Value creation

“The price is what you pay, the value is what you get.”
Designers create customer value by instinct. Good industrial designers are not only creative, they also have a good sense of what customers of specific market niches like and what they are prepared to pay.
Below we try to unravel the general characteristics of customer value and the way we can create and enhance it.

Customer value is defined as “the use, fun and ‘social status’ the customer expects to have after the purchase”. So, customer value is related to the quality of the product and/or service in the broad sense: tangible as well as non-tangible aspects. Garvin was the first who analyzed what quality is, and defined the “8 dimensions of quality” for products (in his book Managing Quality, 1988), also under webpage …garvin.

It is important to notice that quality has its acceptable price for each individual customer. See Fig. 3.5. Products and services can be too expensive or very cheap in the eyes of the customer. This brings us to the concept of the “market value”, being the “fair price” in

the eyes of the average customer in a specific market niche. Manufacturers tend to set the price at the point of optimal profit (= margin x number of buyers).
Note that, when the margin is to big, the price is too high, and therefore there are less buyers; and the other way around. So the is an optimum price that maximizes profit = ‘margin x number of buyers’
So value creation is not only about enhancing the quality, service and image of a product, it is also about the costs of it.

The strategy of value creation in a free market economy is described by Gale. One of the main aspects of the theory of Gale is the notion of “waste of quality”. The main idea is that a product might have quality, but when this quality is not perceived by the customer as important, it is waste of quality. See webpage …gale Figure 3.7c.
Gale developed a system to “create quality & service that customers can see, and brings a competitive advantage” (in his book Managing Customer Value, 1994), also at webpage …gale.

Figure 3.5 Cusomers buy a product when there is ‘suplus value'(the price is lower than their perceived value