What is value? There is of course the literal value that refers to, say, the suggested retail price of goods and services in the market. But as you would have seen from our example earlier, value is also a very personal thing. It can be very subjective or a function of your personal condition (such as hunger), experiences, personal history, social interactions, perceptions, education, and so much more.
So what gives value to a product?
Consumers generally value a product or service when it provides them with utility. There are five kinds of economic utility that can be offered by products and services:
1. Form Utility
A product, by its very form, saves the consumer from the effort of having to make the product himself. A person will value vegetables sold in a market because it saves her the effort of having to grow the Vegetables herself.
2. Place Utility
The convenience offered by making a product available around the proximity of the customer is also valued. Between buying Product X from Store Y, that is located 1 kilometer away, and from Store Z, that is located just next door, a customer will perceive more value in the service of Store Z and will be willing to pay a little bit more for this convenience.
3. Time Utility
If a firm can offer a product or service far quicker than alternative providers, the customer will also value this speed of service, This is why express couriers such as DHL or Federal Express are able to charge delivery rates that are several times more expensive than regular mail.
4. Possession Utility
For some products, mere ownership is already valued by the customer. This is especially true for branded items that command a premium over commodity substitutes. This is also most evident in auctions where bids are raised based on how valuable ownership is deemed to be by the respective bidders.
5. Information Utility
Knowing certain things about the product can already imbue it with value. For instance, a recognized brand can instantly generate trust while advertising helps build the assurance of the product. On the other hand, quality packaging can also generate information or inferences among consumers about the quality of the product inside.
When you buy a tube of toothpaste, you may be paying for the values of (a) someone having to put together the cleaning agents in a convenient and time-saving package for your consumption, (b) the convenience of buying it in a nearby store, (c) the convenience of its easy-to-open flip-top cover, (d) the fact that it is just there on your bathroom shelf when you need it, and-(e) the peace of mind from the trustworthiness that you associate with its brand.
Of course, you would only buy this tube of toothpaste if in your mind its total value to you is worth more than the actual cash that you shell out for it.