What is Product Value?

Value is simply “bang-per-buck.” In this case, “bang” is just the number of benefits you are able to enjoy by virtue of purchasing the given product, service, transaction or event. The “buck” is rather self-explanitory.

The Nature of Product Value

So, the phrase “bang-per-buck” can be heuristically expressed as: Value = Benefits / Cost.  For example, let’s say a certain type of product has 10 core benefits per unit. We’ll also say that the customer must pay $5.00 per unit to recieve and enjoy those core benefits. Thus, the Entitlement Unit Value (EUV) would be: EUV = Benefits / Cost = 10 / $5.00  = 2 Benefits per Dollar.  In this case, the term “entitlement” is a rightful level of expectation often determined by negotiation.

However, its entirely possible that only a fraction of the total benefits can be realized (i.e., partial benefit). For example, the aforementioned product may have one or more deficiencies (of one type or another) that only allows 80% of the EUV to be enjoyed. Thus, the Realized Unit Value (RUV) would be: RUV = Q x EUV = .80 x 2 = 1.6 Benefits per Dollar. The difference between the EUV and RUV is “lost value.” The is the value that has been paid for, but not received.

The aforementioned explaination is at the highest level of generalization and understanding. Granted, there are a near infinite number of mitigating circumstances; however, at this level of discussion, such myopic factors need not be weighted into the discusion (at the risk of loosing sight of the central concepts).

About Mikel Harry

Dr. Harry has been widely recognized in many of today's notable publications as the Co-Creator of Six Sigma and the world's leading authority within this field. His book entitled Six Sigma: The Breakthrough Management Strategy Revolutionizing the World’s Top Corporations has been on the best seller list of the Wall Street Journal, New York Times, Business Week, and Amazon.com. He has been a consultant to many of the world’s top senior executives, such as Jack Welch, former CEO and Chairman of General Electric Corporation. Dr. Harry has also been a featured guest on popular television programs, such as the premier NBC show "Power Lunch." He is often quoted in newspapers like USA Today and interviewed by the media, such as The Economic Times. In addition, Dr. Harry has received many distinguished awards in recognition of his contributions to industry and society. At the present time, Dr. Harry is Chairman of the Six Sigma Management Institute and CEO of The Great Discovery, LLC.
This entry was posted in Value Creaton and tagged , , , , , , , , , . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s