Question

What is the value equation? Identify its various components and explain how the equation relates to a company's pursuit of competitive advantage.

Answer 1

ANSWER:

The value equation states that value for the customer can be increased by expanding or enhancing product and/or service gains, by price reduction, or by a combination of these components. The equation can be written as:

Value = perceived emotional associations + perceived tangible gains - perceived price

The various components are:

1. Improve the tangible gains: The tangible gains can be improved by increasing sales, reducing costs, enhance cash flow or implement better systems.

2. Improve the perception of the gains: It can be done by providing a client with a thorough explanation of all the details while preparing a set of financial statements and tax returns. It will help the client and they will certainly appreciate the high quality service

3. Improve the emotional associations: The timely delivery or quickly response to emails or phone calls to improve the associations.

4. Improve the perceptions of the emotional associations: Providing a care for each client can improve the perceptions of the emotional associations

5. Price Reduction: Reducing price improve a client’s perception of value

6. Reduce the perception of price: Bundling in some additional services or provide a guarantee increases the client's value for your services.

The above components will help the company increase it's value to clients. Knowledge of the customer in a combination with creativity and innovation may result to a total offering that offers superior customer value. If the gains are valued strong enough and strong enough by customers, a company does not need to be the low-price competitor to win customers. It will be helpful to link the price to the value so that as the clients get more value from what company do, and they will gladly pay company a higher price than the competitors; hence company can enjoy competitive advantage.