Applying Actual Value Formula in Product Management

Actual value in product management can be defined as the usefulness, or worth of the application. For example, if a trash bag has the ability to hold two hundred pounds, but the average consumer only fills the bag so that it holds fifty pounds, then the actual value of the product would be for fifty pounds.

There are many different factors that determine the actual value in product management. The first is the capacity or capabilities of the product itself. This would be the two hundred pound statistic. The next factor is the capability or capabilities of the consumer. This would be the fifty pound statistic.

The use of product compliments or substitutes is also a factor. For example, some people only buy cookies with milk. This means that the price they pay to eat cookies is not just the price of the cookies, but the price of the cookies and the milk together.

The key to understanding actual value in product management is knowing the difference between actual value and perceived value. Perceived value is the value that the consumer thinks he or she will get from the product. If a trash bag can hold seventy pounds, the company that makes it says it can hold eighty, and people who look at it on TV think it can hold forty, then the perceived value is for forty pounds.

The main reason why a lot of quality products don’t sell in the market, is because the perceived value is much lower than the actual value. Furthermore, the reason why many products drop in sales suddenly, is because the perceived value is much higher than the actual value.

Applying actual value in product management depends on three important things.

The first is knowing the actual value of the product. Without knowing the limits of the product, it is impossible to predict how well sales will be in the long run. Actual value is calculated by taking the full capacities of a product.

The perceived value must then be analyzed. If people value the product less or more than the actual value, it will affect sales in the short or long run. Subtract the perceived value from the actual value, and then factor in compliments to the product. If a product will only be used when a compliment is around, then the actual value of the product is the price of the product and the compliment. For example, if a company creates a new cereal brand, but consumers only eat it with milk, then the price for the two products is the actual value. Compliments should be added to the actual value.

If the actual value in product management is less than the perceived value, short term sales will benefit, while long term sales will suffer. Producers would be wise to quickly discontinue, or upgrade the product to avoid getting a bad reputation. If the actual value is more than the perceived value, then short term sales will suffer, but if the company can stay in business then long term sales will be secure once customers are made.

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Mark Silver
Mark is the Lead Author & Editor of Spectechular Blog. Mark established the Spectechular blog to create a source for news and discussion about some of the issues, challenges, news, and ideas relating to Product Management.
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