Many companies do not understand how their products, services or customer relations create value for their customers. They are assuming that adding features or improving performance will result in a difference. Two types of value creations matter to customers: * Economical or [[Monetary value]] * [[Psychological value]] Examples: * Sales will be able to use a strong value proposition * Marketing will benefit from understanding how value propositions differ across markets * Product Development will benefit from knowing which features customers want to pay for. The term //''value''// refers to the overall satisfaction a customers enjoys from using a product or service offering. Economic value will be lower than perceived use value in most of the cases. The differentiating value is related to the positive discriminating value in economic or psychologic value with respect to the competitive offering. <<image /static/files/MBI/Other/typesofvalue.jpg width:500>> !![[Monetary value]] Monetary value represents the total cost savings or income enhancements that a customer accrues as a result of purchasing a product or a service. This is the most important value for business to business sales. !![[Psychological value]] Psychological value refers to the many ways a product or service can generate satisfaction for a user (see [[Universal Benefits]])) !![[Differentiating value]] The differentiating value is the net benefit your product or service delivers to customers over a competitive offering. Differentiation can be negative (your offering is priced higher expensive) of positive (your offering is priced lower) with respect to a competitive baseline. !![[Total economic value]] The total economic value is defined to be the price of the customers best alternative (reference value) plus whatever differentiates the offering from the competition. !![[Next Best Competitive Alternative]] One of the most critical aspects driving customer choice and willingness to pay is the alternative offerings. The next best competitive alternative (NBCA). The NBCA, which is the price the competitor charges for the product or service, defines the reference value for an offering. !!Methods to quantifying monetary or psychological value !!!Competitive reference prices # Make sure prices are in terms known to your market segment (currency, physical unities) # Polling the sales force #Interviewing customers !!!Estimating monetary value Ultimately the ability to appropriate monetary value is depending on the accuracy with which buyers perceive the generated value # Estimate gain for economic value drivers # Create list of economic value drivers for each segment # Cost drivers # Revenue drivers # Create value driver algorithms for each driver # Add up all items to come to the total monetary value # Tip is to only add up the monetary value with respect to the next best competitive alternative Example value drivers: * Yield opportunity costs * Yield labor savings * Quality control labor savings * Sample size opportunity costs * Sample size labor savings !!!Estimating psychological value The most widely used approach for this is [[Conjoint analysis]] In conjoint analysis the product or service is decomposed in features. Potential buyers are confronted with different features and asked which they prefer.