To use the power of value-based prices, you need to be able to define what value means for you. This is simpler than you think:

• Every product has a requirement or specification. This specification defines the essential features of the product.
• The specification can be a drawing, a standard, a technical specification, a contract, or a mixture of these.
• Product features are measurable. You can prove that the specification is met by measuring the essential features. You can prove that the product is what you expect it to be.
• Products might have features that are not essential. You don’t want to pay for them.

Here are some examples of features, and whether they are most likely essential and add to the value of the product or not:

Capacitors

• ✔
  Capacity – The amount of energy that can be stored or transferred. The core technical feature of a capacitor.
• ✔
  Charging Time – The amount of time it takes to charge the capacitor. The faster the better.
• ✔
  Voltage – The operating voltage of the capacitor. The voltage must fit your application.
• ✘
  Color – The color of the capacitor doesn't have any influence on its functionality.
• ✔
  Tolerances – The permissible variation from the stated capacitance value

Turned Parts

• ✔
  Dimension – The length and diameter of the part.
• ✔
  Material – The material of the part. Dictates several critical properties and characteristics that directly impact the part's function, performance, and durability.
• ✘
  Center Holes – Small holes drilled into the ends of long shafts to allow them to be held between centers on a lathe are often non-essential to the part's final use.
• ✔
  Weight – The weight of the part.
• ✔
  Tolerances – Defines the functional boundaries and physical viability.

Electric Motors

• ✔
  Power – The amount of energy that can be delivered to the motor.
• ✔
  Torque – The amount of force that can be exerted on the motor.
• ✔
  Speed – The speed at which the motor can deliver the specified power.
• ✔
  Weight – In some applications, the lighter the motor, the better it is for the application.
• ✘
  Frame Material – While a frame is needed, the specific material (e.g., cast iron vs. cast aluminum) is often a non-essential choice driven by cost or weight rather than the core electromagnetic function.

Cost, Price, and Value: Definitions and Relationships

Even though most people know the difference between cost and price, they often confuse them. And value is often not taken into account at all, because it’s not clear what it means.

Let’s look at all the differences:

• Cost is the amount of resources (money, time, labor, materials) expended to produce, acquire, or maintain your product. It only represents the producer’s or supplier’s perspective but doesn’t necessarily reflect the perceived value.

• Price is the amount of money a buyer pays to acquire a product or service. It’s the marketplace expression of an exchange value and represents the meeting point between seller and buyer. But again, the price doesn’t necessarily reflect the perceived value. You don’t know whether the value you receive is <100%, =100%, or even >100% of the price paid.