Estimating Value
Over the years, academics, market researchers, and strategy consultants have developed different approaches to estimating a product's value to a customer. However, few people have drawn a distinction between the different definitions of "value" in business markets and consumer markets. Thus, the relative usefulness of these approaches to estimating value in business versus consumer contexts has tended to be overlooked. The chart below begins to correct this oversight.
Listed on the right are three types of approaches we believe are better suited for use in consumer markets. The approaches use hypothetical choice models, measurements of customer priorities and perceptions, and "just ask" techniques. They all tend to focus on the subjective perceptions of a product's worth relative to a consumer's personal consumption needs, wants, and desires.
- Hypothetical choice models include conjoint analysis and discrete choice analysis. With these techniques, respondents are asked to choose between different hypothetical combinations of product attributes. Inferences are then made from the choice patterns as to the "value" the respondent implicitly places on each attribute.
- Techniques involving customer priorities and perceptions tend to ask respondents more directly what level of importance or priority they place on individual product attributes and how well they perceive the performance of different product alternatives in providing the benefits associated with those attributes.
- The "Just ask" approaches to value estimation do just that. They "just ask" respondents how much different product alternatives are worth to them.
Listed on the left is the approach we believe is best suited to estimating value in B-to-B contexts. We call it business case value analysis since it usually involves constructing a spreadsheet that provides a "business case" estimate of the differences between competing product alternatives in terms of the contribution they can make to a business customer's bottom line.
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