The Nature of Value and Understanding Its Impact on the Sales Experience

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THE NATURE OF VALUE AND UNDERSTANDING ITS IMPACT ON THE SALES

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The Nature of Value and Understanding Its
Impact on the Sales Experience
THE NATURE OF VALUE AND UNDERSTANDING ITS

IMPACT ON THE SALES EXPERIENCE
Roger McCoy
PhD Management Student
Strategic Sales Course
LIGS University
November 13, 2017
1
AFFIDAVIT
I hereby declare that I wrote this seminar paper individually and on my own with help of
the tutors without using any other sources and aids. I declare not to have any objections
to lending or publishing this seminar paper or its part with the consent of LIGS University.
Dated this 13th day of November in 2017.
Roger D. McCoy II
Roger D McCoy II
2
ABSTRACT
The Nature of Value
Customer value is commonly discussed, universally seen as important, yet is
difficult to define. It’s made of many factors including quality, ownership advantages,
brand, experience, knowledge and image. Value is comprised of two key elements, the
benefit the item or service brings to the consumer, and the cost of acquiring and using
the item. The relationship between these two elements determines the value to the
customer.
Value and price are not the same thing. Value is the benefit the product brings at
a cost. Benefit and Cost are components of value. A critical factor is that benefit level is
unique for each consumer. Their situation determines how highly they benefit.
Producers or suppliers must continually communicate with and educate their
potential customer base to ensure they produce items that are perceived as beneficial to
them. And they need to be viewed as experts in their areas.
A value pyramid, like Maslow’s Hierarchy, was developed in 2016 identifying and
prioritizing the 30 values consumers use when considering their purchases. The
researchers determined that companies that performed well on multiple value elements
have more loyal customers and grow faster. Also, digital retailers can explain their
explosive success to their use of multiple elements. The research also analyzed these
30 value elements by industry and identified those elements most important for success
within each industry. Most interestingly, Quality was the highest-level element in each
industry.
Many researchers have attempted to quantify value by creating value equations.
Despite the complexity of some, they can be grouped into one of two types. The
equations are: “Value = Benefit – Cost” and “Value = Benefit / Cost.” Note that each
includes the same components. Put simply, Value increases as Benefits increase or
Costs decrease, and conversely. One model expands “benefits” in detail and offers
methods for increasing value perception in a variety of sophisticated ways.
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The challenge in all models is the difficulty in quantifying Benefit. Because of that
difficulty, many companies focus on the simpler comparison of Value and Price (or cost).
Commonly the discussion is a comparison of perceived value versus cost. “More value
for your dollar” is a frequently used phrased. It’s linking value and cost directly.
The underused, and perhaps more meaningful, term is consumer Benefit. What
good does the product or service bring to them? The relationship with the greater
meaning is benefit and cost. “Get more for your money?” The “more” in this phrase is
benefit. Identifying benefit to the customer is the key to the transaction.
Value is the result of properly understanding the relationship between benefit and
cost. And it’s not static. How the customer perceives the benefit provided will determine
whether it make sense to invest at the established price. Or whether it’s appropriate to
give a discount to the customer to enhance the value.
An interesting concept is that of the buyer and seller “sharing” the value of a
product. The link is the “price” of the item. As the price increases, greater value is
generated for the seller. Conversely, as the price decreases, the value is shifted to the
buyer.
Using Value in Sales

A common failure of sales people is their focus on the product or service they’re
offering rather than listening to the problems and needs of the customer. The goal of
every sales person is to create value for customers by understanding their problems and
confronting them. Failing on focusing on value and the related benefits will commonly
result in customer objections. The goal of any sales situation is to overcome the potential
objections, before they’re vocalized by the customer.
When objections do occur, take a breath and relax. And ask questions. The proper
questions may answer the objections without hitting them “head on.” Recognize that price
objections, though common, may be merely a smoke screen for the real objection.
Avoid giving pricing until you’ve adequately built perceived value by the customer.
Once a number is out, it stifles communication. Make sure you’ve completely described
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the benefits offered to the customer, and confirm they’ve understood them, before offering
pricing.
Focus on quality and value. “Most people look for three things when making an
investment: 1) the finest quality, 2) the best service, and 3) the lowest price. I’m curious,
of the three, which are you most willing to give up?” Note that Quality is the number one
value element in every industry.
With the expansion of digital communication and social marketing, and with the
additional increase of millennial consumers, the in-home sales presentation is falling out
of favor. Producers and suppliers are using technology to provide perceived benefit to
consumers while effectively differentiating their product and companies on line.
Frequently, sales decisions are made without anyone visiting the home of the consumer
or having any face-to-face contact.
Whether over a counter, in a home or through sophisticated media; the focus is on
communicating with the customer, asking questions, determining need, and presenting
relevant information that demonstrates how the product or service benefits them.
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KEY WORDS
• Benefit
• Cost
• Customer Value
• In-Home Sales
• Objections
• Overcoming Objections
• Perceived Value
• Price
• Sales
• Sales Objections
• Salesperson
• Value
• Value Equation
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TABLE OF CONTENTS
1. Introduction 9
2. The Nature of Customer Value 10
3. Various Equations Describing Customer Value 18
4. Discussion of Various Value Equations 28
5. Understanding Customer Benefit 29
6. The Importance of Customer Value in Sales 30
7. Conclusions 35
8. Abbreviations 38
39
9. Bibliography
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LIST OF FIGURES
Figure 1. Customer Perceived Value (p 10)

Figure 2. Your Value Proposition (p 11)
Figure 3. The Elements of Value Pyramid (p 14)
Figure 4. Which Elements are More Important (p 15)
Figure 5. Value Equation (p 20)
Figure 6. Value Map (p 23)
Figure 7. Value Function Equation (p 24)
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INTRODUCTION
What is the nature of customer value? Can it be described effectively so there is

a common understanding between consumer and producer? Are there mathematical
models that accurately describe value and break it down into its components? And how
can the concept of value be used properly in the sales process?
This paper we will describe value and show its meaning to sellers and their
customers. We’ll show the relationship of value to its key components: customer benefit
and cost. Sophisticated models exist to help us understand value and how it impacts the
sales process.
An interesting concept is that the seller and buyer “share” the value of an item,
their link being the cost. As the price changes, the relative value shifts from one to the
other.
Value can be defined in mathematical equations. There are many such models
including many elements. But most are expansions of the basic comparisons of value,
benefit, and cost.
The meaning and value of customer benefit will be discussed and shown how it
relates to costs and value of products or services.
Finally, we’ll review how the consideration of value impacts the sales relationship.
And whether these relationships are changing.
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THE NATURE OF CUSTOMER VALUE
“Customer Value is the level of satisfaction of your customer towards your

business or product (Cromwell 2017).” Another way of viewing value is it’s “the perception
of what a product or service is worth to a customer versus the possible alternative.” It’s
composed of unique “pieces” having meaning to the potential consumer. Not necessarily
readily identified by the seller.
Figure 1 – Customer Perceived Value (Cromwell 2017)
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The relationship isn’t only linear, since customers spend more than cash.
They may also consider time, effort, convenience and energy in the value equation. The
“benefits” might include: quality, ownership advantages, brand, experience, knowledge
and image.
Figure 2 – Your Value Proposition (Cromwell 2017)
The darkened area in the figure above represents the intersection of the
customer’s needs, the marketplace offerings and your offering. A key component in this
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process is communicating with the customer and listening actively to identify their needs.
Your goal is to solve their problem. You’re successful when you can use your product in
this solution.
“Value and price are not the same thing. But salespeople often allow their
customers to think of them as the same thing (Hunter 2013).” Value is the benefit the
customer receives from what is offered.
There are 6 ways we can show value to the customer.
1. Keep the customer’s perspective in mind. How does this benefit them? Don’t
focus on what you’re offering, but what benefits the customer. Detail that in ways
they understand and appreciate.
2. Keep track of each customer’s communications. And quantify the value of advice
and services you offer.
3. Share industry best practices with your customer. Give them the benefit of your
experience and contacts with others in their industry.
4. Keep the customer informed of industry trends.
5. Continually educate your customer. Typically, there is a minimal cost to you, but
the customer may see an extraordinary value in information.
6. Document and quantify the entire value of your company’s supply chain to the
customer.
Help the customer see the value you add to the process. Value is perceived in
their eyes, not yours. But by continually communicating and educating, you can be
perceived as an expert with valuable services.
“Customer value models are based on assessments of the costs and benefits of a
given market offering in a particular customer application (Anderson and Narus 1998).”
A supplier might build value by understanding the specific needs of their customer, rather
than the general benefits a product offers.
Value, in business terms, “is the worth in monetary terms of the technical,
economic, service, and social benefits a customer company receives in exchange for the
price it pays for a market offering (Anderson and Narus 1998).” Value and price are
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viewed as two elemental characteristics. These researchers suggest that raising or

lowering the price for a product or service, doesn’t impact its value. It only changes the
likelihood of a customer purchase.
Value can be defined in the following equation. Values-Prices > Valuea-Pricea.
Where “s” is the offered supplier package and “a” is an alternative supplier package. The
customer’s incentive to purchase must be greater from the offered supplier than from any
alternative to facilitate a purchase.
“Customer value used to be a simple concept of how much they pay for a solution,
compared to their incremental cost reduction driven by your business (Zwilling 2016).”
But with the rise of social issues and the dramatic expansion of digital communications,
establishing competitive and profitable pricing has become far more difficult.
• Free and low-cost offers may not be as effective. Customers are placing a greater
value on experience, social impact, empowerment and feedback.
• Internet information makes pricing more transparent to consumers and expands
pricing to include worldwide suppliers.
• Digitals remove the middleman in transactions. Producers can deal directly with
consumers.
• Digital allows a far greater level of customization to satisfy consumer needs or
desires.
• Far greater convenience is frequently offered by digital suppliers.
• Digital networks enhance consumer value access.
Producers, suppliers and sales teams must focus on identifying the dimension
most important to their consumers and satisfy their unique needs.
“The amount and nature of value in a particular product or service lie in the eye of
the beholder (Almquist, Senior and Block 2016).” Three Bain & Company consultants
have constructed a “Value Pyramid”, similar to Maslow’s hierarchy of needs, to describe
how consumers establish value when considering purchases. This rigorous model of
consumer value might help companies develop ideas on how better to “package” related
values and make their products more attractive to consumer groups. The 30 elements of
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value fall into one of four categories: Functional, emotional, life changing, and social
impact.
Figure 3 – The Elements of Value Pyramid (Almquist, Senior and Block 2016)
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Underlying this value hierarchy are 3 hypotheses.

1. Companies that performed well on multiple elements of value would have more
loyal customers.
2. Similarly, those multiple element companies would grow at a faster rate.
3. The astonishing market expansion of digital retailers could be explained, in part,
by their multiple elements success.
Each of these hypotheses were confirmed empirically. In each case, a company’s
satisfaction of multiple value elements led to their success.
They found that some value elements matter more than others. Perceived quality
affects customer advocacy more than any other element. They determined which
elements influence customer loyalty to a greater extent by type of business. The table
below illustrates that point. As you can see, quality is a pervasive element. And they
found that no other elements can make up for a significant shortfall on quality.
Figure 4 - Which Elements Are Most Important? (Almquist, Senior and Block 2016)
What customers value in products varies by industry. Here are the top five
elements influencing loyalty for 10 types of businesses.
• APPAREL RETAIL • TV SERVICE PROVIDERS
• QUALITY • QUALITY
• VARIETY • VARIETY
• AVOIDS HASSLES • REDUCES COST
• DESIGN/AESTHETICS • DESIGN/AESTHETICS
• SAVES TIME • FUN/ENTERTAINMENT
• DISCOUNT RETAIL • CONSUMER BANKING
• VARIETY • PROVIDES ACCESS
• REDUCES COST • HEIRLOOM
• SAVES TIME • AVOIDS HASSLES
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• REWARDS ME • REDUCES ANXIETY
• GROCERY • BROKERAGE
• VARIETY • MAKES MONEY
• SENSORY APPEAL • HEIRLOOM
• REDUCES COST • VARIETY
• REWARDS ME • PROVIDES ACCESS
• FOOD AND BEVERAGES • AUTO INSURANCE
• SENSORY APPEAL • REDUCES ANXIETY
• VARIETY • REDUCES COST
• DESIGN/AESTHETICS • PROVIDES ACCESS
• THERAPEUTIC VALUE • VARIETY
• SMARTPHONES • CREDIT CARDS
• REDUCES EFFORT • REWARDS ME
• VARIETY • HEIRLOOM
• ORGANIZES • AVOIDS HASSLES
• CONNECTS • PROVIDES ACCESS

FROM“THE ELEMENTS OF VALUE,” SEPTEMBER
2016 © HBR.ORG
Interestingly, companies with higher scores on emotional elements, tended to have

higher NPS scores.
These findings can make significant contributions on how companies bring
products to consumers. Despite long held beliefs, pricing is not the most significant factor
in buying decisions. New product development should include an evaluation of these
value elements to assist in how or whether a new product is brought to market. And that
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analysis should include detailed customer segmentation to help understand the key
elements among groups or areas.
An analysis of the above Bain & Company “value elements” study, provides a
simple message to the emerging digital marketplace: “Add Value” (Schaefer 2017). The
writer points out that those companies that could claim four or more of these value
elements had three times the NPS (Net Promoter Score) of those that focus on one value
element and 20 times the NPS of those that have no value element focus. “Companies
must choose their value elements strategically.” Quality being the key element.
Many consider this research empowering. Never has “value”, from a customer’s
perspective, been so detailed and clarifying. What has long been an indefinite concept,
this research provides methods to producers and sellers to better reach their prospective
customers and enhance the overall relationship. And the fact that Quality is a common
and important factor in all industries provides clear guidance to all companies.
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VARIOUS EQUATIONS DESCRIBING CUSTOMER VALUE
Many models are used to try to quantify the nature of value. None are perfect.
Many are similar. They can be broken into one of four groups. The most common is
that value is composed of two parts, Benefit less Cost. The suggestion is that Value is
what remains when you subtract the cost of the item from its benefit. An increase in
benefit with static costs, or a decrease in cost with static benefits will increase the value
of an item.
The second grouping of value models equate value as a ratio of benefits divided
by costs. Like the previous model, increasing benefits or decreasing costs, increase
value. But the relationship is a ratio.
The third group of models is everything else. They basically expand on one of
the previous models and provide greater details explaining either the benefit or cost of
the item.
Finally introduced is a far more complex value model viewing it as a function with
a variety of variables.
The Benefit – Cost Approach

“Customer value is the perception of what a product or service is worth to a
Customer versus the possible alternatives. Worth means whether the Customer feels
they got benefits and services over what they paid (Mahajan 2016).” Customer Value =
Benefits – Costs.
To create real value, you must recognize what a customer perceives as value.
Examples of ways to create Customer Value.
• Give a price that makes the customer believe he is getting more than he pays for
the benefits … and better than competitors’.
• Reducing the price, or keeping the same price while providing something extra.
• Make it convenient to acquire or pay.
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• Company image can enhance the value perception.

• Providing a product that is easier to understand or use.
• Make the customer feel valued with superior customer service.
“In every buying decision, a consumer asks the same question: ‘is what I am going
to receive worth that I must give up to get it’ (McLaughlin 2017).” The value the customer
places on a product or service becomes the customer value for that offering. Benefits -
Cost = Customer Value
No two customers will have the same customer value due to their unique set of
needs and resources. There are three ways a company can establish customer value for
its customer base:
1. Provide the best price
2. Provide the best product
3. Provide the best customer service
“The value customers receive is equal to the benefits of a product or service minus
its costs (Stark and Stewart 2011).” They suggest setting a price that clearly shows the
customers they’re getting value, but maximized your “take.” Value = Benefits - Cost.
“Value varies for each consumer (Meyer-Klubben 2015).” One equation
representing value is: Value = benefits received - [price + hassle]
In this equation, “hassle” is the time and effort the consumer puts into the shopping
process.
Another researcher suggests, “… the relationship between benefit and cost and
the resulting value can be expressed in terms of the following equation: ‘value = benefit -
cost’ (Riker 2010).” Reducing consumer costs, increases their value, as long as the
benefit doesn’t change. Another way to increase value is to increase benefits, offering
“more”, for the same cost.
The greatest challenge in any formula like this is monetizing the benefit. The
benefit is composed of many factors, many having nothing to do with money.
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One expression of value is: Customer’s Perceived Benefits - Customer’s Perceived

Costs = Perceived Customer Value. Generally speaking, “consumer value” focuses on
the buyer’s evaluation of product purchases at the time of buying (Lai 1995).”
“For the customer the net value from using your product is total value created less
the price they pay. The total value can come from: 1) Incremental revenue, 2) Decrease
in costs, or 3) Relationship costs (Srinivasan 2010).” Under this view of value, as long as
total value created is more than what they pay, the customers are happy to pay.
Customer value = Value Added - Price.
Figure 5 – Value Equation (Srinivasan 2010)
A second concept is introduced, the Marketer Value. Price - Cost = Marketer

Value. In a sense, the marketer shares the value with the customer. Their reducing the
price adds value for the customer, other factors remaining equal.
The Benefit / Cost Approach
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“The maniacal push by restaurants for lower prices and recession-busting menu
items has left the true definition of “value” blurred (Oches 2010).” Subway launched a $5
sub value deal to overcome the McDonald’s and Wendy’s $1 value menu items. But what
does “value” mean? In the fast food industry, does value mean $1 items … or $5 items?
The true meaning of value has been distorted. Taco Bell’s “Why Pay More” menu has 10
items for 99 cents or less. Is that a greater value?
Does value just mean lower price? “From a consumer’s standpoint, value is an
evaluation between what they get and what the price is (Oches 2010).” There are at least
four components in determining value: price, quality, quantity, and flexibility.
Adam Werner states: “Value is a function divided by price or cost.” Function is
basically food quality. The higher the value score, the higher the food quality at a given
price point.
“Quality is about maximizing the value equation both through maximizing
‘excellence’ in delighting our consumers, while also minimizing costs through driving
financial and organizational efficiencies (Thomas 2013).” In its simplest form: Value =
Benefit / Cost.
Benefit is the degree to which a customer’s need or want is satisfied. Cost relates
primarily to the monetary cost of the product or service, but can also include time spent,
resources used, effort expended and complexity.
Another Value Equation is: V=WIG/P. Value equals ‘What I Get’ divided by Price.
If I can get more for the same price or get the same amount and pay less, it’s a better
value in either case (Ahearn 2016).” Rather than simply cutting the price, you need to
focus on creating value in the mind of the consumer.
“VA/VE is a logical approach to improve the ‘value’ of goods and services through
a comprehensive examination of function (VA/VE 2017).” VE is for value engineering.
Value = Function / Cost
The key function of VA/VE is that functions be preserved or improved and not be
reduced as a consequence of value improvements.
1. Reduce cost while increasing function
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2. Reduce cost while maintaining function

3. Increase function while maintaining cost
4. Increase function while increasing cost by a proportionally smaller amount
5. Decrease function while decreasing cost by a proportionally greater amount
Other Value Equations

Professor Paul Fifield developed a methodology to define value (Fifield 2017). His
process is detailed below. Value = Benefit - Effort - Risk - Price.
• Value resides with the product or service and is variable and based on the needs
wants and expectation of each consumer.
• Benefit is what the customer buys and again is a very personal proposition. The
greater the benefit, the greater the perceived value.
• Effort makes things hard for your customers and you will always struggle to sell to
them. It has to be easy.
• Risk is mitigated by trust. Trust comes from knowledge and experience.
• Price is the most difficult part of the equation and is driven by other components.
Price relates to expectations. Higher price = higher expectations.
“The value equation for customer-centric innovation comes down to shifting the
focus from cost savings to revenue growth and a competitive differentiation (Reeder
2017).” Value can be expressed as an equation. Value increases when the denominator
decreases or when the numerator increases. When looking at selling services or
innovations, a different look may exist. Value = Growth and Efficacy / Savings and
Efficiency. Efficacy is the ability to produce a desire or intended result.
“Overall, the value equation from customer-centric innovation comes down to
shifting the focus from cost savings to revenue growth and a competitive differentiation.
This type of innovation is a deep learning on how to transform complete business models,
not just technology (Reeder 2017).”
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“The 7 ‘Ps’ of the marketing mix are: Price, Product, Promotion, Place, People,
Process, Physical Evidence. Using these terms, we can generate the value definition as:
Value = (Product + Promotion + Place + People + Process + Physical Evidence)/Price
When the customer says, “that’s too much”, we can find out what elements above
the line can change rather than just lowering the price to get the perceived value (Sury
2017).
A More Advanced Value Model

The Value Equation - Value Function Overview (Homa 2007). The value map
provides a powerful conceptual framework for pricing decisions. To make the concept
operational, it must be empirically specified (i.e. defined on a more analytically precise
basis for a specific product / market).
Figure 6 – Value Map (Homa 2007)
A "model" for specifying the value function more precisely is the pricing protocol
used by online PC companies (like Dell and Gateway). A customer is presented with a
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base model (chip speed, "must have" features) and a priced menu of upgrades and
optional features (e.g. bigger disk, communication interfaces). Customers are compiling
a unique product that specifically matches their value function: they only select features
that they think add value. The conceptual extrapolation of the PC pricing model is the
value function - an algebraic form of the value map.
Figure 7 – Value Function Equation (Homa 2007)
This form of the value equation (or "function") is called a linear compensatory
model since high values for some attributes can compensate for low values on other
attributes. From a strategic perspective, the value function can offer broad and deep
insight. Specifically, the value function highlights the marketing actions that can be taken
to enhance value, such as:
a. Introduce an attribute ("i") missing from the product. Example: Competitive pc

models already incorporate a built-in modem.
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b. Introduce a new attribute (increase "n") with favorable cost / price leverage.
Example: Introduce the first combination CD-RW and DVD .
c. Communicate to customers that a product is closer to an attribute ideal than they
might perceive (modify the "b"). Examples: Publicize superior ratings from expert
references like pc magazines; leverage brand equity to support claims.
d. Change the product to more closely align with the attribute ideals. Example:
Upgrade hard drive from 20 to 40 gigs.
e. Communicate to customers that an attribute should be perceived as
more important (modify the "a"). Example: "Alloy metal case for increased
durability."
f. Target customer segments that heavily weight the importance of attributes that the
product has (benefit segmentation along the "a" variable). Example: "Light weight
is perfect for the business traveler."
g. Change the product's price (P) to recalibrate the value delivered. Examples: Cut
list price; introduce special promotional discounts; unbundle pricing (e.g. charge
separately for shipping & handling); change terms & conditions (e.g. fee waivers,
low cost financing).
h. Redesign the product to hit "target costs" by eliminating features that add costs but
relatively little value. Example: Since the introduction of RW-CDs, Zip- type drives
add cost to a PC, but relatively little unique value.
Several strategic principles can be drawn directly from the value function:
a. A product must be at least at parity on all heavily weighted attributes to be

competitive.
b. A product that beats competitive products on a heavily weighted attribute is well
positioned to win.
c. In general, there is little leverage from low weighted variables.
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d. But, if all products are at parity on heavily weighted attributes, winning is

dependent on performance on a lesser weighted but differentiating attribute.
e. The "best case" strategically is often to introduce a new (proprietary) attribute and
drive its importance weighting up.
f. Cost reduction is an on-going necessity, required to protect margins as products
mature.
g. Price reductions, while often an apparently expeditious action, should be
considered as a last resort after other more sustainable value-enhancing moves.
Clearly this model is complex, and beyond many company’s’ ability to properly and
completely use. But when the components are broken down into pieces, many
companies may be able to use some of the key points.
An Equation Opposing View

Michael Porter, a Harvard Business School economist, doesn’t believe we can
effectively view value as a ratio with some sort of outcome descriptor as the numerator
and a measure of cost or price as the denominator. He cites 5 reasons for this
impracticality (Porter 2016).”
1. Quality is multidimensional and can’t be properly represented as a single value.
Also, costs vary over time and he doesn’t feel any formula can properly account
for the buyer’s brand perception.
2. A linear formula doesn’t work because the relationship between value, quality and
cost are curvilinear. These relationships can’t be properly rendered in a straight
line.
3. A formula doesn’t consider continuoua changes within a market. Examples can
relate to crowded or limited availability of the product or service. It fails to account
for market context.
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4. Since the value is typically expressed in a ratio, it doesn’t properly account for
changes of any value and how it might impact in a non-proportionate way. A 20%
decrease in quality may not relate directly to a 20% decline in price.
5. The final concern is about the problem related to division by zero. If some type of
cost factor is in the denominator, the value computation becomes “undefined” in
algebraic terms. And sometimes products and services may be offered at zero
cost.
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DISCUSSION OF THE VARIOUS VALUE EQUATIONS
Which of these models best represents value’s true nature? Although very
complex, the Homa “function” model is a form of the V=B/C equation. It breaks the benefit
into numerous pieces and weights them appropriately by customer or customer-group. A
comparison of the V=B-C and the V=B/C is most appropriate. Do either, or their more
complex “cousins”, properly reflect the nature of value?
In the first model, cost is subtracted from benefit to arrive at value. It works
mathematically. If you rearrange the terms, there is still meaning. V=B-C. B=V+C. C=V-
B. Increasing benefit, adds value. Reducing cost adds value. And decreasing benefit or
increasing cost decreases value. But there is no proportion suggested in the equation.
It doesn’t show a dependency between benefit and cost.
The second model shows a proportion between benefit and cost. V=B/C. It’s
harder to understand the relationships if you realign the formula. V=B/C. B=C*V. C=B/V.
It’s harder intuitively, to see these practical relationships. But it suggests a greater
dependency between the two factors of benefit and cost.
Quantifying benefit is the challenge in any equation model. Benefit is not
quantifiable. But either model still shows a meaningful relationship. How changes in
perceived benefits or costs directly change value. Whether proportionately or otherwise,
there is still meaning.
In his critique, Porter indicates one problem with the V-B/C model is the algebraic
challenge of division by zero. What if an item is free? How does that impact value?
Division by zero is “undefined,” and therefore without a clear meaning. But perhaps in
this context, that’s not as significant a drawback as it appears. What is the value of a gift?
Or something received for free? Nothing has been sacrificed by the consumer, there is
no cost. And frequently such items are perceived to have little personal value. Perhaps
it’s reasonable that the ambiguity created by the “undefined” result, creates ambiguity of
the value of the value to the receiver. Does something free have value?
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UNDERSTANDING CUSTOMER BENEFIT
Perhaps we use the wrong term when we speak of value. Commonly the
discussion is a comparison of perceived value versus cost. “More value for your dollar”
is a frequently used phrased. It’s linking value and cost directly.
The underused, and perhaps more meaningful term, is consumer Benefit. What
good does the product or service bring to the consumer? The relationship with the greater
whether it make sense to invest. Or whether it’s appropriate to give a discount to the
customer to enhance the value.
In any successful transaction, the benefit to the customer must be stressed. And
it must come before mention of price (cost). And most importantly, the benefits must be
viewed from the customer’s eyes. How does this product or service benefit them?
Too frequently sales people focus on the product being offered. One size fits all.
These products might have high benefit to the customer. But if benefit isn’t effectively
conveyed, there can be no commitment from the customer. And no Value created.
Questions are the best method of determining what’s most important to the
customer. Determining their interests, their needs, their passions. Only through
effectively evaluation their interests, can a sales person properly identify how to provide
the greatest benefit to the customer.
29
THE IMPORTANCE OF CUSTOMER VALUE IN SALES
“Everyone likes to feel they’re important enough that someone remembers the little
things in their life (Hochland 2011).” Modeling your business like a country store is one
of many suggestions for creating greater value in the minds of your customers.
Ask questions before starting a presentation is another good idea. Find out the
needs of the customer. Reveal something about yourself, make it personal to build trust.
Don’t be distracted by modern technology. If you look at your computer or phone while
you’re talking to a customer, it suggests that activity is more important than the customer.
Be patient and thorough. Show the customer clearly how your product or service solves
their problems. And exhibited patience helps the customer believe you are truly
concerned about their wellbeing.
Perhaps most important … listen to your customer. You may have the greatest
product, but how can you suggest it until you understand the customer’s situation?
Listening shows trust and concern. And “people like to buy from others they like, trust
and can relate to (Hochland 2011).”
confronting them.
“In essence, a problem is simply nothing more than the difference between what a
customer is experiencing or achieving now, and what they’d like to achieve (Fortune
Group Staff 2017).” The gap between these two is the problem. A salesperson’s goal is
to eliminate that gap by solving their problems. If your product or service can solve the
problem, price is a far less significant issue.
“Sales representatives use their personal selling skills to increase the chances of
a successful sale. They aim to understand a prospect’s needs and offer a solution to
those needs in the form of a product or service that provides strong benefits and
represents value for money (Linton 2017).”
30
“Sales is a people business, but that doesn’t mean that tools can’t help you work
more efficiently (Chen 2016).”
Dealing with Objections

“Whenever you’re faced with a difficult question or objection, the first thing you
need to do is take a deep breath, make eye contact with your prospect and silently count
to three (Francis 2017).” Don’t jump in with a “pat” answer. Think and let them think.
Sometimes they’ll answer their own objection.
Don’t be afraid of silence.
Then, ask questions. Questions are frequently the answer to difficult situations.
And if done properly, you can ask up to 3 questions before dealing with an objection
directly. The proper questions may answer the objections without hitting them “head on.”
“A lot of time price is not the only issue and it’s merely being used as a smoke
screen (Stritch 2017).” Price may not be an issue at all, but a simple excuse for not acting
today. Ideas for overcoming price objections are many.
One key point is don’t immediately try to overcome a price objection. Give it time.
“And what else is a concern” can deflect to possibly more important objections. And
waiting may give you time to effectively deal with any objection.
Avoid giving pricing until you’ve adequately build perceived value by the customer.
pricing.
Respond to a price objection with a review of the customer’s needs and goals.
Help them tell you the value of a solution. “A genuine pricing objection only exists if the
following scenario is true (IRD Staff 2017).” Price >= the prospect’s perceived value
of your product and service.
31
Before mentioning price, ensure you establish the customer’s need and how the
product or service will satisfy it. If you don’t, you will encounter the price objection
because you haven’t established the value of what you offer.
Tom Reilly, a leading sales trainer, offers a variety of methods to overcome the
price objection. According to Tom, “your price is too high,” is the number one objection
that salespeople encounter (Reilly 2017).
• Slow down the process. Breath and relax. Emotion is the main enemy in this
process.
• Crystallize the objection. Is price the real objection, or just the convenient one?
“Can you elaborate on why this is your objection?”
• Respond effectively and offer alternatives.
• Ask clarifying questions. Sometimes just the discussion will reduce or eliminate
the objection.
• Reassure the buyer. Identify why your company is better able to provide the
product or service.
“The only reason to ever have a price objection is because you haven’t built the
value of your product or service and the benefits it provides to an amount equal to or
greater than the dollars you are asking for it (Bellah 2012).” Rather than taking things off
the “price” side of the value scale, add things to the other side, the building value side, of
the scale.
The best plan is overcoming objections before they occur. But if that doesn’t occur,
Bellah offers 5 methods of overcoming objections.
1. Reduce to the Ridiculous. Break down the price to the smallest value possible,
per day or per hour. A $5,000 price for a new air conditioner equates to only $1.37
per day over the expected 10-year life of the unit.
2. Consumers naturally complain about price. It’s a basic requirement. Confront
them and ask simply, “Is that a complaint or an objection? We all complain about
the cost of the modern world.”
32
3. Use reasons from previous customers describing why they invested in a similar
product.
4. Stress the value you bring to the process, and that added value is free.
5. If a price objection is the key (and it usually is), explain you’d rather apologize for
the small price differential today than for a lack of quality and their unhappiness in
the future.
Tom Hopkins is a highly revered sales trainer. In an article about overcoming the
“price” objections, he suggests some strategies that focus on value.
“Begin by understanding that most people are afraid to part with their money.
Money equals security. And it doesn’t matter whether you’re asking them to part with
$19.95 or $1,995 for your product (Hopkins 2004).” One approach he suggests is respond
to the objection with “You think the product costs too much?” Then “how much had you
expected to pay for a product like ours with all the quality and benefits it offers?” and
review the benefits briefly. Use terms suggesting they already own the product.
Personalize it.
Then focus on quality and value. “Most people look for three things when making
an investment: 1) the finest quality, 2) the best service, and 3) the lowest price. I’m
curious, of the three, which are you most willing to give up?”
Finally, if it’s a large ticket item, reduce the price, or price difference, to the
ridiculous. Extend the price over the expected useful life of the product and compute the
cost, or difference, per day. “Do you really want to let 54 cents per day stop you from
enjoying this product?”
Clearly the focus is on the benefits derived from the product or service, which leads
to a high value perception while reducing the price impact.
Upcoming Challenges in Creating Value for In-Home Sales

In-home sales have long been the primary method of selling many home
improvement type items. The face-to-face contact with the homeowner during a 1 to 2-
hour presentation offers significant opportunities to build value in the company and the
33
products. Replacement roofing, windows, home security, kitchen & bathroom

remodeling, and air conditioning sales have used this method very effectively. But with
the combined introduction of sophisticated technology and increasing tech-savvy
millennials, a homeowner offering to give some salesperson two hours to sell them
something is becoming less common.
In order to stay relevant in a changing sales environment, these companies will be
forced to use available technology to effectively demonstrate value to the consumer and
differentiate themselves from their competitors.
Some companies are already seeing successes. Roofers are using drones; solar
companies are using Google Maps to determine sun exposure. Renoviso gets
descriptions of needed renovations on-line and over the phone. And sends a
subcontractor to the home only at the end to evaluate special needs. The price and
product are already determined.
Homeowners are pleased with this convenience. It will certainly expand. But
companies dependent on in-home sales must adjust, and soon, to remain competitive in
this increasingly sophisticated market (Bairstow 2017). Creating valuation and
differentiation over the phone or the internet, may be challenging.
34
CONCLUSIONS
The Nature of Value
Customer value is commonly discussed, universally seen as important, yet is
difficult to define. It’s made of many factors including quality, ownership advantages,
brand, experience, knowledge and image. Value is comprised of two key elements, the
benefit the item or service brings to the consumer, and the cost of acquiring and using
the item. The relationship between these two elements determines the value to the
customer.
Value and price are not the same thing. Value is the benefit the product brings at
a cost. Benefit and Cost are components of value. A critical factor is that benefit level is
unique for each consumer. Their situation determines how highly they benefit.
Producers or suppliers must continually communicate with and educate their
potential customer base to ensure they produce items that are perceived as beneficial to
them. And they need to be viewed as experts in their areas.
A value pyramid, like Maslow’s Hierarchy, was developed in 2016 identifying and
prioritizing the 30 values consumers use when considering their purchases. The
researchers determined that companies that performed well on multiple value elements
have more loyal customers and grow faster. Also, digital retailers can explain their
explosive success to their use of multiple elements. The research also analyzed these
30 value elements by industry and identified those elements most important for success
within each industry. Most interestingly, Quality was the highest-level element in each
industry.
Many researchers have attempted to quantify value by creating value equations.
Despite the complexity of some, they can be grouped into one of two types. The
equations are: “Value = Benefit – Cost” and “Value = Benefit / Cost.” Note that each
includes the same components. Put simply, Value increases as Benefits increase or
Costs decrease, and conversely. One model expands “benefits” in detail and offers
methods for increasing value perception in a variety of sophisticated ways.
35
The challenge in all models is the difficulty in quantifying Benefit. Because of that
difficulty, many companies focus on the simpler comparison of Value and Price (or cost).
Commonly the discussion is a comparison of perceived value versus cost. “More value
for your dollar” is a frequently used phrased. It’s linking value and cost directly. Although
imperfect, these models readily identify the nature of value and its components.
The underused, and perhaps more meaningful, term is consumer Benefit. What
good does the product or service bring to them? The relationship with the greater
whether it make sense to invest at the established price. Or whether it’s appropriate to
give a discount to the customer to enhance the value.
An interesting concept is that of the buyer and seller “sharing” the value of a
product. The link is the “price” of the item. As the price increases, greater value is
generated for the seller. Conversely, as the price decreases, the value is shifted to the
buyer.
Using Value in Sales

confronting them. Failing on focusing on value and the related benefits will commonly
result in customer objections. The goal of any sales situation is to overcome the potential
objections, before they’re vocalized by the customer.
When objections do occur, take a breath and relax. And ask questions. The proper
questions may answer the objections without hitting them “head on.” Recognize that price
objections, though common, may be merely a smoke screen for the real objection.
36
Avoid giving pricing until you’ve adequately built perceived value by the customer.
pricing.
Focus on quality and value. “Most people look for three things when making an
investment: 1) the finest quality, 2) the best service, and 3) the lowest price. I’m curious,
of the three, which are you most willing to give up?” Note that Quality is the number one
value element in every industry.
With the expansion of digital communication and social marketing, and with the
additional increase of millennial consumers, the in-home sales presentation is falling out
of favor. Producers and suppliers are using technology to provide perceived benefit to
consumers while effectively differentiating their product and companies on line.
Frequently, sales decisions are made without anyone visiting the home of the consumer
or having any face-to-face contact.
Whether over a counter, in a home or through sophisticated media; the focus is on
communicating with the customer, asking questions, determining need, and presenting
relevant information that demonstrates how the product or service benefits them.
37
ABBREVIATIONS
B - Benefit
C – Cost
V – Value
VE – Value Engineering
WIG – What I Get
38
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THE NATURE OF VALUE AND UNDERSTANDING ITS

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Using Value in Sales

2. The Nature of Customer Value 10

3. Various Equations Describing Customer Value 18

4. Discussion of Various Value Equations 28

5. Understanding Customer Benefit 29

6. The Importance of Customer Value in Sales 30

Figure 1. Customer Perceived Value (p 10)

What is the nature of customer value? Can it be described effectively so there is

THE NATURE OF CUSTOMER VALUE

“Customer Value is the level of satisfaction of your customer towards your

Figure 1 – Customer Perceived Value (Cromwell 2017)

Figure 2 – Your Value Proposition (Cromwell 2017)

viewed as two elemental characteristics. These researchers suggest that raising or

Underlying this value hierarchy are 3 hypotheses.

• APPAREL RETAIL • TV SERVICE PROVIDERS

• AVOIDS HASSLES • REDUCES COST

• SAVES TIME • FUN/ENTERTAINMENT

• DISCOUNT RETAIL • CONSUMER BANKING

• VARIETY • PROVIDES ACCESS

• REDUCES COST • HEIRLOOM

• SAVES TIME • AVOIDS HASSLES

• REWARDS ME • REDUCES ANXIETY

• VARIETY • MAKES MONEY

• SENSORY APPEAL • HEIRLOOM

• REDUCES COST • VARIETY

• REWARDS ME • PROVIDES ACCESS

• FOOD AND BEVERAGES • AUTO INSURANCE

• SENSORY APPEAL • REDUCES ANXIETY

• VARIETY • REDUCES COST

• DESIGN/AESTHETICS • PROVIDES ACCESS

• THERAPEUTIC VALUE • VARIETY

• SMARTPHONES • CREDIT CARDS

• REDUCES EFFORT • REWARDS ME

• ORGANIZES • AVOIDS HASSLES

• CONNECTS • PROVIDES ACCESS

Interestingly, companies with higher scores on emotional elements, tended to have

VARIOUS EQUATIONS DESCRIBING CUSTOMER VALUE

The Benefit – Cost Approach

• Company image can enhance the value perception.

One expression of value is: Customer’s Perceived Benefits - Customer’s Perceived

Figure 5 – Value Equation (Srinivasan 2010)

A second concept is introduced, the Marketer Value. Price - Cost = Marketer

The Benefit / Cost Approach

2. Reduce cost while maintaining function

Other Value Equations

A More Advanced Value Model

Figure 6 – Value Map (Homa 2007)

Figure 7 – Value Function Equation (Homa 2007)

a. Introduce an attribute ("i") missing from the product. Example: Competitive pc

a. A product must be at least at parity on all heavily weighted attributes to be

d. But, if all products are at parity on heavily weighted attributes, winning is