An important factor in understanding the value of a product or service to a customer is to understand what potential benefit they will derive from it, how they can set about deriving it and how external factors affect it. Understanding these essential facts assists in the establishment of the product, pricing and promotional strategy, marketing support services and value added services necessary to the successful introduction and support of the product in the market place
The above approach to benefit measurement establishes the value of both tangible and intangible benefits. For many products it is, however, only the tangible benefits that should be considered in deriving an economic value to the customer. Typically the economic value to the customer will vary significantly from customer to customer and from product feature to product feature. It is therefore important to understand clearly what customers the product is targeted at and how variants of the product can be priced to take advantage of generic economic value indicators.
The economic value of a product to a customer is also usually related to time and usage rate. For example, a business will relate the economic value of a product purchased as an asset to the time period over which the asset can be depreciated for tax purposes. This may bear no relation to the actual productive life of the asset. The economic value of a product to a customer is seldom assessed over a period greater than 12 months. The market price range will normally be set at a level well below the economic value to the customer.
EXAMPLE A new mobile phone battery is being introduced in the market with the USP that it needs to be recharged once in 15 days as compared to other batteries which need to be charged once in 3 days. Assuming the every time the battery is charged it consumes electricity worth Rs. 2. Therefore the economic value of the new battery in comparison to the old one is calculated as ECONOMIC VALUE = Cost Per charge (No. of Charges per month for old battery No. of charges per month for new battery) = Rs 2 (10 – 2) = Rs 16