CVA® is the difference between perceived value per unit and the variable cost per unit for a product or service (Exhibit 1.7). CVA® is the net value—as perceived by customers—that an organization provides society.
Exhibit 1.7 Customer Value Added
Reprinted with permission from “How Marketing Affects Shareholder Value,” The Arrow Group, Ltd.®, New York, NY, 2008.
If CVA® is high, an organization is perceived as providing value to society and will be rewarded with strong financial results. However, if CVA® is low, the financial results will be weak. At the extreme, if CVA® is negative, in a free market the organization will likely go out of business because the inputs it is using cost more than the value of the products or services it is producing. In open markets, such organizations fail.
Keep in mind, as mentioned earlier, that perceived value per unit is typically below actual value, as shown in Exhibit 1.7, because customers usually do not know all the benefits that they receive from a product or service.