CVA, Perceived Value and Pricing Power

Winning strategies of companies across the sector and geographies often maintain balance b/w following
• Low cost operations &
• Superior customer value

Some companies specifically innovation driven and in technology domain such as Apple are able to consistently report strong margins. To understand what lets these companies rake in higher margins in this competitive industry we need to understand two terms i.e. Actual Value/Unit, Perceived Value/Unit & Customer Value Added.
Actual Value Per Unit (AVPU) = Perceived Value Per Unit (PVPU) + Delta (∆)
Perceived Value Per Unit = Variable Cost Per Unit (VCPU) + Customer Value Added (CVA)
CVA or Customer Value Added is the additional value provided by the organization and as perceived by the society. Higher the perceived value of a company’s products, higher will be premium that can be added to the product price. Hence strong perceived value or higher CVA value can be driver for stronger financial results and vice versa.

Marketing campaigns, Advertising, Branding, Positioning, Innovation, Quality and other tools that can capture customer’s imagination drive up the perceived value. Though marketing campaigns play major role in branding and positioning of product but marketing teams shall be careful about using their tools due to diminishing returns beyond the inflection point. Managing perceived value and CVA are key to manage brand as well as pricing power hence perceived value as well as CVA should be an input into marketing campaigns. This is more true for consumer goods industry which shows oligopolistic behavior.