Adding Value
In operations management, we are taught that "value" or "value added" is the difference between the cost of inputs and the price of outputs. While this sounds simple, measuring value is not always so straightforward, especially when measuring intangibles.
However, from a process improvement perspective, any step in the process (whether producing goods or services) is considered to add value if it meets three criteria:
- The customer is willing to pay for it,
- The process is done right the first time, and
- The process changes the product or service.
If all of the above criteria are met, then there is value in the transformation process.
But how many organizations believe number 1 above to be the case when clearly it is not?
And how many times have you had to re-do a step in the process to get it right?
And after spending so much time and effort to deliver the product or service to your customer, how is it that your customer cannot see the value of the effort that you put into producing the good or delivering the service?
The reason is simple: Value and value added are concepts that can only be validated from the customer's perspective. What the organization believes to be of value is of no relevance, unless the customer believes the same thing.
An advantage of value is that it allows organizations to be more successful in marketing their brand's strength. And when the firm has strength, it can charge higher prices and gain a competitive advantage over its competition. In short, higher added value products are more difficult for competitors to copy.
And the higher the value, the more likely it is that your organization will experience repeat business. Encouraging this repeat business can be done by things such as the following:
- Staying in touch with your best customers. Offer them information about sales or special offers. Use email, a postcard, or send them a catalogue periodically.
- Treating repeat customers like the special customers they are. Offer deals or other promotional incentives that are exclusive to them. For example, special additional discount on all items.
- Contacting your customers by phone or in person. Such a gesture can generate new business or help a business obtain useful information about customer needs.
- Streamlining your order and delivery service. The easier it is to order and the speedier your delivery, the higher the likelihood of repeat business.
And as Kevin Harrington of Forbes Magazine states, there are three secrets to repeat business. These secrets are being personal, being present, and being proactive. If you do all three, you know you're creating customer value.
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