What is Value Creation?

We hear people talk about “Value” everyday. It has become an overused word that in business is often over-simplified down to price. Value Proposition is often mistaken for a sales pitch and Value Creation an abstract accounting measure.

At nVision, we think a lot about value and value creation so it might be useful to explore the concept of value in the context of running a business.

Businessdictionary.com describe value as “The extent to which a good or service is perceived by its customer to meet his or her needs or wants, measured by the customer’s willingness to pay for it.”

Simple right?

Not so simple in reality because the customers needs or wants can be varied. For example:

  • doing the job
  • reducing cost
  • lowest price
  • better access to their own customers
  • availability of information
  • beautiful design
  • status
  • having access to the latest technology
  • and so on.

So naturally the customer will want all of these things right? But they aren’t all compatible – not every beautiful design gets the job done and cheap premium brands don’t exist.

Value becomes clear when a customer prioritises their wants and needs i.e. having the lowest price is more important to me than the latest technology.

If you can’t describe your customers’ needs and wants and how they prioritise those, then it’s time you did.

Your business creates value, for you and your customer, when you deliver to the needs and wants of the type of customer you are serving. To achieve this, understanding the needs and wants of the type of customer you are serving and how your products or services meet those needs is key. This is your value proposition.

If you find a mismatch between your offering and your customers’ needs then you have three choices:

  • change your product or service
  • find better suited customers
  • stop what you are doing

Some examples of successful companies that changed their value proposition to meet their customers’ needs are:

  • Facebook was briefly a “Hot Or Not” for Harvard.
  • AOL began as a video game on-demand service.
  • Twitter started as podcast delivery service.
  • Intel sold computer memory, not microchips.
  • Microsoft wanted to build software tools.Tiffany & Co sold paper.
  • Google wanted to search bulletin boards.
  • Silicon Graphics got its start making graphics terminals.

 

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