Introduction
The idea and the concept of a Value Proposition (VP) has been around for some time (really since Adam Smith, but formally since the early 1960s) but its importance to a business, and to an individual, has become blurred by misunderstanding; by misapplying it, by getting it mixed up with positioning statements, etc. Not having a compelling value proposition is a recipe for failure, sometimes quick and sometimes slow, but always painful. If your sales have been depressed and you’ve been swimming in a sea of fierce competitor alligators, you are not alone. A 2008 Siebel research study showed that over 75% of executives at companies whose new products failed to achieve their objectives blamed poor value propositions, as the root cause.
In researching the topic of "The Value Proposition" I discovered thousand of examples of how badly blurred the VP had become. The web is full of poor examples of VPs and their misapplication. As I dug deeper into the philosophy and the psychology of the VP; I came to realize its extreme importance to a business. Winston Churchill in his famous "Battle of Britain" speech declared that "this was not the beginning of the end or the end of the beginning” to paraphrase his description in terms of the Value Proposition, it is the "Beginning at the End."
It is the "beginning at the end" because it is usually one of the last things a company will develop before it goes off and tries to sell its products to some unsuspecting customers. In reality the VP is about a business’ core, in terms of its customers, their perceptions and how the business satisfies their needs and wants, i.e. "delivers value." So in some way it should be one of the first things a company develops as it writes its business plan. In essence, businesses exist for one reason, and that reason is to satisfy a customer’s needs and wants. Businesses deliver value to their customers in exchange for money! Some amount of money is exchanged for "value" that satisfies a customer’s needs and wants.
VP Definition
The Value Proposition is an embellishment of "The Marketing Concept"; a philosophy whereby the customer and the satisfaction of his/her needs and wants are the focal point of business activities. Marketing is the whole business seen from the point of view of the final result, that is, from the customer’s point of view. Concern and responsibility for marketing must therefore permeate all areas of the enterprise. (Peter Drucker).
In economic terms, value is often distinguished as intrinsic and exchangeable. Intrinsic value can be the same as utility, or an adaptation that satisfies the needs and wants of customers.
Everything that has intrinsic value is not necessarily exchangeable; e.g. the air we breathe. So pragmatically speaking, what is a Value Proposition? – – – – – A value proposition is a clear and succinct statement (e.g., 2-4 sentences) that outlines to customers and stakeholders a company’s unique value-creating features, i.e. value created for the user. The statement should clearly and concisely summarize the customer, and the market, and why (specific declarations of intrinsic value) they should purchase the company’s product, or use its services versus other offerings in the market place (the differentiation).
The VP statement should clearly describe (for its potential customers, or investors) what value will be transferred to them (specifically or by implication in $ and cents if possible) and the needs and wants that will be satisfied when the product or service is purchased. In actual fact the process of developing a VP is a critically important exercise for any business; it explains the coupling of a company’s core with the needs and wants of its customers. You must be able to communicate who your customers are, what you provide for them and why they should buy it from you.
VP Elements
Clarity and brevity is of mandatory importance in the development of a VP; each word and each phrase should have such an effect on the meaning of it that its developers are required to reach inside the core attributes of their company, its products and services, to assure accuracy and understanding of the needs and wants of their target customers, and their definition of value. The key managers of a company should be involved in the development of a VP and it should take place in concert with the company’s business plan. The business plan is all about the opportunities being pursued and the technical and financial structure and development of the business’ operations.
Since the VP is all about the customer (and how he/she obtains value from the company’s products or services), the exercise of developing the VP is critical to the success of the business plan process. The VP should not be an after-thought it should be almost a fore-thought; however, most companies (especially high-tech) are almost completely product centric and get so focused on the attributes and features of their product that they usually leave the VP to just before they go to market; that is, if they develop a VP at all.
The Who
The first part of developing a VP is to describe (individually and collectively) the customers who are targeted; if there are multiple market segments a VP should be developed for each segment and that segment treated as a separate market.
The value-based segments and the proposed value transfer, relative to each of these segments, require that unique value propositions are developed. The needs and wants of customers grouped in each segment should be understood: e.g.
- Who are the top customers in the segment?
- What problems does your product or service solve for them?
- What is the range of problems they need solved?
- Is there a new trend in any of the customer segments?
The goal of using a segmented approach is to fine tune the appeal of alternative value propositions for each target segment. Market segmentation is a strategy that is implemented (often poorly) by most companies. The strategy of market segmentation will not be addressed in this paper.
In essence the definition of a segment is “that set of customers who respond in the same way to a company’s differentiated marketing mix.” Generally segments are chosen for their size, growth, ease of entry, etc. Each segment should consist of a separate specific group of customers (or users), so a unique VP must be developed for each segment. Begin the formulation of your VP by:
Creating one or two sentences describing the market or segment: e.g. StrategicVisions is in the business of providing Business Development consulting services to growth oriented companies.
Companies using these services will generally be growth oriented and technology driven. Seeking growth through new (or extensions) to existing product s, new or developed markets and strategic alliances. They will have resources available to support their growth efforts.
Article continues with Part II: Value Factors
Copyright 2008 – 2010 Henry Gregor, StrategicVisions. All Rights Reserved Worldwide.
