4 Steps to creating value

You've probably heard the term before, that's give value for money, or statements such as to make more money you need to provide more value. But have you ever wondered what is the definition of value? And is there an exact formula to creating value? Well, according to the value theory, there are four elements to value creation, functional, monetary, social, and psychological.

Let's start with the first element, functional value. Functional value relates to the practical
benefits that one derives from a product or service. It answers the question, does this product fulfill its intended purpose efficiently and effectively? For example, at its core, the functional value of a car is that it takes you from A to B, hence the value created is convenience and ease.

The second element is monetary value. Monetary value is the financial benefit one gains from a product or service. It's the sweet spot where the price aligns with the perceived benefit. And therefore, if you convince your customers that your product or service is a good return on investment, then you have tapped into creating financial value. And this is why when an expensive item goes on sale, it is usually perceived as good value for money, even if the price is higher compared to similar products in the market. The third element is psychological value.

Psychological value is created when a particular product or service evokes either a positive
feeling such as satisfaction and pleasure, or when it reduces a negative feeling such as
pain and inconvenience. As ultimately everything we do is either to seek pleasure
or to avoid pain, and this also applies to our purchasing decisions. For example, entertainment products such as books, films or video games, provide enjoyment and escapism, whereas you may choose to take an uber over the bus to overcome the pain of inconvenience, even if that means you're paying more to arrive at the same outcome.

The fourth element is social value. We live in a
social media world where social proof has become more important than ever before. So, if you can boost someone's social status, you have tapped into creating social value. Luxury brands know this very well, and this is why they charge ten times the price for a product which will derive the same functional value compared to a non-branded version. In short, there is an exact formula to value creation. And once you know this, you will understand the drivers behind your purchases, and equally if you want to increase your value in the marketplace, either as an entrepreneur or an employee in the workplace.

Think about how you can create value across these four elements. As Albert Einstein once said, strive not to be a success, but rather to be a value.