Strategies that are successful against competitors should focus on creating CVA® that is greater than those produced by competitors. To do so, one must first regularly measure and monitor CVA® by examining its components, perceived value and variable costs per unit. Next, one must develop strategies and tactics to increase CVA® effectively and efficiently. In the long run, the organization that succeeds in achieving and maintaining the highest CVA® wins.

Well-known management consultants and authors have often tried to simplify competitive strategy by suggesting that winning strategies need to be focused either on customer value or on costs. Such a premise is false and potentially dangerous. Successful strategies must simultaneously balance both customer value and costs. Managers can achieve strategic success by focusing on customer value added - an objective that combines both customer value and cost.

Customer value added for a unit of a product or service is the difference between the perceived value and cost per unit (Exhibit I). Perceived value is the maximum a customer will pay for the product or service. Perceived value is not price - it is the ceiling on the price of the product or service. Cost per unit is variable cost per unit, not average price per unit. Average price can distort decisions by masking the incremental profit for a product or service.

Customer value added (CVA®) is the net value per unit that an organization provides to the society - as perceived by members of that society. If CVA is high, then an organization is adding substantial value to society because perceived value exceeds costs. However, if CVA is low, then an organization is not adding substantial value to society but rather adding only a small amount in excess of their costs. At the extreme, if CVA is negative, an organization is destroying value to society since the value of their outputs is then less than the cost of their inputs. When CVA is negative, in a free market, an organization will cease to exist.

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