One of the most important tools for deciding a business’ strategy is the “value-cost-framework.” Digital marketers and marketing strategy consultants use this to help better understand a firm’s ability to create value and increase profitability.
What is it?
The framework Is expressed as V-P-C
- V- Value stands for perceived customer value
- P-Price stands for the price of an item
- C-Cost stands for the firm or your company’s own cost to produce the product/service.
This is ultimately used to help quantify and calculate the firm’s ability to create value for both it’s customers and it’s shareholders.
How is the Value Cost Framework used?
V-P is used to calculate what the customer’s perception of the value they are getting based on the price that they are paying.
P-C is used to calculate what the firm’s profit from the transaction.
The key is to rank higher in both V-P and P-C then your competitors. You want customers to feel and think that they are getting more value with your firm then other alternatives, At the same time, you want to have a marginal advantage (make more profits) then your competitor’s in selling similar products.
Case Study: Gilette – Winning with a Loss Leader
Gillette won in both V-P and P-C. They had sold a high quality razor at an extremely attractive price. It was a “loss leader.” Customers would buy it because of it’s high perceived value (low cost and premium product). Gillette would make money from the razor blades which they sold at a high price with a cost that was low.
So they had a “V-P” advantage (high value: customer paid a lower price for a premium product). And a “P-C” advantage (high margins: low cost to build and sold at a higher price).
How it relates to your startup or business
When deciding on your strategy always factor “V-P” and “P-C.”
- How can I win in V-P relative to my competitors?
- How can I win with P-C relative to my competitors?Focus on winning in the customer value equation.
Value is Perceived
Always keep in mind that value is always perceived. Thus you must be able to effectively articulate your value to your customers.
You need to have a good brand that matches your customer value strategy.
Everything from content, imagery, logo, slogan, product differentiation, price point, operations, etc. all need to be aligned with your customer value strategy.This can be done through websites, and other forms of digital advertising: google ads, bing ads, social media etc. You need to really identify what is important (what is “true value”) and find a way to accentuate that in your brand, content, and overall marketing strategy.
When you work with websiteTOON our account managers can help you utilize the V-P-C Framework to better differentiate your marketing.