Consumer value perception and the value formula framework

Value Formula / Location Decisions

The value formula is a useful tool in understanding how consumers see a firm or its offerings. The simplest understanding is that value is the perceived quality relative to the expectation. The higher the quality to the expectation, the greater the value.

The value formula can be used to enhance value because it provides a framework for understanding the components of value. A company can improve its value by managing either the expectations or the perceived quality. Each of these has a large set of subcomponents depending on the firm that can then be analyzed. Quality, one of the components of value, can be quantified to a certain extent. In each market or sector, a firm will have perceived and real levels of quality relative to its competitors. Through surveys and internal information gathering, a ranking could be compiled, which would put at least a rough numeric value on quality. We can also identify quality as a basket of metrics, each of which should be easily quantifiable. Overall the basket can be benchmarked against itself.

2) Some of the issues we face in selecting global locations are taxes, local government, possible incentives, quality of the workforce, distance from suppliers and to markets, foreign exchange risk and the cost of things like workforce, land and equipment.