What is value?

Value has to be one of the most-used and least-understood terms in business. Books and articles are peppered with phrases like value added, value proposition, value chain, value innovation, economic value, shared value, superior value, company value, stock value, lifetime customer value, and competing on value. Yet most managers are hard pressed to define the term.  

In business, value is used to mean two different things. In the first case, it’s taken to mean monetary worth, as when someone says their home is valued at $500,000. In the second case, the meaning combines the concepts of worth and appeal, as when a customer considers something “worth buying” because it’s a “good value.” Business professors call this sort of value customer-perceived value or simply customer value or perceived value.  

The most widely accepted definition of customer-perceived value is based on a study in which customers were themselves asked to define the term. Professor Valerie Zeithaml, the author of the study, summarized their definitions in this way, “[P]erceived value is the consumer’s overall assessment of the utility of a product based on perceptions of what is received and what is given.”  The definition can be boiled down to the equation Value = Received – Given. This is consistent with the definition proffered by Professors J. Brock Smith and Mark Colgate, “From a customer’s perspective, customer value is what they ‘get’ (benefits) relative to what they have to ‘give up’ (costs or sacrifices),” which distills down to the equation Value = Benefits ˗ Costs. The terms benefits and costs warrant a closer look at their meaning. 

As the first two equations make clear, one way of defining benefits is to say they are what customers “receive” or “get” from a company’s offering. To “get” something is to “gain” something. The terms “get” and “gain” are consistent with the dictionary definition of a benefit, which says a benefit is “a gain or advantage.”  Combining the terms “gain” and “advantage” adds the idea that the thing which is gotten is something good or positive. To my way of thinking, there are six kinds of benefits—physical, mental, emotional, social, monetary, and risk reduction benefits. I’ll have more to say about the six kinds of benefits in a future post. 

Most people equate cost with purchase price. But there are more kinds of cost than the initial purchase price of an offering. The cost of an offering also includes the monetary costs incurred during the offering’s lifecycle (e.g., downtime costs, repair and maintenance costs, and disposal costs) as well as non-monetary costs that track with the non-monetary benefits—physical, mental, emotional, social, and risk costs.  

So, again, the equation Value = Benefits – Costs summarizes the concept of customer-perceived value. But if we treat a reduction in a monetary and non-monetary cost, other than price, as a benefit, we can “cheat” our way to the even simpler equation Value = Benefits – Price. If we cheat a bit more by putting price in the back of our minds, we get the equation Value = Benefits. While these two deceptions won’t pass technical muster, they sure make it a lot easier to implement the concept of customer-perceived value. After all, wouldn’t you find it easier to implement the idea of a benefit proposition than a value proposition?  

So, the next time you hear the word value, substitute the term benefit and see if you find it easier to think about the concept of customer-perceived value.  

Kevin W. Holt, the founder of Co.Innovation Consulting, is a strategic planning consultant and meeting facilitator based in Phoenix, Arizona. He works with commercial, government, and nonprofit organizations to develop innovative strategies and solutions. His strategy consulting and meeting facilitation practice centers on the use of proven processes mapped to collaboration technologies (e.g., electronic brainstorming) and specialized software tools (e.g., the Blue Ocean strategy canvas). The technologies enable him to serve as both an offsite meeting facilitator and a virtual meeting facilitator for strategic planning workshops, innovation labs, brainstorming sessions, feedback sessions, and other types of meetings. Kevin is the author of Differentiation Strategy: Winning Customers by Being Different, published by Routledge in June 2022.