How to Calculate Total Product Value
Products and services are the mechanisms businesses utilize to generate revenues and resulting profit. Some recognize product value as the tangible and intangible value of a product in the eyes of a consumer. In general, value is recognized as that which the customer is willing to pay in exchange for a product's ownership, according to business analysts and authors Sebastian Barney, Aybüke Aurum, and Claes Wohlin in “A Product Management Challenge: Creating Software Product Value through Requirements.”
Recognize product value is related to price, customer’s perceived value and societal influence, where price is a derivative of costs and market influences, and perceived value is derived from a combination of product value and buyer’s willingness to purchase, and societal influence is derived from the relationship between the consumer and the business.
Understand that value is situational. In most cases, the value of a product increases in direct proportion to its advantage over competitive products or decreases in proportion to its disadvantage.
Calculate a customer’s perceived value. Determine perceived value by dividing perceived benefits by perceived price. Recognized perceived value is often influenced by desire, expectation, need, past experience, and culture. Perception of benefits or bargains occur when the perceived value is greater than the marketed price.
Accept there is no definitive formula. Each product is unique and its perceived value, in the consumer’s eyes is equally dynamic. Some conclusions or predictions can be made from historical data, but are still subject to change as attitudes, behaviors, and expectations of consumers change.