Economic Value: What It Is, How It Works, and Examples in Consumer Goods

The economic value of a good or service hinges on an individual’s intended use and perception. It’s subjective, representing the benefit derived from the product. For instance, the economic value of an apple is determined by the pleasure and nutrition it offers to the consumer.

This value is not an intrinsic quality of the apple itself but entirely depends on the individual’s subjective assessment. While the qualities of the apple might influence its use, the primary source of its economic value lies in the individual’s expectation of how well the apple will serve their intended purpose.

Due to its subjective nature, directly measuring economic value is impractical. Nonetheless, various methods attempt to estimate it.

Economists typically gauge how much individuals value a good by observing the price they pay for it. By purchasing a good, individuals indicate a preference for the product over the money spent. This serves as an indirect method to estimate the economic value of the product.

Hedonic pricing involves statistical regression analysis to estimate the economic value attributed to specific attributes of a good. By analyzing past transactions, economists establish models linking attributes of goods to their prices, helping estimate a product’s economic value.

Companies employ economic value to the customer (EVC) in pricing strategies. EVC encompasses tangible and intangible values. Tangible value relates to a product’s functionality, while intangible value is tied to consumer sentiment towards product ownership.

For instance, durable sneakers provide tangible value by offering protection and support during activities. The association of a sneaker brand with a celebrity adds intangible value. Marketers employ tools such as surveys and focus groups to gauge how consumers perceive and value these characteristics.

Various elements impact economic value, including individual preferences, intended use, product attributes, and personal perceptions.

Due to its subjective nature, directly measuring economic value is challenging. However, estimation methods like willingness to pay and hedonic pricing attempt to quantify it indirectly.

Producers use estimates of economic value to set prices for their products, considering both tangible and intangible factors. Economic value guides marketing strategies to understand consumer perceptions and preferences.