The concept of the value

To understand the EVR model, and to understand the de-linking of economy and ecology, it is essential to understand the concept of value in modern management.

Each product and each service has 3 economic dimensions: the costs, the price and the (market) value. These dimensions have all € as unit, but must strictly be kept separate (it is obvious that adding components of the cost to the price has no practical meaning at all; the same applies to the value).

The classical management paradigm to describe the function of costs, price and value is depicted in Fig. 3.1a.

In the eyes of the producer, profit is a result of the difference between the costs of a product and its price. Managers try to reduce the costs as much as possible and get a price as high as possible. However, managers

know that the end user (consumer) will buy the product only, when the price is equal or lower that the fair price in the eyes of that consumer.

In the classical management paradigm, the manager has no choice: when the price gets too high, there will be no buyers, so the only thing he can focus on is reducing costs (“cost cutting”).

Note that the customer has no idea what the costs of a product are. He only buys a product when the value in his/her eyes is more than the price. The value is related to the product quality, the service quality and the image of the product as perceived by the customer. The value is the use and fun the customer expects to have after the purchase. The market value is the “fair price” in the eyes of the customer.