Value Proposition Group 2 What Is Value? It is essential to recognize that value is not just price. Value is a much richer concept. Fundamentally, the notion of customer value is fairly basic and relatively simple to understand; however, implementing this concept can prove to be tremendously challenging. It is a challenge because customer value is highly dynamic and can change for a variety of reasons, including the following: the business may change elements that are important to the customer value calculation, customers’ preferences and perceptions may change over time, and competitors may change what they offer to customers. One author states that the challenge is to “understand the ever changing customer needs and innovate to gratify those needs. ”Sudhakar Balachandran, “The Customer Centricity Culture: Drivers for Sustainable Profit,” Course Management 21, no. 6 (2007): 12. What Is a Value Proposition? Value Proposition A value proposition is part of a company's overall marketing strategy. The value proposition provides a declaration of intent or a statement that introduces a company's brand to consumers by telling them what the company stands for, how it operates, and why it deserves their business. A value proposition can be presented as a business or marketing statement that a company uses to summarize why a consumer should buy a product or use a service. This statement, if worded compellingly, convinces a potential consumer that one particular product or service the company offers will add more value or better solve a problem for them than other similar offerings will. A value proposition is a statement which identifies clear, measurable and demonstrable benefits consumers get when buying a particular product or service. It should convince consumers that this product or service is better than others on the market. This proposition can lead to a competitive advantage when consumers pick that particular product or service over other competitors because they perceive greater value. The phrase "value proposition" (VP) is credited to Michael Lanning and Edward Michaels, who first used the term in a 1988 staff paper for the consulting firm McKinsey and co. In the paper, which was titled "a business is a value delivery system", the authors define value proposition as "a clear, simple statement of the benefits, both tangible and intangible, that the company will provide, along with the approximate price it will charge each customer segment for those benefits". In a modern, clear cut definition, Labeaux defines a value proposition as a statement that clearly identifies what benefits a customer will receive by purchasing a particular product or service from a vendor. According to Hassan, however, there is no specific definition for value proposition A value proposition is a promise of value to be delivered, communicated, and acknowledged. 10 Characteristics of Great Value Proposition 1. Are embedded in great business models 2. Focus on the jobs, pains, and gains that matter most to customers 3. Focus on unsatisfied jobs, unresolved pains, and unrealized gains 4. Target few jobs, pains, and gains, but do so extremely well 5. Go beyond functional jobs and address emotionaland social jobs 6. Align with how customers measure success 7. Focus on jobs, pains, and gains that a lot of people have or that some will pay a lot of money for 8. Differentiate from competition on jobs, pains, and gains that customers care about 9. Outperform competition substantially on at least one dimension 10. Are difficult to copy Value Proposition Canvas The Value Proposition Canvas was initially developed by Dr Alexander Osterwalder as a framework to ensure that there is a fit between the product and market. It is a detailed look at the relationship between two parts of the Osterwalder’s broader Business Model Canvas; customer segments and value propositions. The Value Proposition Canvas can be used when there is need to refine an existing product or service offering or where a new offering is being developed from scratch. The Value Proposition Canvas is formed around two building blocks – customer profile and a company’s value proposition. Customer Profile • • • • Gains – the benefits which the customer expects and needs, what would delight customers and the things which may increase likelihood of adopting a value proposition. Pains – the negative experiences, emotions and risks that the customer experiences in the process of getting the job done. Customer jobs – the functional, social and emotional tasks customers are trying to perform, problems they are trying to solve and needs they wish to satisfy. A customer profile should be created for each customer segment, as each segment has distinct gains, pains and jobs. Value Proposition • Gain creators – how the product or service creates customer gains and how it offers added value to the customer. • Pain relievers – a description of exactly how the product or service alleviates customer pains. • Products and services – the products and services which create gain and relieve pain, and which underpin the creation of value for the customer. Value Proposition: Tell Me Why I Should Buy From You 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: Brand positioning Specific positioning Value positioning Total value positioning 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: Attribute positioning Benefit positioning Use/application positioning User positioning Computer positioning Category positioning Quality/price positioning In choosing a value proposition, Kotler argues that buyers think in terms of “value for money: or what they get for what they pay.” Why Use A Value Proposition? 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: According to an article in FastCompany, “Why Most Venture-Backed Companies Fail,” 75 per cent of venture-backed startups fail. After four years 56% of small businesses fail. 97% of seed or crowdfunded companies eventually dying or becoming “zombies.” 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. 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. Top Reasons Startups Fail 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. • • • what you can do for them that makes them feel better. how you make their lives easier. make them feel better about themselves. 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. BENEFITS AND FEATURES Are benefits and features the same? Features are the distinctive attributes of a product or service, and inevitably, they get all the attention. Benefits, in contrast, are the advantages a customer gains from that product or service. They are what solve a problem and make the customer's life better in some way. The definition of a feature is a part of the face, a quality, a special attraction, article or a major film showing in the theatre. An example of feature is a nose. An example of feature is freckles. An example of feature is a guest speaker at an event. What is a Benefit? Benefits are the outcomes or results that users will (hopefully) experience by using your product or service – the very reason why a prospective customer becomes an actual customer. Image via WebEngage Monk Although it might seem counterintuitive, consumers rarely want to buy things for the sake of buying them – they want to solve their problems. To borrow from the example above, a feature of this particular umbrella might be its unbreakable spokes or wind-resistant construction – the benefit of which is staying dry even in strong winds that might break lesser umbrellas. What Is Value? The Value Pyramid Maslow Hierarchy of Needs 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. Broad Value Categories VALUE PRIPOSITION RELATION TO NEEDS Performance – improve a task, process or an overall result e.g. sales. Risk reduction – reduce the level of uncertainty in making a decision or an investment e.g. money-back guarantee. Accessibility – provide access to otherwise expensive assets or experiences. Customization – provide a product or service that is tailored to an individual’s needs. Convenience – make it easier to do – quicker to get done. Connectivity – make it easy to connect buyers to sellers e.g. Musical talent to fans (Spotify). Save money – compare the market and hence find the best price e.g. hotel comparison sites. Social status – make me look good feel good – enhance how people see me. Design – make something unique and aesthetically appealing. Experiences – moments (either individual or shared) that enrich or enhance a person’s life. 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. B2C value pyramid – Bain & Company Inc B2C Value Elements Functional Elements • Avoids Hassles • Connects • Informs • Integrates • Makes Money • Organizes • Quality • Reduces Cost • Reduces Effort • Reduces Risk • Saves Time • Sensory Appeal • Simplifies • Variety Emotional Elements • Attractiveness • Badge Value • Design/Aesthetics • Fun/Entertainment • Nostalgia • Provides Access • Reduces Anxiety • Rewards Me • Therapeutic Value • Wellness Life-Changing Elements • Affiliation and Belonging • Heirloom • Motivation • Provides Hope • Self-Actualization Social Impact Elements • Self-Transcendence B2B value pyramid – Bain B2B Value Elements 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. Table Stakes • Acceptance Price • Ethical Standards • Meeting Specifications • Regulatory Compliance Functional Value • Cost Reduction • Improved Top Line • Innovation • Product Quality • Scalablity Ease Of Doing Business Value Strategic • • • • Component Quality Flexibility Reach Risk Reduction Operational • • • • Connection Integration Organization Simplification Access • • • Availability Configuration Variety Productivity • • • • • Decreased Hassles Information Reduced Effort Time Savings Transparency Relationship • • • Commitment Cultural Fit Expertise • Responsiveness • Stability Individual Level • Design and Aesthetics • Fun and Perks • Growth and Development • Marketability • Network Expansion • Reduced Anxiety • Reputational Assurance Inspirational Level • Hope • Social Responsibility • Vision High Value Adding The term "value-added" describes the economic enhancement a company gives its products or services before offering them to customers. Value-added helps explain why companies are able to sell their goods or services for more than they cost to produce. High value-added activity is an activity that improves value of products or services to customers. Examples of high value-added activities include designing products, delivering products, processing customer orders, and improving product quality. What is a high value-added good? As NESTA said, "A high value-added economy focuses on those activities that generate a large margin between the final price of a good or service and the cost of the inputs used to produce it, and thus create higher profits for businesses and higher wages for workers." What are high value-added products? highly processed products that are ready for the consumer, such as milk, cheese, wine, breakfast cereals; high-value unprocessed products that are also often consumerready, such as fresh and dried fruits and vegetables, eggs, and nuts What are examples of value-added activities? is an activity that improves value of products or services to customers. Examples of high value-added activities include designing products, delivering products, processing customer orders, and improving product quality. Value-Added Activities are those that transform raw materials (plastic, lithium, copper) into the finished product (a smartphone) for which the customer is willing to pay. Some examples include molding, cutting, drilling or assembling parts. Value-added activities consist of the following four, which have to be worked out in sequence: (1) risk reduction; (2) quality improvement; (3) timeliness; and (4) capacity increase. #1 – Risk reduction: making our processes safer and safer (or more and more stable) Reducing the risks inherent to the processes is the first type of value-added activities. This means to make our processes safe and stable. What does “safe and stable” concretely mean, in numbers, in your own environment? The answer can only come from you. To give a few examples, in a construction site, it might mean to increase the man-hours without injuries. In a financial institution, it might mean to reduce the number of wrong payments to customers to nil. In an online store, it might mean to deliver all products as ordered by the customer, on time. And the list can go on. Anyone who wants to proactively create value must start by defining what “safe and stable” means for him or her. #2 – Quality improvement: making the products coming out of our processes better and better Improving the quality of the products bought by the customers is the second type of value-added activities. This means to reduce the number of defects coming out of our processes. As a pre-requisite, what “good” looks like must be defined in numbers in each specific environment. Here again, the concrete answer in your own world can only come from you. For example, in a car manufacturing company, it might mean to reduce the number of cars produced with some defective windows to nil. In a bank or insurance company, it might mean to reduce the number of customer complaints to nil. For an airline, it might mean to reduce the number of delayed or rescheduled flights to nil. As the second step to proactively create value to your customers, define what your defects are, and what reducing them means to you. As a result, your customers will recognize the quality of your products (product that might be a service in the services industry), and become constantly happy buying your products – as you have achieved stability first. #3 – Timeliness: delivering our products faster and faster Reducing the cycle time of our products delivery will make our customers in a happy mood even before they use the products. A bad product is what makes a customer unhappy, before eventually turning to the competitors; good service is what makes a customer come back. So, once the products are consistently good, you can continue creating value to your customers by reducing the delivery time. This will result in your customers gaining an ever better experience of your company as a whole, not just for its products, but also for the way you sell them. Being able to provide a fast turnaround time also means being able to anticipate customers’ needs, and give them what they want even before they ask. #4 – Capacity increase: doing more with less We have now come to a stage where (1) the outputs of our processes are in control and we actively monitor our performance; (2) our products are consistently good; and (3) the service provided to our customers leads them to ask more and more from us. The next and last step is then to be able to satisfy this growing demand: in other words, it means being able to do more with fewer resources or our competitors will copy and overtake our business.Efficiency is crucial in all business operations. However, to achieve optimal efficiency, several factors must be considered by organizational leaders. Efficiency is fundamentally a result of the entire work system of a successful organization, which comprises of productive employees, proper utilization of tools and equipment, and an effective management approach. Identifying redundant tasks, counterproductive business processes, and out-of-date procedures is necessary to achieve efficiency. You and your employees will save a lot of valuable time and eliminate frustration, while also lowering annual business costs that are a direct result of inefficiencies you may not have even known you had. Solutions-Driven Marketing and Selling Solutions-driven marketing arises from a “needs-based” approach to selling. Such a strategy of identifying the needs of a customer and then recommending a product to meet those needs is common in the financial services industry. For instance, needsbased selling is importan to achieving a balanced enrollment in voluntary group insurance plans, where the goal is to reach beyond those who already understand (and are most likely to con sume) the benefit. Needs-based selling also is important to the cross-selling of banking products, where the use of one product (such as maintaining a high average bal ance in a checking account) might suggest the opportu nity to sell another product (such as mutual funds). In the context of any complex good or service, an assess ment of needs will serve to guide customers toward solutions appropriate to their situations. In a nutshell, a great unique value proposition should have: Relevancy – explains how your products and services solve customer problems or how they improve the customer’s situation. Quantified value – should show the specific benefits customers will derive from your products and services. Unique differentiation – should show customers why they should buy from instead of your competitors. Value Proposition Elements Newness 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 earlyadopters as a customer segment. As an example, the launches of new iPhones and the subsequent queues at stores have become an annual event. Performance 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. Customization 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. Getting The Job Done 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. Design 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. Brand/ Status 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 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. Cost Reduction 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. Risk Reduction 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. Accessibility 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. 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 earlyadopters as a customer segment. As an example, the launches of new iPhones and the subsequent queues at stores have become an annual event. The simple version of the concept of customer value is that individuals evaluate the perceived benefits of some product or service and then compare that with their perceived cost of acquiring that product or service. If the benefits outweigh the cost, the product or the service is then seen as attractive (see Figure 2.1 “Perceived Cost versus Perceived Benefits”). This concept is often expressed as a straightforward equation that measures the difference between these two values: Customer Value = Perceived Benefits − Perceived Cost. Components of Perceived Benefit and Perceived Cost Component Aspects Activities to Deliver Components of Perceived Benefit Quality assurance in product and services Measurable quality Functional Performance Superior product and process design Reliability Selection of correct attributes Support network Ability to improve product and operations Management of value chain Component Aspects Activities to Deliver Builds identification with social, ethnic, or class group Social Emphasize lifestyle Development of interaction among people Market research correctly identifies customer base(s) Ability to build social community among customers Build bonds within groups Assist in making one feel good about themselves Attachment to product or service Emotional Produces a change in how others see the user Trustworthiness Profound experience customer Market research understands psychological dimensions of customer base(s) Marketing content emphasizes desired psychological dimensions Reliability between marketing message and delivery Aesthetics Novelty Epistemic Fun Creative personnel Evoke interest in product or service Creative product or process development Interest in learning Commitment to innovation Produces a willing suspension of disbelief Willingness to experiment Produces meaning in a specific context Flexibility (can alter physical facilities or marketing message depending on context) Tied to particular events Conditional Tied to holidays Demonstrates responsibility Components of Perceived Cost social Management commitment to responsible action Component Monetary Time Aspects Activities to Deliver Reduce purchase price Superior design Reduce operating costs Operational efficiency Reduce costs Cost containment maintenance Reduce opportunity costs Easy acquisition Reduce time to search for product or service Broad distribution channels Reduce time to purchase Web-based information Reduced learning curve Superior design Simplified use Psychic Quality control and assurance “Comfortable” feeling with regard to product or service use Web-based purchasing option Superior design Ability to instructions write clear Some researchers express this idea of customer value not as a difference but as a ratio of these two factors.M. Christopher, “From Brand Value to Customer Value,” Journal of Marketing Practice: Applied Marketing Science 2, no. 1 (1996): 55. Either way, it needs to be understood that customers do not evaluate these factors in isolation. They evaluate them with respect to their expectations and the competition. Firms that provide greater customer value relative to their competitors should expect to see higher revenues and superior returns. Robert Buzzell and Bradley Gale, reporting on one finding in the Profit Impact through Marketing Strategy study, a massive research project involving 2,800 businesses, showed that firms with superior customer value outperform their competitors on ROI and market share gains.Robert D. Buzzell and Bradley T. Gale, The PIMS Principles—Linking Strategy to Performance (New York: Free Press, 1987), 106. How Do You Write A Value Positioning Statement? • Identify all the benefits your product offers. • Describe what makes these benefits valuable. • Identify your customer’s main problem. • Connect this value to your buyer’s problem. • Differentiate yourself as the preferred provider of this value. 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: How your product or service solves/improves problems. What benefits customers can expect. Why customers should buy from you over your competitors. How Do You Create an Effective Value Proposition? When creating or evaluating a value proposition, it is helpful to step away from the long lists of features and benefits and deep competitive analysis. Stick to the simple, and strive for focus and clarity. A value proposition should be clear, compelling, and differentiating. • Clear: short and direct; immediately identifies both the offering and the value or benefit. • Compelling: conveys the benefit in a way that motivates the buyer to act. • Differentiating: sets the offering apart or differentiates it from other offerings. Here are some examples of value propositions from company websites: • “Soundtrack your life” (Spotify) • “Small Business Accounting Software Designed for You, the Non-Accountant” (FreshBooks) • “Remember Everything” (Evernote) • “That Horizon Might Be Closer Than You Think” (Mint) • “Rides in Minutes” (Lyft) • “Shorten. Share. Measure.” (Bitly) One thing Uber most definitely does right, however, is its unique value proposition Uber’s value proposition, offering uber convenience Without explicitly saying so, Uber expertly highlights everything that sucks about taking a traditional taxi and points out how its service is superior. The simple (yet highly effective) copy above, taken from the Uber homepage, excellently conveys the simplicity and ease that lies at the heart of what makes it such a tempting service: One tap and a car comes directly to you Your driver knows exactly where to go Payment is completely cashless Everything about this directly contrasts the typical experience of getting a taxi – no phone calls to disinterested dispatchers, no painful conversations trying to explain to a stressed-out cabbie about where you need to be, and no fumbling for change or worrying you’ve got enough bills in your wallet. Just a fast, efficient way to get where you’re going. This is reinforced by the aspirational messaging toward the top of the Uber homepage, which states that “Your day belongs to you.” At this point, it’s worth comparing Uber’s value proposition with that of rival company Lyft. The two companies’ offerings are virtually identical, which is what makes a direct comparison of the two so interesting. Take a look at this information from the Lyft homepage: Lyft’s step-by-step value proposition Structurally and thematically, Lyft’s homepage is very similar to Uber’s. However, there’s some key differences here that highlight how Uber’s value proposition is more clearly positioned. Firstly, Lyft does score some points for including several step-by-step images of the Lyft experience, helping visitors visualize what taking a ride with Lyft is like. However, look at the copy for the first step of the process. It lists the three tiers of Lyft service – Lyft, Lyft Line, and Lyft Plus – but doesn’t explain the difference between these service tiers, or tell the prospect why they should choose between them. Also, while clearly explaining the final stage of the process – paying and rating the driver – this information implies that there is a final definitive action required by the user, something Uber does not. Personally, I almost always try to rate my Uber drivers (bearing in mind the oft-speculated “secret” rating of around 4.6 out of 5 that many believe serves as the performance benchmark for Uber drivers), but I don’t have to. Sometimes I’ll forget about it and just get on with my day – it certainly isn’t required, and nor is manually paying my driver. For a service built on the notion of efficiency and convenience, this is a big deal. Now, one could argue that Lyft does a better job of being transparent about what users can expect, an argument that definitely has merit, especially if you’ve ever been stung by Uber’s unexpected “surge” pricing. However, for two such similar services, I’d argue that Uber’s value proposition is more clearly positioned, and certainly more persuasive than that of Lyft – an important distinction if you’re operating in a crowded market with several similar competitors.