It is a general belief that profit is the driving force of every business but what about value? Are you equating value with the profit your business seems to be generating? What is your business worth after profit is taken off? Today, we will explore what value really entails, the difference between profit and value creation and how you can position your business to provide value.
What is value?
According to Investopedia, “Value is the monetary material or assessed worth of an asset, good or service” while ”Profit describes the financial benefit realised when revenue generated from a business activity exceeds the expenses, costs, and taxes involved in sustaining the activity in question.” From these definitions, we can deduce that value is not the same as profitability and decisions should not be based solely on profit.
We are in an era where more attention is placed on the type of value a company or brand creates and offers to customers. Research has it that 80% of consumers forget branded content after 3 days. This means that asides from brands, customers are also looking out for the type of value a business possesses. In order to be a value driven brand, it is important to understand the values that are right for your brand and what customers value most.
Types of value
Value can be perceived in many ways depending on the type of business. Let us examine value from a customer’s point of view and a company’s point of view.
Considering value from a customer’s view point
Customers are bombarded daily with hundreds of adverts, promotions and campaigns from brands or businesses offering similar products or services. Each business is trying to outdo the other through creative methods. While we are not criticising such methods, it might prove to be quite expensive to maintain in the long run. Hence business need to discover sustainable means to attract customer retention.
The key to coming up with the right value set lies in discovering the type of values customers are likely to resonate with. These are values that are core to what your business really is about. It could range from a strong organisational culture to an exceptional customer service, to the method of sales/distribution a company adopts. It may also be found in the corporate social services a business aligns itself with. Either way, a company needs to develop those unique attributes in addition to the primary product or service offered. To do so, a business has to:
Research: this entails studying the market and competition to understand what matters to people, where there is a gap in the market, and thinking of ways to close those gaps.
Define the value set: in the process of brainstorming the values to adopt, the team in charge might end up with a number of options which might be too broad. Therefore, it is important to streamline and define two or three core values to focus on.
Reinforce the value as a core part of the business: adopting the value(s) is a critical aspect of developing a value-set in the first instance. These should not just be phrases or words. They are promises which customers must be able to see, feel and experience whenever they interact with your business, product or service.
Value from a company’s viewpoint
Having considered values from a customer’s viewpoint, it is crucial not to overlook what happens within the company. To a business, value relates to what the business is worth to its shareholders, investors and competitors. There are different types of value a business can adopt. We will not go into methods for calculating business value today, however, we will consider three types of value:
This is the amount or value a business will receive if it were to sell its assets or stocks to a buyer or shareholder. To maintain a good market value, a business must:
invest heavily in its tangible assets, such as employees, equipment and properties, and intangible assets such as goodwill, trademark/patent rights and brand name.
conduct market research to discover gaps which it could potentially fill.
This is the value of your business based on what the financial statements. i.e., income statement and balance sheet, show at a particular period.
At some point, investors will be needed to provide funding for entering into a new market, expansion of existing business or execution of a project. Investment value is the price an investor is willing to pay for their perceived value of a business.
In summary, positioning your business in a value network entails balancing values perceived by customers with that of the business. The reward for doing this is a steady stream of loyal customers, which will in turn increase profitability and sustainability of the business. While focusing on just one aspect may, in the long run, be detrimental to growth.
We, at the OVAC Group, have seasoned business consultants capable of adopting the pragmatic approach your business needs to position itself as a valuable company. Email us at email@example.com for a free consultation.