that are perceived to have high value first address the basic function 's performance and stress the achievement of all of the performance attributes. Once the basic functions are satisfied, the designer 's then address the secondary functions necessary to attract customers. Secondary functions are incorporated in the product as features to support and enhance the basic function and help sell the product. The elimination of secondary functions that are not very important to the customer will reduce product cost and increase value without detracting from the worth of the product.
The cost contribution of the basic function does not, by itself, establish the value of the product. Few products are sold on the basis of their basic function alone. If this were so, the market for "no name" brands would be more popular than it is today. Although the cost contribution of the basic function is relatively small, its loss will cause
And the customer are sensitive to the price since those products are using only few times and need to be change all the time.
When a business can provide a lower cost, then the business can have the ability to lower their price. Providing a better pricing system, along with sharp value products can only increase the chance of growth and customers’ overtime.
I also agree with you in how you stated that the products price and value tie into one another especially when consumers are trying to determine what would essentially be the best option that meets their criteria of value. Likewise, it is important for companies to find significant and unique methods in which to make their product stand out and be the option of choice. Consumers want a product that is highly regarded but that also qualifies with price. They want to know that what they are paying for is of high standards and quality and worthy of the money being spent. Therefore, they look into every possible option to determine if the product meets brand loyalty and has the appeal to be different from their competitors items. You are
On the other hand, introducing a product to any market will have significant costs, such as research and development, raw materials, and other production expenses. In most cases, products in the introduction stage of the product life-cycle have negative or low profits until they reach the growth stage due to low sales and high distribution and advertising expenses. To turn a profit, money is needed to find the right distributors to build inventories. The only question is how much cash is worth sinking into the product, but the disadvantage is it is hard to tell if a product is worth it without the proper research and trial and error, which is costly.
Thirdly, option is to strategically adjust the prices of their products because consumers are often very price sensitive. By doing so the company can either create more value that defines the quality and quantity of the product.
The key to successful pricing is to match the product with the consumer's perception of value.
Customer Value is ‘the performance characteristics, features and attributes, and any other aspects of goods and which customers are willing to give up resources’ (Robbins, Bergman, Stagg and Coulter, 2012). This broad definition highlights the fact that there are multiple aspects that contribute to create a sense of value within the customer.
According to Investopedia, it is simply “the worth that a product has in the mind of the consumer,” an influential point of consideration in his or her purchasing decision. Because most people hardly know the physical cost of manufacturing goods and services, they tend to rely on this abstract awareness to gauge the product’s significance, which in turn arbitrarily determines how much they are willing to pay for it. To further understand the distinction between real value and perceived value, University of Richmond business lecturer Joe Geiger presents the comparison of the $1 and $10 bills. He states that the bills are fundamentally indistinguishable: they are the same size, printed on the same type of paper with the same type of ink using the same labor and distribution processes. It is a basic truth, however, that one bill is worth more than the other. People still pay ten dollars for the $10 bill and only one dollar for the $1 bill, even though the factors which constitute each bill’s real value are identical. Through this scenario, Geiger reveals how customers pay based more on what they understand the value of the product to be and less on what it actually is, suggesting the importance for companies to recognize and place higher regard on the consumer’s evaluation of worth rather than their
An important aspect for our consideration includes the costs of quality. Considering our product is not affected by place, income, sex, race, age, or any environmental concern, the profit margins should be considered higher. However, it is crucial to recognize three costs of quality to ensure our product achieves the highest profit margins with little room for the unexpected.
Value is the benefits a consumer gets from buying the product. As I said before, the Apple iPhone covers almost all
On the other hand, prices are the most insignificant buying criterion in High End, Performance and Size segments. No matter how high the prices are, customers in these segments are more preferable to high-tech product. In particular, for the High End and Size segments, ideal position occupies 43% and products’ ideal age is 29%. Furthermore, reliability is the most important consideration to customers in Performance segment. Hence, Niche Differentiation is a proper alternative for these three segments.
As we all know, products are bought in the market only because it possesses a certain value for
the psychological meaning of a product to customers. On the other hand, cost is related
The value added by the uniqueness of the product may allow the firm to charge a premium price for it. The firm hopes that the higher price will more than cover the extra costs incurred in offering the unique product. Because of the product 's unique attributes, if suppliers increase their prices the firm may be able to pass along the costs to its customers who cannot find substitute products easily.
Functional products are those that are bought at a wide range of retail outlets like grocery stores and gas stations (Lee). For such products they do satisfy basic needs hence they don’t change much overtime which provides staple, predictable demand. Innovative products require a different supply chain from that of the low margin functional products. This strategy is very basic because it gives assurance to companies to know that they are taking the right approach. This helps