True Value

Posted in Marketing and Strategy Terms, Total Reads: 412

Definition: True Value

This refers to the amount of money that a buyer is willing to pay for a good/service. It is highly situational and varies from person to person, time to time and place to place. There are many theories surrounding this, one of which is the theory of the intrinsic theory of value, which holds that the value of an object is contained in the object itself.

It gives a measure of the benefit derived by the purchaser of the good/service or the utility that a customer derives from the product/service in return for the economy (money) spent on it. It is a measure of the effectiveness and/or the efficiency of the product. It is an assessment as to whether the customer has derived the maximum benefit possible from the good/service, within the constraints of the resources (time, money, materials) available to him/her.

The parameters used to measure the utility of the good/service include: cost, quality, convenience, resource use, fitness for purpose, timeliness/availability, among others. Some of these elements, being intangible, may be difficult to measure on an objective basis. So, the evaluation of these parameters will be subjective and may vary from person to person and from time to time. There are four Es associated with the true value of an economic product: economy, effectiveness, efficiency and the recently added concept of equity (For more, see Value for money (Vfm)). Some of the tools used to measure true value are cost-benefit analysis (to evaluate the net economic impact of a project; most commonly used in major infrastructure investment) and cost-effectiveness analysis (for more intangible outcomes such as health).



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