Our fundamental premise
We begin with the premise that sustainable growth is achieved by understanding the value needs, perceptions and possibilities of selected markets and then keeping them at the center of all that you do, in every portion of the business. Value propositions (VPs) are at the heart of our work, examining and creating customer experiences over the full range of customer interaction, so it’s only appropriate that value propositions should be the focus of this first entry.
Ah, the value proposition thing….. Each of you has already conjured up a concept that you’ve attached to “value proposition” and it’s likely different from the next person’s idea. A sales pitch? A tagline? If the first time you think about VPs is when it’s time to market and sell, then the following ideas will be refreshing (or threatening) to you. If you’re already obsessed about customer value from the day you begin to think about new opportunities, then what’s here will hopefully be more familiar.
The primary goal for any business is to profitably attract and retain customers. To do so, you must gain their preference. Potential customers make their decisions based on the perception that they will somehow be “better off” by doing business with your company. Whether they weigh the range of evidence explicitly, consciously or not, the collective perception of “better off” is the Value Proposition (VP) that attracts them. It may or may not reflect what you know as reality - it’s their perception after all. But it IS the basis on which they make decisions and their perception is their reality, so live with it. And it is always judged against whatever they would do if they chose not to do business with you - their best alternative.
The Value Proposition
What is going through the customer’s mind is:
When I do business with (your company)
Instead of (my best alternative),
I get (an associated set of experiences, both superior and inferior, that in net make me better off),
Because (reasons to believe this is true).
Philip Kotler defines this value proposition as “the total set of experiences I offer customers.”
The most successful companies place this concept at the heart of their business, using it to drive every portion of their company’s activities, from offering development, through operations, services, marketing and selling. It’s their roadmap to customer-oriented decisions.
An effective VP aligns an organization around a single purpose. It empowers people to make better decisions more quickly and thereby increases business velocity - critical in a constantly-changing world.
Although there’s nothing wrong with simply mirroring the customer thinking above, we find that it’s too easy to oversimplify and try to squeeze everything into one sentence. A complete value proposition that drives your business must be a story that describes how a customer’s life will change when they do business with you. It can be pretty complex for many situations.
And there’s no need to avoid the dirty laundry - those areas where you know by either intent or ability that you will be inferior to the best alternative. In fact, it’s critical to include it so that known issues can be mitigated from offering development and operations through the sales process. This dirty laundry of course makes it obvious that this isn’t something to be shouted from the rooftops. That said, carefully selected portions of it provide content for the shouting.
A VP is a clear, internal statement, describing your offer to a segment of customers. It is not a product description or a feature list, but rather a statement of why people should care about those things. It represents why a given set of customers will be better off by doing business with you. That is, it is attached to customers rather than products or services. Those products and services are the methods by which you will deliver the value proposition.
Elements of the Value Proposition
- Target Customers - complete description of those customers within a given market segment
- Timeframe - when customers can begin realizing this value
- Best Alternative - what customers will do if they don’t do business with you
- What we would like them to do - what customers must do to get the experiences below
- Customer Experiences - the heart of the value proposition, describing how customers’ lives will change as a result of doing business with you, both positively and negatively, all as compared with the best alternative
- Price - what they will pay
This is much more than a tagline and describes how customers’ lives will change when they accept your offer. It’s a story.
We often compare the VPs our clients believe they are offering customers with what customers perceive they are being offered. Although the ideal scenario would show complete congruity between these, reality is otherwise. All too often, companies sell their products by listing all of the wonderful features they have. On the other hand, customers don’t care about features, products or services. They care about what these can do for them. When these customers describe why they do business with a particular company, they talk about how their lives have changed and how they perceive they are better (or worse) off as a result.
To be realistic, a VP must be informed by facts. Facts about your customers and non-customers - their goals, anxieties, activities and perceptions. Facts about your own capabilities - and those you might acquire. Facts about your competition - where they’re headed. And facts about trends in the market space. Not just any facts of course. There’s data, and then there’s actionable information. We prefer the latter. More about this in later posts.
One final thought: Any time you are trying to influence behavior - customers, partners, co-workers or friends - a value proposition is involved whether conscious or not. Wouldn’t you be more successful if it were consciously chosen?
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