Price is what people pay.

1. Price is what people pay. Value is what they expect.

2. What is value ?

3. Value, for a customer comes from many sources - from a product’s usefulness, its quality, the image associated with it, its availability, the service that accompanies it. The more intangible the value appears, the more important it is to recognize that value is defined by customers, one person at a time.

4. When management defines its objective as creating value for customers – as opposed to selling service or product – the language serves to remind us of this basic principle. The term also reminds us that organizations are means to ends, not ends in themselves. The organization exits to serve the needs of people who are out side them. One of management’s chief responsibilities is to remember this external orientation and to remind others about it constantly.

5. There is really only one test of a job well done – a customer who is willing to pay for it. • Customers don’t care how much hard work or ingenuity goes into designing a product. Nor are they properly impressed by genuine breakthroughs.

6. Manufacturing Mindset • Value = Efficiency Historically businesses were defined by what they made. A company was in the steel business, say, or the coffee business or the car business. The way to success was to figure out how to make more steel or coffee or cars using the same or fewer resources. The challenge, in other wards, was to increase productivity, and the way to do that was to make production process as efficient as possible.

7. In this mindset value meant making whatever you were making more efficiently.

8. The Customer Mindset • Value = Need satisfaction Customers don’t buy products, they buy the satisfaction of particular needs. • In this mindset the organization is seen from anoutside – in perspectiveas opposed toan inside – out perspective. It is asense – and - responsemodel that starts with what the customer wants and with how much she/he is willing to pay for it. This is strikingly different from the manufacturing mindset in which you start with what you make, you price it based on what it cost you and then you sell it to the customer. It is a make - and - sell model of how a business works.

9. The Crucial Distinction • Convincing a customer to buy what you make Vs. understanding what customers value, so that you can work to satisfy their needs.

10. Every business, therefore, must come up with clear answers of the following three questions. • What is our business ? • Who is the Customer ? • What does the customer value ?

11. In any work situation the above questions must be asked by every one who works. • The analogous questions are : • Who depends on my work ? • How do they use it ? • Why is it valuable to them ?