A Framework for Understanding Value
The word “value” is thrown around a lot in product circles.
People talk about business value, customer value, and product value.
You can have value chains, value streams and value curves.
You can define value propositions, value maps and value-based pricing.
And people love to say that they are creating value, capturing value, and delivering value.
But if you ask people to drill down and define value in more detail, there’s often a lot of humming and hawing, and plenty of “it depends” and “you know it when you see it” statements.
If you read the Scrum Guide, for example, they mention the term value multiple times, but never once try to define it in any way.
Like many terms used in the world of product (e.g MVP, Product Market Fit etc.) there’s “truthiness” in the term, but there is also a whole plate of ambiguity served up as a side dish as well.
Value is foundational
Understanding the value you provide to your customers, whether you have products, services or both, is critical. It forms the foundation of most everything you do in product, from pricing/licensing to messaging/positioning to strategy and product functionality, to the business models that you operate under.
The Value of Understanding Value
It’s important to understand that it’s almost impossible to get an exact measure of value for any non-trivial product. For example, can we get an exact value definition for a BI tool like Tableau or Customer Success Management product like Gainsight?
The answer is no. But that shouldn’t stop us from trying to get as close as possible; and by doing so, enable your company to create competitive advantage in the following ways:
- Provide a much better understanding of what is truly valuable from the perspective of customers, users and prospects
- Help create powerful and precise messaging and positioning
- Enable clear differentiation from competitors
- Create better pricing models that generate more revenue
- Make products that align with customer needs and are thus easier to sell
The reality is that most companies do a very poor job at understanding the value they provide and translating that into strategic assets like messaging, pricing etc. So the bar is very low to doing it better and leveraging that work in the market.
Getting Started
So let’s drill down into value and understand it more, as it’s critical to so many aspects of product work. I like to start with formal definitions. Here’s the common dictionary definition of “value”:
value: noun. The regard that something is held to deserve; the importance, worth, or usefulness of something.
Yes, it’s vague, but it does help us get started. First, value is an attribute that is perceived by someone. i.e. “the regard that something is held to deserve”. We could paraphrase this by saying:
Value lies in the mind of the receiver
That in itself is important. There is no such thing as “value delivery”. i.e. we (as product creators) can’t just provide value. The actual value of something is perceived by the recipient. And different people can and will perceive value differently, even people in the same roles looking at or using the same product.
Additionally, the words importance, worth and usefulness in the definition are distinct and represent different dimensions we can consider when thinking of value.
Importance
If something is important, it has personal value to us. e.g. an important meeting, an important person or an important client. But that importance is not necessarily permanent. An important meeting, for example, is important because it can lead to something of value — e.g. a job interview could lead to a job and stable income. But if you won the lottery the day before that interview, suddenly that meeting might not seem so important. Or a meeting with a client may be important until a meeting with an even more important client comes up and overlaps that first meeting.
This is sometimes called “situational value”.
Worth
Worth is a term often associated with monetary or financial measures. Terms such as “net worth”, or phrases such as “is it worth the price” are the most common ways we think of the word “worth”. When we ask “how much is it worth?” we clearly have a financial context in mind. This is sometimes called “exchange value”. i.e. the monetary value it could be exchanged for.
Usefulness
Usefulness (or utility) is another measure of the value of something. The classic example of a Swiss Army Knife comes to mind when thinking about usefulness/utility. While none of the tools in a Swiss Army Knife is the best at what it does, almost all of them do a decent job. e.g. the blades cut, the corkscrew works, the screwdrivers are functional etc. The utility of the knife is the convenience of having all the tools in one place, easily accessible and portable. This is sometimes called “use value”.
All three of these terms allude to different aspects of value: situational, financial, utility etc. So the value of something can be (and usually is) multidimensional. Perhaps this is one of the reasons why “value” is often difficult to describe.
Context is critical to understanding value
Another thing to consider is that the value of something depends on the context. That context includes time, situation, need, recipient, condition etc.
As we saw with Importance, changing situations can change the perception of value.
Paradox of Value
Another classic example when thinking about value and context is what is called the Paradox of Value. What is the value of a diamond vs. the value of a bottle of water. Depending on the context, the water may be much more valuable than the diamond. This short video explains the paradox of value quite well.
A Framework for Understanding Value
Given that there are many different types of value, and so many factors that can affect the perception of value, it’s no wonder that it’s such a nebulous term. But that’s no excuse for not being more rigorous about it, especially given how fundamental it is to the work that we do in product.
One of the best taxonomies of value that I’ve seen comes from Bain Consulting. They call it the Elements of Value®.
B2C Elements of Value
In 2016, Harvard Business Review published an article called The Elements of Value. This article detailed a breakout of 30 different types of value that the authors saw products and services could deliver to consumers. i.e. it was a B2C taxonomy of value.
The hierarchy has 4 levels and is loosely based on Maslow’s Hierarchy of Needs.
The 4 levels in the B2C Elements of Value are:
- Functional
- Emotional
- Life Changing
- Social Impact
Without going into too much detail, the concept is that any given product should deliver value on multiple elements, and understanding which elements are of value from your customers’ point of view will allow companies to better service their customers, compete better and grow more quickly.
B2B Elements of Value
A couple of years later in 2018, HBR published a followup article entitled (not surprisingly) The B2B Elements of Value. This was an analogue to the previous set of values, but specifically business focused.
Not only are there 5 levels in this pyramid,
- Table Stakes
- Functional Value
- Ease of Doing Business Value
- Individual Value
- Inspirational Value
But some levels have multiple categories of values. For example, level 3 — Ease of Doing Business Value — has 5 categories in it:
- Operational
- Strategic
- Access
- Productivity
- Relationship
with a total of 21 unique value elements.
Now, no product or service will have ALL of elements in any pyramid. That’s not the point. The real value (no pun intended) of these taxonomies is to define a broad set of explicit values based on real world examples that can then be used to have unambiguous and structured discussions about value creation, value delivery, value chains etc.
Identifying the value(s) that your company, products or services deliver is no longer done via subjective, loose and generic discussions or guessing games, but via a much more concrete and specific process.
Putting the Elements of Value into Action
The final question to answer is: “How can these sets of elements be used to better identify value?”
I saw the B2B Elements article shortly after it was published in 2018. As soon as I read it, I knew that this was going to be invaluable in my work. I created some custom cards based on the Elements of Value, formed a card sorting and priortization exercise using them and built a workshop around it.
I’ve run this exercise and workshop multiple times with clients. Here’s the basic recipe:
1 — Assemble a cross-functional (Sales, Marketing, Product, Finance, Services, Founders etc.) set of participants in a room. This is typically a vendor or a service provider e.g. a software company or product vendor, a consulting company etc.
2 — Work through the card sorting/prioritization exercise and answer 3 basic questions:
- What types of value does the company and/or product deliver to customers?
- How does the company/product deliver that value?
- How well do they deliver it?
3 — We then aggregate and organize this data and identify patterns of convergence/divergence across the results.
What’s amazing is that in most companies, different groups have very different perspectives on each of those questions. And while there is overlap on “obvious” sources of value, there are often a lot of divergent perspectives across a number of areas of value delivery.
4 — Host a healthy discussion to help people share and understand different perspectives in both areas of alignment and divergence.
This is the most interesting part of the exercise for most participants, because there are a lot of new (previously uncommunicated) ideas that are surfaced here.
5 — From this exercise and discussion, create a set of value statements for your product and/or company. Take these out to customers and other parties externally to get additional validation, details and feedback.
External validation is critical
This last step — the external process — is a must, because that’s when the reality of the market is incorporated into the exercise. As an example, I conducted this exercise early last year before the pandemic.
The company (working in the green technology market) had identified about 6–7 elements of value that they felt were relevant to their customers. When we took the exercise outside of the office, we included some other elements like Expertise and Responsiveness, which weren’t in the 6–7 list, but had been raised by a couple of people in the company.
As customer discussions happened on the value statements, Expertise and Responsiveness rose to the top from a customer perspective. Customers consistently said they valued the expertise and responsiveness of company employees and that this was a differentiator compared to other vendors they worked with in the same market.
This was news to the company and something they never would have even identified without the detailed level of discussion that the elements and the exercise provided.
Want to try an online version?
As a final note, once the pandemic hit, getting the cross-functional team into a room and sorting cards on a table was not possible. So how could we continue this exercise, which showed real value (no pun intended) for companies?
The solution — like everything else in the pandemic — was to take the exercise online. I’m happy to say that I’ve recently completed that and am making it available to a limited number of people. Consider it an early preview.
So if you’re interested in getting access to the exercise, please contact me via LinkedIn. I’d love to have a conversation with you about your interest in the exercise.
A little feedback please
If you’ve read this far, thank you. I’d like some feedback on the article to make it better. Just 3 questions. Should take 30 seconds at the most, but will really be valuable to me. Thanks in advance.
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® The term “Elements of Value” is a registered trademark of Bain & Company.
