Value in business defined

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Value in business defined

Some people might think of value as saving money or being low cost. If you thought that too then it’s time to redefine your understanding of value in business.

What is value?

Value is the ‘what’s in it for me’ factor that people pay for in a service or product, it can be made up of both practical and intrinsic elements where the combination creates ‘total perceived value’. Let me explain.

Total perceived value = Practical value + Intrinsic value

Total perceived value =
Practical value + Intrinsic value

Practical value is what your product or service does, it’s the functional element.

Intrinsic value is the unseen element created by how people perceive you. This is determined by how you position yourself compared to others in your industry.

Together this creates total perceived value which influences whether the ‘what’s in it for me’ factor outweighs the asking price.

Value example – selling t-shirts

Value cartoon


Let’s discuss selling t-shirts. Plain tees might have a wholesale cost of around $6 per tee, you could buy some and then sell them retail as they are for maybe $15 per tee.

People would buy them because it seems like a fair price based on the cost of raw materials and someone needing to make them. $15 per tee is the practical value.

It would seem outrageous to sell the same tees for $75 per tee however if Nike takes those same tees, puts their logo on them and sells them, that’s a different story.

Why? Because the Nike brand has intrinsic value that people will pay extra for. They have superior positioning, they are globally known and have a reputation with a ‘coolness’ factor that some people desire.

Increasing total perceived value

There are many ways to deliver value, some examples are:

  • Quality
  • Pricing
  • Convenience
  • Experience
  • Reputation

Increasing total perceived value is best done by improving intrinsic value

Increasing total perceived value is best done by improving intrinsic value. This is achieved by how you position yourself compared to others.

The higher you can position yourself, the more value you have compared to others.

Levels of positioning

Let’s illustrate this with chefs.

  • Top level: Celebrity authority – Gordon Ramsey
    • 2nd level: Celebrity – Jamie Oliver
      • 3rd level: Authority –
        • 4th level: Specialist – gourmet chef
          • Bottom level: Generalist – local restaurant chef

The difference between Gordon Ramsey and a local restaurant chef is night and day. Gordon Ramsey may have additional cooking skills and knowledge compared to a local restaurant chef but is that difference fairly reflected in the incomes they both earn?

I would say no based on practical value however Gordon Ramsey’s celebrity authority position has far greater intrinsic value. He’s a rockstar in his industry and that’s what skyrockets his earning ability, worth and value.

In summary, value is the ‘what’s in it for me’ factor when what people receive is greater than what they spend. People will spend more on things they perceive to be higher value. Total perceived value is made up of practical value and intrinsic value. Intrinsic value can be increased by improved positioning.

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