In this article, you’ll learn how to craft a compelling value proposition. But before you do that you need to understand what creates value and how the different elements can be used.
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In simple terms, a value proposition answers the question of why a customer will buy your product compared to another. A value proposition succinctly expresses creates a strong first impression.
A value proposition is a clear statement of the tangible results a customer gets from using your products or services. It’s outcome focused and stresses the business value of your offering.
In this article, I’ll cover the value proposition from a number of different perspectives. A lot of people struggle with the value proposition so it’s worth taking time to understand what is value?
Smith and Wheeler (2002)[mfnSmith, S. and Wheeler, J. (2002) Managing the Customer Experience. FT-Prentice Hall. Harlow, UK.[/mfn] consider that designing what they refer to as a ‘branded customer experience’ is vital to delivering an effective value proposition. They also stress the importance of “developing a profound understanding of the customer’s experience”. The keyword is profound – they suggest that detailed research must determine the nature of value which will drive buying and loyalty behaviour.
People do not want a quarter-inch drill, they want a quarter-inch hole.
Theodore Levitt
Therefore, this theory focuses on the jobs-to-be-done by the potential customer. A jobs-to-be-done analysis allows switching the focus toward
A job is defined as:
A “job” is not a description of what the customer is doing, the solution they are using, or the steps they are taking to get a job done. Rather, the “job” statement embodies what the customer is ultimately trying to accomplish.
According to the jobs-to-be-done theory, which also informs the value proposition canvas, those jobs can be summarized as:
Kotler – in his book “Kotler on Marketing” – defines a value proposition as an answer to a key question that your potential customer has: “why should I buy from you?”
According to Kotler, a value proposition is critical to define the context in which the product needs to be positioned. More importantly to achieve a value proposition the business must go through four steps:
In explaining brand positioning, Michael Porter highlights how a business should focus on achieving an advantage either as a product differentiator, a low-cost leader or a niche player.
According to Kotler, positioning opportunities can be classified as follows:
In choosing a value proposition, Kotler argues that buyers think in terms of “value for money: or what they get for what they pay.”
It can be hard coming up with ideas around value and matching those to your customer segments. In fact, a poor value proposition is one of the contributing factors as to why startups fail. If you look at startup failure rates they are unbelievably high:
Many of these reasons link back to how the business model was designed. In particular, the lack of customer understanding or a poor value proposition.
Most start-ups fail because they place too much emphasis on the ‘idea’. They fall in love with their idea more than they fall in love with understanding the customer.
Another reason is that the business model and value proposition wasn’t tested thoroughly.
Why is the value proposition so important? If you have a new product then the first hurdle is for your target customer to understand why they should buy it. Moreover, simply understand it and in seconds is a good start.
People make decisions in milliseconds and your value proposition has to be clearly understood and strong enough to convert potential customers.
As a result, and because of the high failure rates, more businesses are focused on developing early-stage ways to test both the product/service and the value proposition.
The bottom line is that customers aren’t interested in you or your products – they don’t spend hours of each day day-dreaming about your product or thinking about your business
The harsh reality is customers are only interested in themselves and you only fit it to their life’s if you are useful.
If you’re going to communicate with customers, you need to first understand their preferences and requirements, then learn how to speak their language. This is the foundation of all marketing.
If you have several customers all seeking the same product for a different primary benefit, and you message all of them about the same benefit, you will not get traction, you will simply waste your time, energy and budget.
Value is contextual – what appeals to one set of customers might not appeal to another.
A person buying flowers for a wedding has a different set of needs and requirements compared to someone buying flowers for their partners to be romantic.
While taglines, slogans and positioning statements are important to your brand, they influence a customer’s decision to buy. A value proposition, however, is not a slogan, a tagline, or a positioning statement. This is a mistake that many people make.
Maslow’s hierarchy of needs is a motivational theory in psychology comprising a five-tier model of human needs, often depicted as hierarchical levels within a pyramid.
I’ve included two visual diagrams that neatly summarize a hierarchy of value – one for B2C and one for B2B. If you are familiar with Maslow’s hierarchy of needs (image above) you will see many similarities of a value mapped to the different layers.
While broad categories are useful I find that most people want specific examples to play as they design their business model. Using individual elements, and sensing how they fit in the hierarchy, makes the development of the value proposition much easier.
Business to business buying is different in many ways to B2C. Often buying cycles are longer, products and services more complex, involve more people and are of a much higher value. For this reason, the principles and elements of value differ.
Strategic
Operational
Access
Productivity
Relationship
In a nutshell, a great unique value proposition should have:
Some value propositions are based on the newness or novelty factor they provide. This element usually comes into play for technology-intensive products and often fits early-adopters as a customer segment. As an example, the launches of new iPhones and the subsequent queues at stores have become an annual event.
Improving the performance of a product has led to many reinventions of products. Shampoos and facial treatments are a good example of how new ingredients give rise to new value propositions within the market. However, it is hard to compete on performance alone unless your product creates a substantial difference in the marketplace.
Consumers trends and technologies have converged to create a world where companies now are actively seeking new ways to personalization products and experiences.
In a report by Internet Retailing, 69% of consumers want to have a personalized experience, yet less than 50% of brands are actually delivering.
Nike lets its customers customize their shoes through NikeID on their website. A consumer can go online and create a completely original design with their preferred colour palette, placement, colour and size of the swoosh etc for their shoes. They can see what the end product will look like visually, play around with different permutations till they reach a result that suits their tastes and then order the final product when they are ready.
When a product helps a consumer or business reach the end goal, its value proposition results from how it helped the customer to achieve their goal – or expressed differently get a job done.
Most clothing labels rake in a higher price tag because of the superior design they have. Prada charges top dollar for something as simple as a T-shirt because of the strength of its designs.
Design and brand/status can be clustered together because their appeal is quite similar. Just as people will show loyalty to a brand because of its design, people will also show loyalty to a design because of the perceived status the brand name offers to the owner.
Price alone is a dangerous proposition to rely on unless it is supported by other elements. As an example, there are many ‘no frills’ airlines like Southwest airlines. However, soon other airlines also replicated their offer and in fact, some companies created secondary brands in the market. Low price value propositions and strategies need to be supported by efficiency in operations and usually self-service customer relationships.
Products and services catered towards enhancing customer experience by reducing the cost a customer would ultimately incur cater to the cost reduction value proposition. Many price comparison sites open up transparency and easy access to pricing that otherwise would be hidden. In doing this they offer value by allowing customers to make savings on third party products or services.
However, if you are a third-party service this places a greater emphasis on using other variables to create a difference.
The less risk associated with purchasing a product or service, the more likely a customer is to buy it. Risk reduction is an important factor for both B2C and B2B customers and increases as a factor as the level of investment increases.
Another key ingredient for an effective and robust value proposition is making a previously inaccessible product or service available to a consumer segment. Innovative technologies and variations in business models have both led to offering accessibility to unserviced customers. NetJets is a wonderful example of providing accessibility.
There is a better way to think about market segmentation and new product innovation. The structure of a market, seen from the customers’ point of view, is very simple: They just need to get things done, as Ted Levitt said. When people find themselves needing to get a job done, they essentially hire products to do that job for them.
Clayton Christensen
Having defined your customer segments and understood their goals you want to create a powerful and compelling value proposition.
The value proposition needs to ‘FIT’ with your customer segment and focus on your customer needs.
A Value statement is what’s important to your company, what it prioritizes, and how it conducts itself.
A Value Proposition is a statement that paints a clear picture of what your brand has to offer. It tells your potential customers:
When you have created your value proposition check that you can answer these questions:
As celebrated advertising guru David Ogilvy pointed out:
The trouble with (conventional) market research is that people don’t think how they feel, they don’t say what they think and they don’t do what they say.
David Ogilvy
The point is that despite how well you craft your value proposition you still need to test it.
After completing this section you will have developed your value propositions for each customer segment. You should also buy now have a much more detailed understanding of your customers and what motivates them.