Values Thrice: Exchanging, Equating and Adding Value

'Value' can be a difficult word to describe and define but without us knowing, it is the intangible currency that we have been trading with for centuries - not gold, tobacco, horses, chickens, barrels of rum or the arranged marriage of your first child. A transaction will only occur when two parties are able to exchange something of equal value with each other; assuming both parties will always behave "rationally": Try to think of it like this, would you trade a widget that is worth $100, for anything less than $100?

But believe it or not, this school of thought on the exchange of value is no longer accepted in academic marketing circles. Today, we recognise value as being the difference between how much we pay for something and the benefit we receive from it.

The Value Equation Costs - Benefits = Value

Strange isn't it?

We've moved from thinking of value as being like a commodity that we exchange to the difference between costs and benefits. If you ask me why; I'm not really sure. The first school of thought still makes sense to me. Perhaps we just need a different word to differentiate each model (ideas anyone?). But anyway the latter is what you will learn these days so you better get to know the value equation.

For consumers, value can be monetary (buying something on sale or the generic prescription medicine versus the branded) in the form of thrift or economising but many new age consumers are price insensitive. They see value in having "organic" goods, fair trade coffee beans, a highly recognised designer brand label or buying domestically produced and owned products, regardless of their price - this is totally irrational in my judgement, but to each their own. So when pitching a product to a consumer in the B2C marketplace, take into account what they see value in.

In a business context, think of value as something that increases the revenue of a company or reduces costs for a company. If it doesn't do either, it isn't valuable.

"Value-Added" or "Value-Adding" or applying any type of mathematical process with the word value has become quite the buzz in the industry and academia. Bonuses are distributed on an executive's ability to add or create value to their firm, which is a fair gauge in my opinion. But this puts value into another context: Shareholder Value. This occurs as a result of the Value Equation's application in investments. Adding to shareholder value is when a business operates so effectively that they generate a higher return for their shareholders than they did the previous period (with currency deflated for comparison purposes). In these cases, value is always expressed in a monetary form.

The Value Transfer Model is another application of the same word - Value - in manufacturing or process engineering. This model suggests that if a task doesn't add value to the product, service or match company objectives it should be eliminated to make the supply/value chain more "lean" and "agile". More buzzwords.

So all the rage at the moment with value is being able to create additional wealth for the shareholders. Today's marketplace is just as terrifying and competitive as in the movie Wall Street, but companies aren't trembling in fear of hostile takeovers and asset fire sales; but losing their competitive advantage from their neighbouring rival or some new age global producer based out in the more-developed Asian countries because they aren't able to create value.

Going slightly off topic to conclude, I've heard from many people that a good trick to use in a job interview is to say that you "add value" to the company. So this pitches you as being worth more to the company than they are offering to pay you. Not a bad idea to throw out there, but I think the value-adding buzzword in human resources has become a cliche. I'd recommend only using it if you're an accountant being interviewed by another older account. Actually I wouldn't recommend using too many buzzwords in an interview, you're only going to confuse yourself and the interviewer. Keep It Simple Stupid.