Value Above Cost by Donald E Sexton

by Paul Simister on June 10, 2015

The full title of this book is Value Above Cost: Driving Superior Financial Performance with CVA, the Most Important Metric You’ve Never Used. It is by Donald E. Sexton who is Professor of Business at Columbia University and principal of The Arrow Group Ltd which provides training and consultancy services to large companies.

CVA is a registered trademark and it stands for Customer Value Added. This is Perceived Customer Value minus Variable Costs where perceived customer value is the maximum that the customer will pay for your product or service. This is not usually the actual price paid and nor is it the actual value delivered.

The idea is that the aim of the marketing function in particular and the business in general is to find ways to maximise CVA on the basis that it gives the business more pricing freedom to either extract profit and cash flow or to provide added incentives for customers to buy. This is an interesting concept which makes explicit a principle that is more implicit in other books about customer value. I also very much appreciate the consideration of costs, even if it’s limited to variable costs. Too much marketing advice looks at maximising revenue without considering the cost implications that will affect profitability.

The book is quite academic in places but it does provide some tools and advice on how to apply the concepts. I read and highlight elements of the book that I want to return to or I think present a different perspective than covered in other books. Looking through my book, some parts of heavily highlighted whilst there are also plenty of segments that either fit into the “heard it before” category or represents logic that I’m not comfortable with.

The book reflects on how CVA changes over the life-cycle of a product which is interesting and recognises that CVA will fall during the maturity phase as there are competitors supplying similar products. I agree but throughout the book I had the nagging question “what about things competitors do?” Personally I like to think of customer value in terms of what a product or service is worth to a customer without competitors and then recognise competitive pressures and how they can change the actual price the customer is willing to pay based on changes they make to both prices and to the underlying value of their offering.

I like the way the book looks at customer value and how different firms can have different benefit advantages and how these need to fit into the capabilities of the business to help identify what needs to change and to identify where the internal competitive advantages lie. That might be because it agrees with the way I already think, although I think it needs to be taken to the nest level… from capabilities to processes.

This is a book that I plan to return to after a few months of reflection but, at the moment, its role is more to confirm what I already believe rather than to introduce much new.

Unfortunately I’m struggling to think of a suitable audience outside of business consultants and people with a special interest in customer value who have the influence to take it throughout the organisation. I think it’s too academic and esoteric for the vast majority of business owners.

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