An excellent rendition of the value equation can be found in the business-to-business marketing text by James C. Anderson and James A. Narus, Business Market Management: Understanding, Creating, and Delivering Value (Prentice Hall, 1999). Anderson and Narus use the following formula to portray the value equation:
| (Valuef - Pricef) | > | (Valuea - Pricea) |
| Firm's Offering | Alternate Offering | |
They define Valuef and Pricef as "the value and price of a particular firm's market offering (Offeringf)" and Valuea and Pricea as "the value and price of the next best alternative offering of a competitor (Offeringa)" (1999:5). The difference between an offering's value and price is called the customer's inducement to purchase (1999:7). According to this formulation, for one firm's offering to be preferred over its rivals', it must offer the customer a greater inducement to purchase than any other competitor - that is, a greater surplus of value once its price has been deducted from the overall value its product or service delivers.
Unfortunately, the term "value" has been used in many different ways by marketing and strategy writers. For that reason, we should probably stop for a moment here to make sure we are all clear on what exactly the "value" is in this value equation.
As Anderson and Narus define it, a product's "value" to a business customer consists of two different things. The first is all the benefits the customer stands to receive from the product over the course of its useful life. The second is all of the costs - other than the price of the product - that the customer will incur in conjunction with obtaining those benefits. Anderson and Narus suggest that the best way to think of this "value" is as the net benefit the customer can expect to get from the product or service when all the benefits it delivers are combined with all the costs associated with its use, excluding its price.
There is a more precise, concrete term for this specific meaning of "value." It has been around for many years. It was introduced, in fact, in 600 B.C. by Aristotle. It continues to be widely used by economists today. Anderson and Narus themselves use it. That term is value-in-use.
We like the term value-in-use. We like it better, in fact, than the unadorned, naked "value." That's because value-in-use, or use value, is much less likely to get confused with all the other meanings to which people indiscriminately attach the single term "value." When you refer to a product's "value-in-use," most people will know what you mean.
A monetary construct
It is also important to note, as Anderson and Narus do, that in business-to-business markets, a product's value-in-use to a customer should generally be conceptualized in monetary terms. The reason is simple. It's because, by and large, businesses are in business to make money. Businesses that don't make money don't stay in business for very long. Boiled it down to its essence, the "value" a product or service brings to a business customer is usually the contribution that product or service makes, directly or indirectly, to that business customer's bottom line.
In other words, the value-in-use a business customer sees in a product is usually rooted in the positive financial gain that should come to the business as a result of using that product. A product's ultimate "value" to a business customer is its contribution to that customer's bottom line.
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