‘Benefit’ and ‘value’ are often used interchangeably, and therefore incorrectly, in conversations about which aspects of a product or service will make it most compelling to potential customers.   I have seen this misuse cause a host of problems for sellers because confusing the two often results in erroneous expectations being set and faulty conclusions being drawn about how a company’s offer actually stacks up against those of its competitors.  Although the terms are intimately related, benefit and value are each separate and distinct concepts, and understanding and using them correctly across an organization is essential to making sound business and marketing decisions.

The Relationship

The exercise all buyers go through, in some way, shape or form (e.g., financially, emotionally, etc.), to evaluate a purchase—sometimes consciously, sometimes unconsciously—follows this most basic calculation:

Value = Benefits – Costs

Benefits are the improvements realized from an acquisition.  They satisfy one or more needs the buyer seeks to fulfill when making a purchase (which are often situation-dependent).  These can range over an extensive array of dimensions:  cost saving, speed, durability, reliability, convenience, selection, fast delivery, intimate customer service, health improvement, prestige, guilt reduction, showing empathy, ego-building, capturing an experience, bragging rights, being a member of a certain group, etc.  Obviously, some benefits are inherently measurable, while others are not.

Costs represent the financial expenditures required to acquire an offer and put it to use, plus the potential emotional, professional, reputational, financial, etc. risks that come with its acquisition. Often times, these are difficult to identify (to say nothing about quantifying).

Value is the net gain received by a buyer after all costs have been assessed against the benefits received. Like benefits, value is also evaluated on a multitude of quantifiable and unquantifiable dimensions.  This is one of the reasons why assessing value is such a challenge.

On a side note, the phrase perceived value is often used when talking about the drivers of a specific purchase decision.  However, I believe what are actually being referred to are the perceived benefits offered by a product or service because costs are normally not mentioned or implied in most conversations—and they need to be if value is to be properly discussed.

Playing Together

To understand how benefit and value play together, it’s helpful to start with the Feature-Advantage-Benefit (FAB) framework often used in product development work and extend it to include the concept of value:

  • Feature: A characteristic, attribute or function of a product or service
  • Advantage: The capability the feature provides when put to use
  • Benefit: The improvement a buyer could derive from the advantage
  • Value: The net gain received from purchasing a product

Here is an example of this framework in practice:

  • Feature: An optional high capacity gas tank
  • Advantage: Less frequent fill-ups
  • Benefit (situation-dependent possibilities):
    • Less time wasted on an unproductive task
    • Ability to travel greater distances between fill-ups
    • Ability to travel round trip from a low-gas-cost location to a high-gas-cost location and back without having to purchase high-cost gas (e.g., Arizona to California without having to pay CA gas prices)
    • Ability to travel to remote areas with no gas service

In order to demonstrate how value enters the equation, we need a specific example:

  1. Buyer 1 does outside sales, so she drives a great deal. Her time is her scarcest resource and having to frequently fill up reduces her productivity.   She would benefit from the larger tank.
  2. Buyer 2 is retired. Because he drives very little and only short distances, he fills up infrequently and therefore wouldn’t save much time.  Besides, he has all the time he needs already.

Let’s take the easy case first.  For Buyer 2, there is essentially no value to be realized, regardless of the price of the high-capacity gas tank because there are no meaningful benefits to be had.  Even if the upgrade was provided for free, he would still see no value in having it installed (and, in fact, it would contribute a small amount of negative value because his gas costs would be higher due to its added weight).

For Buyer 1, the decision to pay for the larger tank involves whether there is sufficient value remaining in the benefits it affords after accounting for its extra cost.  The difference between benefits received and the incremental cost of the larger tank must be large enough for her to perceive a sufficient gain in time, convenience, etc. from its purchase.

So a customer does not buy a product or service just because it can deliver a set of benefits, however impressive they may be.  A purchase will only take place if:

  • It provides benefits that are relevant to the buyer; ones that meet one or more needs, AND
  • The benefits received are great enough in the buyer’s mind to justify the cost; that is, there is sufficient value remaining after all the costs are considered

All sales ever made meet these two criteria (whether the buyer in all cases competentlyassessed the real value received is an entirely different matter).

In a competitive environment, the company that makes the offer of superior (highest) value to a given buyer wins the sale; every sale, every time—by definition.   That is, the buyer has concluded that the purchased offer will be of greatest value to them—why would they buy anything else?  However, if none of the available offers address enough of the buyer’s needs or provides sufficient value, the prospect goes home empty-handed.

For Part II, please click here.

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