Page 71 - Design for Six Sigma for Service (Six SIGMA Operational Methods)

52 Chapter Three

Value and Price
Some economists define value as price; however, as we discussed earlier,
price is only one factor that affects value. Specifically, price is one important
element in customer costs (economic liabilities). In general, customers’
acceptance of a high selling price of a product indicates that the product has
superior benefits in the eyes of the customers. A higher price may provide a
higher profit margin to the company that sells the product; however, the
sales volume of this product can be sustained only if customers think that
this product will provide more benefits than costs, that is, high customer
value. Higher customer value can come from providing more benefits for
lower prices. The gap between customers, perceived benefits versus costs
determines the magnitude of the overall attractiveness to customers and,
thus, determines the size of the market, sales volume, and market share.

Value and Performance
Performance is also called “function.” The function of a product is what the
product is supposed to do for customers. As we discussed earlier, function is
only one component of benefits; superior customer value is the difference
between all benefits minus all costs. Therefore, a product with more and better
functions may not always be a better value. Also, a function can create value
only if that function is what customers definitely need. In 1979 the American
Can Company thought that a product with more and better functions would
always sell, so it designed a stronger paper towel called BOLT. It looked and
performed like cloth, and it was sold at a higher price than regular paper towels.
However, this product turned out to be a total failure, because the customers did
not perceive a benefit in a paper towel that could be washed. Actually, in many
cases, customers usually enjoy a product change that adds more functions
without increasing price, and very often they would be delighted to see a product
change that reduces some functions together with a much lower price. Adding
and improving functions with a higher price is usually a risky strategy.

Value and Cost
The company’s costs in producing a product usually do not relate to
customer value. The company could provide a product with a lot of features
and high cost that customers do not appreciate. However, reducing costs
will provide either a better profit margin or more room for price reduction.

Value, Quality, and Perceived Quality
Like value, quality is also a very tricky concept to define. Different people, even
different quality gurus, define quality differently. The American Society for