Service is an intangible and insubstantial commodity and its value is expected to be self-evident. However, for service organizations, there is difficulty in understanding value as experienced by customers.

This can be simplified with the value equation which is shown below:

R – Result

This is the primary need of the customer. If I want to go to Abuja from Lagos, it’s just travel from A to B. Nothing more – nothing less.

P – Process

We can achieve the primary result – getting from A to B – in many ways. The difference is the way we do it. In the Value Equation, we call this the Process. We have to analyze our processes in terms of what creates value for the customer because it almost always increases the expenses. For instance, the low cost airline concept aims at minimizing the processes of getting from A to B, leaving the customer with almost nothing but the primary result.

Elements you can find under processes include Time(Speed),Competence, Reliability, Friendliness, etc

N – Price

Price is, of course, what the customer has to pay for the service in monetary terms.

E – Effort

Effort is to which degree the customer makes an effort, him or herself, in the service delivery. If you do your shopping in Balogun Market, you make a great effort yourself – when you go there, find, and pick up what you need. The effort reduces the price.

If you stay at home and order the item you need through Jumia, you make a tiny effort but have to pay some more for that luxury.

Hence there are always four variables we can influence in the service concept – Result, Process, Price and Effort. These four variables together constitute the Value Equation, and all service products are a unique combination of these particular four elements.

Different organizations work with their own particular combination. The most clever service companies have several value equations operating at the same time – one for each group of customers and situation.

The value equation helps you to understand what customers need. An organization that provides services must have an accurate understanding of what its customers value, and would value. This is critical because the obvious consequence of not understanding the needs of the customer is that they might never return.

What then is your organization’s value equation?