Business Case Value Analysis

Business case value analysis is rooted in a specific theory or model of how buyers choose between competing purchase alternatives. People often refer to this model as the value equation. In this section, we will look at this equation and three of its key concepts. The three concepts are:

  1. a product's total value-in-use to a customer (often also called a product's "delivered value").
  2. a product's differential value-in-use to a customer, when compared against a competing alternative in the same product or service category (often also called "added value").
  3. a product's relative worth to a customer, given the prices of competing alternatives and differences in delivered value between those competing alternatives and the product in question (often also called "economic value").

All three of these measures of a product's so-called "value" are both tightly interrelated, yet still fundamentally different from one another. Many people fail to grasp the differences between the three. Yet an understanding of these differences is critical to making customer value an effective part of marketing strategy. Short of that understanding "value to the customer" often becomes little more than empty rhetoric.

We will define each of these concepts as we go along. You should come away from this section with a good understanding both of how the three concepts differ from one another and how they are interrelated.

We will look first at the value equation itself and a product's total value-in-use. Then we will rearrange some of the components of this value equation to derive formulas for estimating a product's differential value-in-use and its relative worth.

 

© 2001 CustomerValueCenter

Business Case
Value Analysis