According to Keegan (2002), the value equation can be considered as a guide to create perceived value for customers by any organization operating anywhere in the world. The value equation is known as V=B/P, where V is the value, B is benefits and P is price. The value can be increased in two ways, by increasing the numerator ‘benefits’ or by reducing the denominator ‘price’. Keegan (2002) elaborates that the benefits can be increased by improving the product itself, the product distribution, and/or the communication.
Therefore, a company that can produce a superior quality product at the lowest cost could achieve a competitive advantage in a market place. However, I tend to disagree with Keegan’s approach to value equation, as I believe the ‘value’ of any goods or services resides in the mind of the customer. The research also shows that the definition of ‘value’ has often been debated within the research community for many years (Blois, 2004).
According to Blois (2004), the most important aspect of ‘value’ is for the manufacturer to remember the customer’s interpretation of ‘value’ as opposed to what the supplier may perceive as ‘value’. Considering the value equation, it may appear to the manufacturer that they understand the customer’s interpretation of value by considering the benefits and the price of the goods produced. However, the key is not just the core need of the customer, but what a customer expects the offered product to fulfill, and how the customer perceives the purchase, will contribute to the generation of value for it.
Therefore, some researchers have modified the value equation to V=X/P, where the X factor represents the sum of design, quality and reputation or brand (Product Design, 2004). This equation is based on the assumption that ‘value’ has two components, that is, the emotional and the functional (The Engineer, 2004). For example, a product needs to have a functional side such as superior operation and/or reliability, and an emotional side such as pleasure or pride in its use.
I believe this concept can explain how a product or service could achieve a competitive advantage in a global market. For instance, McDonald, a fast food restaurant in the US, is considered as a high-end restaurant in Indonesia (Keegan, 2002). According to my observations while working in Indonesia, Indonesians rarely consider a meal that does not contain rice as ‘food’. I have often heard them say, if they do not eat rice then they have not eaten, whilst Americans team members had sandwiches for a meal.
Therefore, in order to be successful in a society where a hamburger is not accepted as a meal, McDonald used a different approach by presenting ‘McDonald’ as a place where you should be seen. This shows that even though it appears that a hamburger provides the same value anywhere in the world, McDonalds had used ‘reputation’ in Indonesia for its competitive advantage to enhance the ‘value’ of its product. Likewise, a humanitarian or environmental approach can sometimes be used to enhance the ‘value’ of the product if the customer perceives that purchasing such a product could be beneficial to humankind.
However, these aspects can also be considered as intangible ‘benefits’, thus making the value equation still applicable for the above situations. Nevertheless, the difficulty lies in identifying the intangible benefits that can be used to gain a competitive advantage in the global market place. Hence, I believe that the value equation would be significant if the marketer could recognize the ways and means of enhancing ‘value’ and use a combination of ‘benefit’ and ‘price’ to achieve a competitive advantage in the global market place.