CHAPTER 1

What Is Value?

What is a cynic? A man who knows the price of everything and the value ofnothing.

—Oscar Wilde

The word value is used so often in business and so loosely that it is indanger of losing whatever meaning it had. In short, the concept of value itselfhas become devalued! In reality, value is the core driving force underlyingevery business decision. Therefore, it is important that we know what it is andhow it is defined and used in order to yield real insights into our daily work.

Although easy to ask, this question is really difficult to answer. We discoveredjust how difficult when we challenged managers from different companiesto come up with a robust definition. Here are just some of the answers we heard:

• "Value is getting more than I paid for (or expected)."

• "Value is the perception that I need your solution more than someone else's."

• "Value is perceiving I've had a good deal."

• "Value is getting a feel-good factor from a transaction."

• "Value is making my life a bit easier."

• "Value is a mystery!"

Alan Watson, a London taxi cab driver and greengrocer, had this to say aboutvalue:

My family has owned and operated a fresh fruit and vegetable stall in London formore than 90 years. We have come through two wars, a great depression, and adeep recession. We are about to go into another recession. We survived all ofthese, and we will survive the next one too. How? By listening carefully to whatpeople want, doing our best to give them it—and even a little bit more.People are more interested in value than price, and that's just what I givethem. I have customers who have been coming back to me for more than 40 years!

Alan's message is simple, durable, and actionable: "Understand exactly whatpeople want—and give them it!" This is the complete theme of this chapter.The message is simple, but we need to interpret it in the context of thecomplex, technology-driven, and intensely competitive corporate world of thetwenty-first century.

COMMODITY OR NOT A COMMODITY?

Most of us probably would agree that when it comes to commodities, water is afairly basic one. When we turn on the tap, we expect water to come out. Here inthe United Kingdom, that water is potable and, according to Thames Water, veryinexpensive, at around 0.002 cent per liter at the time of writing. On thisbasis, why would anyone want to pay any more for what is, after all, justH₂O? Clearly, a lot of people do. The U.K. bottled water market isworth close to £1.5 billion per year—a high price for something that is soinexpensive from the tap. Somehow the bottled water companies have succeeded indifferentiating their offering against tap water—and their othercompetitors—very effectively. In doing so, they have created benefits inthe minds of consumers, perceived or real, to which consumers clearly attachsome value. This perceived value is both tangible and intangible. Customersjustify their purchases generally on the basis of logical arguments—it'sconvenient, it has fewer chemicals in it, it's purer, and it's healthier.

How much of this is actually factual and how much is the result of marketingefforts is open to debate. However, value is derived from convenience (you can'ttake a tap with you!), perceived health and taste benefits (despite ThamesWaters' tap water coming in first in a blind taste test some years ago), andimage (if the people at the next table in the restaurant are drinking volcanicwater from New Zealand, your jug of tap water is going to look a bit sad!Claridge's Hotel in London now has a water menu to sit alongside its wine menu).And the price of a bottle? Anything from a few pennies a liter to $75 and more.For water! Simple H₂O with a little extra—brand image, cachet,a bottle designed by Jean Paul Gautier. So what is water really worth? Is it0.002 cent a liter, or is it $75 or more? Or even ... how much would you pay fora liter of water in the desert?

If a basic commodity such as water can be differentiated so broadly andeffectively, imagine what you could do with your own products and services.

SOME INTERPRETATIONS OF VALUE

Let's drill down a little into this thing called value and try to pullout a few important truths that will help us on the way to creating a robustdefinition.

Value as a Perception and an Expectation

When we compare one offer with another, we select the offer that captures mostcompletely whatever we are looking for. Our belief in its ability to actuallydeliver what we expect is based on perceptions alone if no other objectivesource of information is available at the time of purchase. In this scenario,the buyer is conditioned by the messages received prior to or at the same timeas the purchase. Objective reality does not "kick in" until rather later whenthe purchaser has had time to reflect on the transaction and to observeperformance in use.

Value as a Quid Pro Quo

In this situation, we expect a fair transaction in which the worth to us of theitem purchased is at least equal to (and certainly not less than) the sum of thesacrifices we make in procuring it—time to search for and choose fromamong options, cost of money to purchase, the price itself, and any associatedpsychological risk factors. The sacrifice is not of a monetary nature alone; italso reflects our time and effort in seeking out the good in question and islogically the best use of the limited resources at our disposal. In short, thisis a rational buyer's expectation.

Value as an Enhancement of Our Situation

A consumer or a business manager will invest his money in ways that will improvehis life in some meaningful manner. While he might be willing to accept a quidpro quo offer, he is delighted if he actually receives more than he expected,especially if what he does receive genuinely enhances his situation.

WHY DOES VALUE...