Executive Summary

In the age of modern and dynamic business competition the business organization does not sell
products or services they sell value solutions. Customers needs, wants and demands are
changing in fast living process sob that every components of value are critical and essential in
value creation process.

In this term paper I intend to underline three approaches about value. The first approach was
defining value, components of value and types of value. Customer value is the difference
between the values the customer gains from owning and using a product and the cost of
obtaining the product. There are four components of value those are: product, price, image,
quality. Value is categorized by three types, those are: functional value, experiential value and
symbolic value.

Secondly, value chain process, value delivery process, value network, customer value map,
customer lifetime value, customer value hierarchy. The idea of the value chain is based on the
process view of organizations, the idea of seeing a manufacturing (or service) organization as a
system, made up of subsystems each with inputs, transformation processes and outputs. Valu
delivery process is a process of delivery of value to target customers. Customer life time value is
tradeoff between customer acquisition cost and customer profitability to organization. Customer
value map is combination of value quality and value price.

Thirdly, impact and importance of value in marketing strategy and plan. Value containing deep
impact on customer retention, increasing sales and maintaining customer loyalty. New product
development is closely interlinked with value creation process. Value pricing is charging the best
price to the customers also maintaining the organizations profitability. By value analysis a
company can analyze the market value, customer perceived value and pricing decision.

My term paper consists of four chapters those are given below:

1. Introduction
2. Process and approach to value
3. Impact and importance of value
4. Ways to increase value and conclusion

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 Table of contents
Chapter No. Topic Page No.
Chapter 1 Introduction 3-7
1.1 Introduction 3
1.2 Defining value 3
1.3 Components of customer perceived value 4
1.4 Types of value 7
Chapter 2 Process & Approach to Value 8 15

2.1 Value chain process 9

2.2 Value delivery process 10
2.3 Customer value map 11
2.4 Value network 12
2.5 Customer value hierarchy 13
2.6 Customer lifetime value 14
Chapter 3 Impact & Importance of Value in 16 20
Marketing

3.1 Impact on customer satisfaction 17

3.2 Impact repurchase intention and loyalty 17
3.3 Impact on increasing customer life time 17
value
3.4 Strategic importance 17
3.5 More emphasis on superior value 18
3.6 Importance of value in marketing 19
3.7 Importance of value analysis 19
3.8 Customer value is more important than 20
product
3.9 Managing customer value 20
Chapter 4 Ways to increase value & Conclusion 21 - 26

4.1 22
Improving customer value
4.2 Simple ways to maximize organizational 23
value
4.3 Conclusion 26
References 27

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 Chapter: 1

Introduction

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1.1 Introduction:
Marketing, more than any other business activities deals with customers. Although there are a
number of detailed definitions of marketing perhaps the simplest definition of marketing is
managing profitable customer relationship. We can distinguish between a social and a
managerial definition for marketing. According to a social definition, marketing is a societal
process by which individuals and groups obtain what they need and want through creating,
offering, and exchanging products and services of value freely with others. In every buying
decision, a consumer asks the same question: 'is what I am going to receive worth what I have to
give up in order to get it?' The gain the consumer receives for the benefit is weighed against the
cost the consumer must pay to acquire the benefit. The value the individual consumer places on a
product or service becomes the customer value for that offering. Every consumer has a unique
set of needs and resources, so no two consumers will place the same customer value on the same
product or service. The highest-quality product or service does not always provide the highest
customer value, since the benefit of each item is measured against the cost. Some consumers are
willing to pay a high price for a quality product or a high level of service, but others will make
the decision that the same benefits are not worth the price.

1.2 Defining Value:

According to Woodruff (1997, p. 142) - Customer value is a customers perceived preference
for and evaluation of those product attributes, attribute performances, and consequences arising
from use that facilitate (or block) achieving the customers goals and purposes in use situations".

Customer value is the difference between the values the customer gains from owning and using a
product and the cost of obtaining the product.

Customer value is the difference between total customer value and total customer cost. Total
customer value is the sum of product value, service value, personnel value, and image value.
Total customer cost is the sum of monetary cost, time cost, physics cost, and energy cost.

Value in business markets is the worth in monetary terms of the technical, economic, service,
and social benefits a customer company receives in exchange for the price it pays for a market
offering.

Values and Prices are the value and price of the suppliers market offering, and Valuea and Pricea
are the value and price of the next best alternative. The difference between value and price
equals the customers incentive to purchase. Simply put, the equation conveys that the
customers incentive to purchase a suppliers offering must exceed its incentive to pursue the
next best alternative.

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 Figure: A view of customer value

Source: Marketing management

The worth that a product or service has in the mind of the consumer. The consumer's perceived
value of a good or service affects the price that he or she is willing to pay for it.
For the most part, consumers are unaware of the true cost of production for the products they
buy. Instead, they simply have an internal feeling for how much certain products are worth to
them. Thus, in order to obtain a higher price for their products, producers may pursue marketing
strategies to create a higher perceived value for their products.

Value in marketing can be defined by both qualitative and quantitative measures. On the
qualitative side, value is the perceived gain composed of individual's emotional, mental and
physical condition plus various social, economic, cultural and environmental factors. On the
quantitative side, value is the actual gain measured in terms of financial numbers, percentages,
and dollars.

For an individual to deliver value, one has to grow his or her knowledge and skill sets to
showcase benefits delivered in a transaction (e.g., getting paid for a job).

For an organization to deliver value, it has to improve its value : cost ratio. When an organization
delivers high value at high price, the perceived value may be low. When it delivers high value at
low price, the perceived value may be high. The key to deliver high perceived value is attaching
value to each of the individuals or organizationsmaking them believe that what you are
offering is beyond expectationhelping them to solve a problem, offering a solution, giving
results, and making them happy.

Value changes based on time, place and people in relation to changing environmental factors. It
is a creative energy exchange between people and organizations in our marketplace.

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1.3 Components of customer perceived value:
Customer value refers to the ability of companies to create and add value to the goods and
services, especially to the services they offer to customers, or the service aspects of their
business. Essentially, customer value entails extraordinary delivery on these four value-points or
components:

Product or Service: The tangible or intangible value offered to customers that fulfill
customers needs and wants.
Quality: Customers perception of how well a companies products and services meet
expectations and companies promise to give the expected value.
Image: Customers perception of the company or business they interact with. It also
deals with what the market value of the company.
Price: The price that a company can command for its goods and services and that
customers are willing to pay. Price is very important factor that closely encounter with
expected value and delivered value.

Together, these form what Weinstein refer to as the SQIP Approach to customer value, where S
stands for Service, Q for Quality, I for Image, and P for Price (SQIP). Each of these four
components contributes to customers perception of value or definition of value and affects their
levels of dissatisfaction or satisfaction with a product, service, or business. Thus, in order to
design and deliver superior customer value, each of these components must be treated with equal
attention and importance.

Figure: Customer delivered value

Source: Gundlach, Gregory T. (2005)

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1.4 Types of value:
there are three basic types of value those are given below:

Functional Value

It is concerned with the extent to which a product is useful, has desired characteristics, and
performs a desired function.

Appropriate features and characteristics - quality, aesthetics, creativity,

and customisation.
Appropriate performance - performance quality, reliability, and service-support
outcomes.
Appropriate outcomes - effectiveness, operational benefits, and environmental benefits.

For example - Apple focus mainly on creating appropriate features and attributes. Ford focus on
performance, and Pfizer focus on appropriate outcomes and consequences.

Experimental Value
It is concerned with the extent to which a product creates appropriate feelings, experiences and
emotions for the customer. For example - most restaurants focus on sensory values
like aesthetics, aromas, ambiance, feel or tone. Organisations in travel or entertainment focus on
creating emotional values like - pleasure, fun, excitement adventure, or humour.

Symbolic or Expressive Value

It is concerned with the extent to which customers associate psychological meaning to a product.
Some products appeal to customer's self-concept and self-worth. Branded products like BMW,
Rolex, etc are purchased because of their status, prestige, and image.

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 Chapter: 2

Process and approach to value

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2.1 Value chain Process:

Figure: Value chain process

Source: Keefe, Lisa M. (2008)

The idea of the value chain is based on the process view of organizations, the idea of seeing a
manufacturing (or service) organization as a system, made up of subsystems each with inputs,
transformation processes and outputs. Inputs, transformation processes, and outputs involve the
acquisition and consumption of resources - money, labour, materials, equipment, buildings, land,
administration and management. How value chain activities are carried out determines costs and
affects profits.

Most organisations engage in hundreds, even thousands, of activities in the process of converting
inputs to outputs. These activities can be classified generally as either primary or support
activities that all businesses must undertake in some form.
According to Porter (1985), the primary activities are:
1. Inbound Logistics - involve relationships with suppliers and include all the activities
required to receive, store, and disseminate inputs.
2. Operations - are all the activities required to transform inputs into outputs (products and
services).
3. Outbound Logistics - include all the activities required to collect, store, and distribute the
output.
4. Marketing and Sales - activities inform buyers about products and services, induce
buyers to purchase them, and facilitate their purchase.
5. Service - includes all the activities required to keep the product or service working
effectively for the buyer after it is sold and delivered.

Secondary activities are:

1. Procurement - is the acquisition of inputs, or resources, for the firm.
2. Human Resource management - consists of all activities involved in recruiting, hiring,
training, developing, compensating and (if necessary) dismissing or laying off personnel.
3. Technological Development - pertains to the equipment, hardware, software, procedures
and technical knowledge brought to bear in the firm's transformation of inputs into
outputs.

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 4. Infrastructure - serves the company's needs and ties its various parts together, it consists
of functions or departments such as accounting, legal, finance, planning, public affairs,
government relations, quality assurance and general management.

2.2 Value Delivery Process:

An entrepreneurial firm must deliver value along the dimensions that matter most to its
customers. For example, from a customer's perspective, the value of a cup of coffee enjoyed with
a friend at a coffee shop might be greater than the value of a take-out cup of coffee. While the
monetary cost of the cup of coffee in both cases might be the same, the value the customer
extracts is different.

To develop compelling customer value propositions, a supplier needs to keep in mind the
following:

1. There are two stages at which customers assess value: before and after they purchase a
product or service.
2. Value is perceived at various levels; therefore, value needs be delivered at various levels.
3. Understanding what customers value is the first step in delivering customer value.

For a complete view on the customer value creation strategies that managers, entrepreneurs, and
leaders can implement to help distinguish themselves from competitors, Smith and Colgate
(2007) provide a comprehensive framework. However, the challenge for suppliers is not just
recognizing what value to create or what the benefits are, but to operationalize customer-facing
processes to deliver value to customers. Table 1 synthesizes views from the extant literature pool
on customer value creation and delivery; it shows how entrepreneurs can use their understanding
of customer value to their advantage.

Table 1. The customer value delivery process

Understanding of customer Actions that entrepreneurs The entrepreneurs

value concept can take advantage
Points of value that matter to Develop market offer based Create customer value
customers (Anderson et al., on points of value that matter proposition with a resonating
2006) to customers focus (Anderson et al., 2006)

Dimensions along which Identify opportunities for Compete based on points of

value is perceived new value creation value other than just cost
(Woodruff, 1997) propositions (Smith and
Colgate, 2007)

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 Customers desired needs Observe customer Deliver value proactively by
change over time (Flint et al., environment to better anticipating changes in
2002) understand changes in customers desired needs
customer requirements (Flint et al., 2002)

Customer feedback Combine existing Improve value proposition of

(Woodruff, 1997) organizational capabilities existing products and
(market orientation, services
knowledge management,
customer relationship
management) (Landroguez et
al., 2011)
Source: Marketing management

2.3 Customer Value Map:

Customer loyalty marketing research generates several key graphics and metrics profiling the
comparative market position of your company. The Customer Value Map gives a clear picture of
how the customer's decision is made among you and your competitors. We have found the
customer value map to be a powerful analytical tool, helping to predict which players in a market
are likely to gain market share and why.
Figure: Customer value map

Source: Wilkie, William L. (2006)

The following customer value analysis chart draws direct comparisons between you and your
competitors. The market-perceived quality profile and market-perceived price profile is the
heart of customer value analysis. The information provided is essential in generating a successful

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customer retention strategy. Each bar represents how much better or worse your company is
performing on all factors, or attributes, relative to the competitor. This comparison includes both
quality and price perceptions. If the bar extends to the right, your company is perceived as
performing better than the competitor and represents and opportunity for market share gain. If
the bar extends to the left, you are perceived as performing worse than your competitor on that
attribute.

2.4 Value network:

A value network is a system of partnerships and alliances that a firm creates to source, augment
and deliver its offerings.

The example mentioned in marketing channels can be used to define value networks in
marketing channels. The flow in marketing channel of a television is Company > Distributor >
Dealer > Retailer > Customer. Thus this a Value network wherein the product is sourced from
the company, augmented in subsequent chains and delivered to the end customer. Marketers
mainly focus on value networks within their marketing channels. These value networks simply
are a chain which form the marketing channel. A retailer for example will buy from the
company, own the product and sell it further to the customer. Thus by taking charge of the
responsibilities towards the product, they become allied towards the company. This alliance
gives a value to the complete marketing channel thereby forming the Value network in a
marketing channel. Different players such as sales agents, brokers, stockers etc provide different
values in the channel and all players combined form the value network.

Value delivery network is a part of supply chain of a company and includes all its direct
participants involved in production, distribution, marketing, customer service, etc for given
geographical area.

It a chain of system where after each system more a more value is added to the product or
services thereby increasing its overall value for the customer.

Each system is partnering with other system to provide better value to the customer. Production
system uses feedback sales history to produce the right product in required quantity. The value
created through such partnering depends upon the quality of relationship between the systems.

Eg: Companies like Fiat have improved its position in North America by partnering with
Chrysler to improve its delivery network. This has helped Fiat gain vital market share in highly
competitive market with very low investment.

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2.5 Customer value hierarchy:

Figure: Customer value hierarchy

Source: [Link]

1. Core Product

This is the basic product and the focus is on the purpose for which the product is intended. For
example, a warm coat will protect you from the cold and the rain.

2. Generic Product

This represents all the qualities of the product. For a warm coat this is about fit, material, rain
repellent ability, high-quality fasteners, etc.

3. Expected Product

This is about all aspects the consumer expects to get when they purchase a product. That coat
should be really warm and protect from the weather and the wind and be comfortable when
riding a bicycle.

4. Augmented Product

This refers to all additional factors which sets the product apart from that of the competition.
And this particularly involves brand identity and image. Is that warm coat in style, its colour
trendy and made by a well-known fashion brand? But also factors like service, warranty and
good value for money play a major role in this.

5. Potential Product

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This is about augmentations and transformations that the product may undergo in the future. For
example, a warm coat that is made of a fabric that is as thin as paper and therefore light as a
feather that allows rain to automatically slide down.

2.6 Customer lifetime Value:

Figure: Customer lifetime value

Source: Levy, Sidney J. (2006)

CLV is generally defined as the present value of all future profits obtained from a customer over
his or her life of relationship with a firm. CLV is similar to the discounted cash flow approach
used in finance. However, there are two key differences. First, CLV is typically defined and
estimated at an individual customer or segment level. This allows us to differentiate between
customers who are more profitable than others rather than simply examining average
profitability. Second, unlike finance, CLV explicitly incorporates the possibility that a customer
may defect to competitors in the future. CLV for a customer (omitting customer subscript) is
(Gupta, Lehmann, and Stuart 2004; Reinartz and Kumar 2003).

Figure: Formula of customer lifetime value

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Where pt = price paid by a consumer at time t, ct = direct cost of servicing the customer at time t,
i = discount rate or cost of capital for the firm, rt = probability of customer repeat buying or
being alive at time t, AC = acquisition cost, and T = time horizon for estimating CLV.

In a summarized word customer lifetime value is a process of below mentioned steps:

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 Chapter: 3

Impact & importance of Value

in Marketing

16
3.1 Impact on Customer satisfaction:
The taste, preference and perception of customers keep on changing with their attitudes and external
factors that influence them. In order to keep the businesses going and growing, enterprises must keep their
customers satisfied. Satisfying customers can bring in several positive aspects to a company and can
contribute a successful business. The only value a company will ever create is the value that comes
from customersthe ones a company have now and the ones it will have in the future. Businesses
succeed by getting, keeping, and growing customers. Customers are the only reason you build
factories, hire employees, schedule meetings, lay fiber-optic lines, or engage in any business
activity. Without customers, you dont have a business (Zeithaml and Bitner, 1996).

3.2 Impact on consumer repurchases intentions and loyalty:

Customer satisfaction is the best indicator of how likely a customer will make a purchase in the future.
Asking customers to rate their satisfaction on a scale of 1-10 is a good way to see if they will become
repeat customers or even advocates.

3.3 Impact on increasing customer lifetime value:

A study by InfoQuest found that a totally satisfied customer contributes 2.6 times more revenue than a
somewhat satisfied customer. Furthermore, a totally satisfied customer contributes 14 times more
revenue than a somewhat dissatisfied customer. Satisfaction plays a significant role in how much
revenue a customer generates for your business.

3.4 Strategic importance

1. Value reigns supreme in todays marketplace and market space.

2. Customers will not pay more than a product is worth and will reward excellence.
3. A customer centric culture provides focus and direction for the organization, ensuring
that exceptional value will be offered to customers.
4. Providing outstanding customer value has become a mandate for management
5. Designing and providing superior customer value are the keys to successful business
strategy in the 21 st century.
6. In choice-filled arenas, the balance of power has shifted from companies to value-seeking
customers.

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 7. Firms not providing adequate value to customers will struggle or disappear customer
value is a key ingredient in building competitive advantage.
8. Designing and delivering superior customer value propels organizations to market
leadership positions in todays highly competitive global markets absolute advantage.
9. Todays customers are quite smart and sophisticated and are looking for companies that

(1) create maximum value for them based on their needs and wants.

10. Managing customer value is even more critical to organizations in the new service and
information-based economy.

3.5 More emphasis on superior value:

In todays highly competitive market environment where companies have equal or great
opportunities to access the same resources including talents, technology, and information, the
question, Why superior customer value? seems rhetorical. If not superior customer value, then
what else do companies have to offer consumers? Companies today must seek more than ever
before to distinguish themselves and the ability to do so using technology and widely and
generally available means and resources is no longer a viable strategy for differentiation or
distinction. Therefore, they must turn to customer value which makes all the difference between
companies offering similar products and services. Superior customer value serves as the most
unique strategic option for differentiation in an environment where most companies are market
followers rather than market leaders. Companies that deliver above and beyond customers
expectations by overwhelming and surprising customers stay way ahead of their competitors and
command the greatest profits and market share.

Customer value has become a mandate for business leaders and managers as companies lose
other core and distinctive competencies in the current rapidly changing and highly competitive
global economy. Customer value creation is no longer an activity or process relegated to
marketing and sales departments and specialists; it is an organizational-wide philosophy like
Total Quality Management (TQM) that requires each member of the organization to play an
active role in adding value to the customer experience. The organization must essentially take a
marketing orientation approach backed by value driven management (VDM) philosophy and
attitude in focusing strategically on the customer from the planning stage of business right to the
delivery and post-purchase, post-consumption activities of customers.

There is no business that survives without creating value for customers because that is what
businesses exist to do; they are driven and shaped by customer demands needs and wants, and
the degree to which they are able to meet these needs and wants through value creation. The idea
is that customer value is not something that can be created within a day; it is a strategic creation

18
that results from a combination of service, quality, developed image, and the determined prices
for products and services that consumers are willing to pay to meet their existing and emerging
unlimited needs and wants.

3.6 Importance of value in marketing:

Value has become a determining factor in todays marketing. The aim of several growing
enterprises today is to satisfy their customers needs. Traditionally firms achieved value creation
by offering differentiated product and services. With increasing competition and emerging
technologies, organizations are compelled to offer something more than they could actually do.

3.7 Importance of value analysis:

Customer value analysis provides more accurate and useable competitive information for
marketing, planning and strategic positioning services. Built on the idea that customers measure
"value", and make business decisions, based on the relationships of quality and price, Forward
Analytics has designed a research methodology that evaluates the relative importance of a
complete set of factors (products, services, relationships, image and PRICE) and the perceived
performance of all competitors on those factors.
Through the application of quantitative CVA research, you will be equipped to:

1. Identify the attributes that matter to your customers and the competitors' customers.
2. Show exactly how customers define these attributes.
3. Quantify the company's performance and your competitor's performance.
4. Show which competitors have superior value propositions and what can be done.
5. Reveal which market players are poised to gain or lose market share.
6. Provide a fact-based, data driven system for making decisions, beating the competition
and tracking progress.

3.8 Customer Value is more important than a product:

While product and price are inseparable in the sales equation, selling on product and price alone
will not lead to sales growth. What is needed for growth is an approach to the marketplace that
speaks to what customers are really looking for: customer value. Here are five reasons why this
customer value is more important than the product to help sales people understand why a
differentiated approach to this distinction is in itself part of customer value. Those are given
below:

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 Customers Are Looking for Solutions, Not Products

Customer Value Can Have Different Meanings for Different Customers

Understanding Customer Value Allows Focus on the Most Valuable Customers

Customer Value Has a Timeframe that Creates Urgency

Products Require Sales People to Build Customer Value

3.9 Managing customer value:

The stages involved in managing customer value are shown in the figure below:

Source: [Link]/marketing/armstrong/38187_01_p1-[Link]

20
 Chapter: 4

Ways to increase value

&

Conclusion

21
4.1 Improving customer value:

Duchessi (2004) states companies can increase value using one or more of the following
strategies:

As the rst strategy, they can decrease the denominator by reducing prices, leaving product
and/or service benets constant. As the second strategy, they can enlarge the numerator by
increasing any of the product andlor service benets, leaving prices constant. Or they can
implement both of previous strategies: improve the product and/or service benets and lower
prices simultaneously.

Apart from these, Morgan (2007) suggests five other ways to create added value for a product or
service. These are:

1. Always consider the customers perspective

The art of creating added value starts with the ability to see the business through the eyes of
customers. It is needed to consider whats important to the target market and how the product or
service will benefit them. Many businesses miss the boat by focusing on features instead of
benefits. By shifting focus on the customers needs, it is possible for a firm to start helping and
stop selling.

2. Consistently work to improve customer satisfaction

Although the debate over whether the customer is always right (or not!) continues, lack of
customer satisfaction is a sure-fire way to keep people from coming back.

Soliciting honest feedback through surveys on a regular basis allows to keep finger on the pulse
of customers needs and is also an opportunity to monitor the brands identity in the
marketplace. Free survey tools like Survey Monkey, KwikSurveys and SurveyPlanet offer easy-
to-use templates and unlimited in this case.

3. Implement marketing models into your strategy

The use of popular marketing models can help your strategy take shape. For small and medium
businesses, the Four Cs model, Brand Essence Wheel, and tool will help develop brands value
statement, define unique selling point, and even forecast customer demands based on market
trends.

4. Develop a memorable customer experience

Businesses with unforgettable customer experiences are more likely to benefit from word-of-
mouth referrals, positive online reviews, and higher retention rates. When getting started, it is

22
needed to consider all touch points of q business, from initial lead capture to post-purchase
communication and how to properly maximize the added value for the customer throughout the
process.

Building a customer experience also allows you to develop relationships with your customers so
you can connect on levels that go past simply getting the sale. Most importantly, memorable
customer experience models aim to deliver unexpected intangible value that cannot be packaged
or sold. This includes personalized service, attention to detail, and showing a sense of urgency
to address concerns as they arise.

5. Never underestimate the value of free resources

Free resources can also serve as useful tools to help grow a small businesss brand awareness and
expose your target market to various products and services.

For brick and mortar stores, it is required to consider promotional materials featuring companys
logo that can be given out in-store. Businesses with an online presence can use a customized sign
up form to encourage visitors to sign up to hear more about special offers and promotions.
Although something is offered for free, it still needs to have relevance to market and should
always be consistent with your brands overall purpose.

4.2 Simple Ways to Maximize Value in an Organizations Prospective:

It can be hard to focus on increasing the value of your business if you have no immediate
intention of selling and there are so many other competing demands for your time. But for those
proactive business owners that see the end game of cashing out at some point, there are three
simple concepts that will help you maximize the value of your business:

Focus most of your efforts on increasing cash flows

Put yourself in a buyer's shoes
Pick the best exit strategy when the time is right and execute

Focus on Increasing Cash Flow:

Cash flows are the No.1 factor that potential buyers look at to determine the valuation placed on
an acquisition target. Buyers calculate the value of a business by estimating future cash flow and
assessing the risk associated with generating that cash flow. A business that has a track record of
sustainable or growing cash not only validates its product or service but also demonstrates the
managements teams ability to drive growth. Buyers pay more for the higher likelihood of
future growth. Historical financial results are important because they provide a good indication
of what is possible.

Put Yourself in a Buyer's Shoes:

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Even owners who are not planning on selling their businesses can learn a lot from how potential
buyers perceive an acquisition target. Based on my experience, these are five areas that buyers
scrutinize most when buying businesses:

Strategic Planning

Quality businesses have a well-thought-out and documented strategic plan. A written plan gives
any outside party (be it a bank, investor or potential buyer) the confidence that a business owner
knows where a business is going and how it is getting there.

Strong Management

A properly trained and widely knowledgeable management team is desirable for any company. A
truly valuable team is deep and the knowledge of the business does not reside with any one
individual. It is important to honestly assess the strength of your management team.

Diversified and Recurring Revenue Base

A company that has one customer representing 30 percent or more of its revenue is too risky for
most potential buyers. If that customer were to leave, it would significantly impact revenue and
cash flow. As such, customer concentration is an area that can have a significant impact on
value.

High Barriers to Entry

Barriers to entry can be created though intellectual property, such as patents or trademarks,
economies of scale, significant capital investment, customer loyalty, supplier or distribution
agreements, etc. Companies that can deter competition from entering the market will be able to
better sustain leading status.

Scalability
Buyers like companies that make significant investments in systems to serve customers, produce
products, handle customer complaints, etc. Scalable, measurable and repeatable processes make
it easier and less expensive to hire and train employees and better service customers.

Pick the Right Exit Strategy and Execute:

Selecting the appropriate exit strategy - and executing it - is a significant consideration for a
business owner who wants to maximize value. The following needs to be considered:

Planning
To be successful at value creation, business owners must plan ahead. When more time is
available to implement these strategies, more value can be created.

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Execution
Creating an effective auction process with the use of a professional intermediary is critical to
achieve the appropriate deal terms and value. These experts will better position your company,
support your valuation, get more qualified buyers to the table and negotiate favorable terms.

Timing
Even with proper planning and execution, if the market is not right for M&A activity, you might
not find the best buyer or get the valuation you deserve.

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4.3 Conclusion:

The new dimension of business organizations are changing day by day so that the value creation
process. Business organization must co op with changing elements of market. Entrepreneurial
firms focus their scarce resources on the dimensions of value (e.g., cost, use value, emotional
value, social value) that most matter to customers and market their capabilities in terms that their
customers can associate with and are known to value. However, delivering customer value is not
a one-off event. Firms must continuously strive to better understand and anticipate what their
customers will value and then keep delivering it. As Steve Jobs once said: You can't just ask
customers what they want and then try to give that to them. By the time you get it built, they'll
want something new.

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[Link]

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