Value = Benefit – Effort – Risk – Price +/- Treatment
I explained how the last component, plus or minus treatment, can affect the perceived value. I’ve thought more about this equation and realized there’s a factor which, although it isn’t stated explicitly, can have a major impact on value. That’s the effect of time.
Whenever we’re evaluating the value of something, I would guess most of us ask ourselves, when will I receive the benefits? Will I gain an advantage next week, next month, or next year? Anybody who has studied the time value of money and the equation for net present value remembers that a dollar today is worth more than a dollar a year from now. As an example, would you guess more people put money into an IRA for retirement decades from now or buy that new flat panel TV?
Effort also has a time element. In just about every case I can think of, you have to put in the effort before you can reap the benefits. In the case of software, you have to acquire it, install it, learn how to use in and often have to migrate legacy data to it before it contributes positively to your business.
There are risks that can reduce the value now and risks that can happen later that reduce the value. In the near term you can lose something in the implementation or the solution won’t immediately work as promised. Later on, something can change internally or externally so the product or services will deliver less than you expected. With the exception of subscription pricing
models, you have to pay now for the expectation that you will gain more revenue or incur less cost soon.
Treatment is spread out over the longest period of time. Beginning with awareness and going through the stages of investigation, evaluation, negotiation, purchase, installation, becoming operational, long-term support, obsolescence and replacement, the treatment you receive at each stage will add or detract from the value you receive.
I’ve suggested that each component of the value equation has a dimension of time that will affect your perception of potential value or attainment of real value. So what how can you use this insight to youra dvantage?
Think about how you can increase your customer’s value by factoring time into your plans. One way is to help them gain the benefits sooner. Don’t keep a major product in development for a long period of time. Get a subset of the functionality out quicker and add to it with subsequent releases.
Shorten the time between purchase and production use by streamlining and simplifying the effort required to get your solutions
contributing to their operations. An example from the B2C world is downloading a book to the Kindle. I can think of a book, order it, download it and be reading in about 1 minute. This sure has more value than driving to the bookstore and hoping they have it, or ordering it and waiting 3-5 days for delivery.
Use risk management, the whole product concept, and product roadmaps to minimize time-consuming and value deferring disruptions. Get creative with pricing models to change the usual model of all the payment up front and benefits come later. Focus on customer retention and loyalty programs which pay off financially and strategically. These build a strong relationship
which lasts longer than the simplistic exchange of payment for product.
Timing is everything. You can increase the value you provide to your customers by delivering benefits sooner, shortening the amount of effort required, reducing short and long term risk, delaying payment, and providing positive treatment throughout the relationship. Can you suggest other ways that you can use time to increase value?