Value mapping is a useful tool to uncover insights around your value they provide and the price you charge for it, relative to your competitors. Before we dive into it, a quick recap. We introduced in the course of our customer value some of the terms we will use now. And back then we defined customer value is the sum of all the value drivers that are. And there are three basic types of value drivers. Technical, that's basically the stuff you get and the performance around the specs. Functional, which has to do with the experience you as a customer have. End emotional, which means how well you relate to what you just bought, and how important it is to you emotionally. Now a very related concept to customer value is the value surplus. Which is basically the customer value minus the cost for the customer. And in most cases we set the cost for the customer equal with the price they pay. Now in reality often there are also non-monetary costs or even monetary costs that should be included into the price, but for simplicities sake that's good enough for this purpose. So the value map is a two dimensional graph with the customer value on the x axis and the price on the y axis. And you basically map out where your competitors sit, and let's say here this blue laptop sits on this specific customer value point, and they charge this specific price. And your Competitor A has a higher customer value and they charge more. And when you start putting a line through those offerings in the market, you establish a fair market value line. Which means whenever you put products on this line, you're kind of charging the fair price, or what is considered to be fair. Now, once you leave this line and you either price below it, you create a value surplus. Meaning the customer is paying less price for the value they get, so in other words they get a great deal. Or if you price above it you're in a territory that we call value deficit. And usually you can do this, often it's not very successful to be in this area. Let's walk through a little example about pricing a new laptop computer. Again, in the customer value course there is an entire section about setting prices with customer value in mind, but also relative to competition and we introduced the term next best alternative. In this example here, this blue laptop computer is the next best alternative to our product, but we offer some additional features which provide a net incremental value. So, our new product has this value and now we go up the line and we see basically the range that we should be pricing in, which is between the reference price and the indifference price. And we call this range the most likely price range, and if you are below this point, you are in the value surplus. So if you price it, decide now to price it well below your next best alternative, and really have a great deal for your customers, relative to all the value they get. Then what do you think will happen? Well, your competitor with the blue laptop computer probably will see steep market share losses. And in order to compensate for that he will reestablish the order here by placing his price below yours again, so that you actually reshift the entire fair market value line. This will lead to a balance of the market shares. Which means our new product will not capture as much market share as before, because it's not that much of a great deal any longer. Competitor with the blue computer will capture more, and we are both suffering now the fact that there is just a lower reward level established in the market. So, that's not a good thing. Now could we try to price it above here? Yes, possibly. We could certainly try and try to reshift the entire line above. But it's usually takes more than just a couple of features. It usually takes a lot of more brand appeal or basically the creation of a new higher value segment that has this willingness to pay. So, a quick wrap up. As most economic models, the value map assumes that buyers and sellers act rationally. And that is a limitation in itself. What the value map really does well is it plots the relative price position, it chose the value and price trade offs and the potential dynamic market responses. However, plotting the competitors is not that easy because you have to measure their customer values. It's worth though going through the effort. Because at the end of it, it's a very useful tool to facilitate the management of the price value relationships.
