Why do we Need a Value Proposition? (Part II)

Please read Part I for background information prior to reading Part II.

Value-Factors

Details of the needs and wants of customers in any segment should be clearly understood as should their decision-making process structures. This data should be obtained by individual interviews, or by focus group studies, or other means. Remember that the VP is all about the customer, and how a company’s services or products will satisfy that customer’s needs and wants.

Often companies do not do their homework and do not determine their customer’s needs and wants, they often make assumptions about them, or go with an a’ priori (obvious, estimated) approach. Marketing and sales objectives should be set for each segment; these objectives should be in congruence with the central objectives of the company.

In summary; the "value" that will be transferred to a customer via the sales/marketing process must be unique to a product and company, and clearly spelled out, and be shown to correlate with the customer’s needs and wants. Value delivers multiple levels of realizable benefits (economic, quality and time dependent.) These values should be quantified so that the specificity of the VP can be accurately refined. A quantified approach to choosing the values to be included in a VP is shown in the following tabular example. Relative values are estimated (on the basis of their relative effect) for each factor of value on a 10 point scale:

Table 1 Value Enabled Economic Benefits

This example shows that the highest value transfer occurs via the services provided in developing
New Products, New Markets, and Strategic Alliances.

So the VP statement for this company should clearly highlight these value factors. Similar tables (possibly using more columns to show areas of effect, e.g. delta cost) can be used to estimate differential qualitative benefits and time dependent benefits as a function of value. Actual (or estimated) examples of client results should be quoted in the VP, e.g. our clients typically grow their annual revenues by at least (20-30%) or our clients typically experience increases in  market share of at least 5 points.

Competitors

Competitive positioning is about defining your value proposition in order to differentiate you (your company, its products) from the competition. It is important that a company’s offering is tailored so that it (the company’s offering) will be seen by target customers as superior to that offered by the competition – this is known as providing a differential advantage. Creating differential advantages ensure higher profits for a company; with no differential advantage offered, customers will make buying decision that may be heavily biased towards a lower price.

Differential advantage can be obtained via elements of the marketing mix; i.e. creating a superior product, more attractive designs, better service, more effective distribution, better advertising, etc. In general the three major areas of differentiation are:

• Cost Advantage – A significantly lower production cost from which companies can create lower prices while still achieving desirable profit margins
• Differentiation Advantage – A meaningful performance, quality and service differentiation that creates more value for the customer than competitor products
• Marketing Advantage – A marketing effort that dominates the competition in efforts and resources expended on the promotional mix (sales, PR, advertising, etc)

The key is to understand what the advantage must be to satisfy customer needs and wants. And it should be based on research (or knowledgeable estimations) into what customers consider to be "value;" the company’s differential strategy should be developed after also making due considerations of competitor strategies and their offerings. Most high-tech companies place a premium on differentiations of product performance and price; in few instances is "Marketing Advantage" pre-eminent in their strategies development and action plans. On the other hand consumer companies take serious stock of this marketing factor when developing their strategies.

It has been recently discovered that increased differential benefit can be obtained by stressing only a few (even one or two) points of difference between substitute solutions, or competitor products. The points of difference are determined via marketing research (or knowledgeable estimations); they should represent the highest prospective payoffs for the company’s target customers.

Determining Advantages

Differential advantages should be determined based on their contributions to customer values relative to values provided by competitor solutions and should be considered in term of the elements of the marketing mix; Price, Product, Promotions, Place (channels). For this exercise we will consider only differential advantages based on the first two elements, Price and Product. We will use a matrix technique as in table 1, either obtaining measured data from customers or by making knowledgeable estimations. The matrix will be labeled in terms normal to the customer, i.e. a purchase price will become a "cost" etc.

"Importance" (the contribution of value to the customer) is estimated (or measured by customer interviews) in relative values totaling 100; this column should be completed first. Performance factors are measured or estimated and registered on the scale 0 – 10. The differential advantage (right column) is determined by subtracting the competitor performance from the company’s performance and multiplying the difference by “Importance”. Negative differences are not considered and scored as zero.

Table 2 Differential Factors of Customer Value

Mix Factors	Importance	Performance	Competitor	Advantage
Cost: –
Acquisition	10	8	6	20
Adoption	5	9	5	20
Training	5	6	5	5
Maintenance	3	7	7	0
Product: –
Aesthetics	5	9	7	10
Ease of Use	8	8	4	32
Display Size	5	6	8	0
Display Res	5	8	5	15
Display Color	7	8	6	14
Speed	12	9	6	36
Flexibility	5	8	5	15
Accuracy	15	9	5	60
Mobility	10	9	4	50
Weight	5	9	4	25
Power Used	3	7	8	0
Total	100

In this example the key differentiation factors are "Accuracy of Results," "Mobility (portability)," and "Speed of Operation."  These differential factors should be incorporated into the statement of the VP.

Article continues with Part III: VP for Service Businesses

Copyright 2008 – 2010 Henry Gregor, StrategicVisions.  All Rights Reserved Worldwide.