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Inspirational Quotes

The Value Proposition of a Business

Tue, 28 August 2012

How to describe the Value Proposition of your business to customers, clients and potential business partners or investors by Steven Leach (UnLtd) for Shell LiveWIRE.
Very often the social entrepreneur is asked “So, what is it you do?” What often follows is a cross between the history of the organisation, a treatise on the social issue and a life story. This is not the “pitch” that will make people buy.
 
The need is to clearly articulate what it is you have, why it is beneficial to the client and why the social enterprise is the ideal organisation to buy from. This is what the Value Proposition should do. It also helps define the things the business needs to get right and improve on.
 

Suggested Structure

The value proposition should answer the questions: "Why should I buy this product or service?" as well as "Why should I do anything at all". It is a clear and specific statement about the tangible benefits of an offering and should be stated in terms understood and accepted by the target customer.
Google the term “value proposition” and there are many format suggestions. You may find one that suits you better. Here is a template for creating one type of value proposition. Note the first portion of the value proposition asserts the value of the offering (as it states the results and benefits) and it demonstrates how you are equipped to deliver that value (as it notes your skills and abilities). The second sentence asserts the positioning of that value by establishing a differential.
 
First Sentence:
  • Because we have (skills, experience, knowledge or other attribute)
  • We are able to (provide service, reach more people or other deliverable)
  • This means (benefits the client will value)
  • For (the client)
Second (optional) Sentence:
  • Unlike (primary competitive alternative),
  • Our service (statement of primary differentiation).
Anyone in business, politics, or public service should be able to answer the question, what’s your value proposition?
 
Some of the dynamics and concepts in crafting a cogent value proposition are:
  1. Value is defined in a number of ways, the most relevant being “Worth in usefulness or importance to the possessor; utility or merit”, (www.thefreedictionary.com). Proposition, from the same source is “A plan suggested for acceptance; a proposal”.
  2. Value, like beauty, is often 'in the eye of the beholder' (e.g., we each place different importance or weight on things). We typically associate the receiving of value as, in a civil case, a preponderance of benefits (i.e., at least 51% benefits and 49% costs), or in a financial sense, benefits minus costs greater than zero. The terms benefits and costs includes both tangible and intangible factors and thus need to be defined by the person receiving the benefits and paying the costs (refer here to the Basis of Decision to identify the potential intangible benefits).
  3. Value as seen by the customer may not be the same as we see it. For example, the mobile phone is a device to make and receive calls, however, increasingly the customer value is “looking cool”.
In essence, a value proposition is an offer to a specific type of customer, in which they get more than they give up as perceived by them and in relation to alternatives, including doing nothing (the notion of opportunity cost).
 
“As perceived by them” is an important phrase. It is not how you or your colleagues view what is or is not valuable. It is only the client’s view that matters.
 
In terms of form, a value proposition is generally a clear and succinct statement and an example format as described above. It must be immediately understood by the client. Any need for explanation means “back to the drawing board” and start again.
 

Value Identification

The principal foundation of developing a unique value proposition rests on identifying and understanding what an individual or group values, which can be both stated and/or implied. For example, a firm may make statements regarding integrity, honesty, and corporate governance, but if their actions conflict with this, the true representation of their values is in what they actually do.
 
If a customer says price is not important, but they continue to make buying decisions based on price, then their actual behaviour should dominate the intents. Questioning a conflict or inconsistency between what targets they value and what they actually do can often help to uncover their real priorities and weights.
 
For example, consider selling to the CEO of a commercial company. They might see getting rid of people as a benefit. However, the employee would see it very differently. It depends on where you sit, as they say, and having this level of empathy with clients is critical to getting the message right.
 
If you are unsure of what really matters to your potential customers the answer is simple; ask them. In addition and if possible ask others that know and/or do business with them.
 

Value Descriptions

As the value proposition is always an exercise that needs to be checked against work done on customer research it will often be an iterative process. So, the first stab might be completed internally with little customer research. Then, of course, the draft proposition needs testing against what you find customers really value.
 
At all times be mindful of the term “so what?” Many organisations like to make a point about how long they have been in business but this is irrelevant if the new kid on the block competitor has a better offer.
Remember to apply “so what?” to the specific individual in the target market or organisation. Different people in the same organisation do not always have the same drivers. For example, the accountant is likely to be more persuaded by quantitative evidence; how much money is saved and what is the total cost of ownership. Others may be looking for enhanced personal profile and thus a more qualitative message might appeal. The CEO wishing to be seen as forward thinking might favour the more innovative solution. Always the questions are “what are this person’s buttons and what is needed to press them?”
 
In this communication, for that is what the value proposition is, it is also important to speak in the language of the target customer. Suggesting you can deliver “a positive cash flow with a commercial IRR” may press a few people’s buttons but not all. As it is about seeing it through the customer’s eyes it is also about saying it through the customer’s mouth.
 

Building the Proposition – Simple Steps

The process involves looking at each of the value proposition components as follows:
 
“Because we have...”
 
What is the thing or what are the things the enterprise is very, very good at? What is it you would argue you do better than anyone else? Write these things down. Get the views of staff and partners and people who know you.
 
Get the views of your customers and service users.
 
How many of these should you have? A tough question but to be the best in the world at more than two or three things seems unlikely and just the one, if the right one, is always enough. Remember also that the athlete who is the heptathlon champion is rarely the champion at the individual events. Similarly it may be that some of your specialities are actually components leading to one unique combination. It could, for example, be a partnership of organisations teaming up to create a unique offer. 
 
“We can...”
 
Describe what you will actually do for the client. Ideally, this will also be in two parts;
  • What you actually do and;
  • How you do it better (the “why” should be in the statement above in “Because we have...”)
The second part is usually one or more of the following types of statement:
  • It saves money
  • It saves time (and thus money)
  • It produces more of the result
  • It does it in less time
  • It does it more safely
  • It does it with less risk
  • It does it in an innovative way (i.e. Dyson)
So, it is what you do and, based on your extra special organisational attributes or talents, it also describes how you do it in an improved way.
 
“This Means...”
 
This is the value as it is desired by and meaningful to the target customer (the one named in the final segment of this first sentence, below).
 
As noted previously this may (and often will) be unrelated to the actual product or service. This is all about benefits to the individuals. Yes, if selling to an organisation there are clear purchase criteria that are well defined, but, as sales manual after sales manual will state, the sale is always to a person. Thus to achieve the sale one must tick the criteria boxes and (and this is where this segment comes in) satisfy the need of the person signing the order.
 
So, it could be about:
  • Status, about looking good in the eyes of others. This could be a desire for publicity, for being seen as friend of the people or a host of other personal reasons
  • Personal progression. It could be a stepping stone to a promotion or a new job. It could simply bolster an existing tenure
  • Making way for what they really want. For example, saving cash here means more can be spent on other things.
This is by no means exhaustive. And it is often the most difficult thing to both pin down and state. For example, if you know it is about the customer getting a better job somewhere else it is likely the value proposition will only ever be spoken.
 
“For...”
 
This is where the customer segmentation gets specific. How is the target customer to be described such that the reader of the description is able to identify a customer without ambiguity?
The simplest answer is where it is a specific, named individual. If in this section you want to put an organisation, for example, the local authority, it is not specific enough. Which part of the organisation, which department specifically, and who makes the decision and what is their name.
 
It is a particular segment of the general public, be as specific as possible in the description. This helps with marketing and sales in addition to helping you test the value proposition on the actual target audience.
 
“Unlike...”
 
This is simple enough, but with one great big warning. Name the competitor that you know is in the race. Do not name a competitor the customer is unaware of or you just make more competition.
 
“Our service...”
 
This is the place to crisply describe why your option is the better option. Describe what it is that your delivery provides that the competitor does not and which is essential if the value desired by the customer is to be realised to the full.
 
The very best competitive advantage links to the value and is hard for the competitor to replicate.
 

Once Drafted

Test it and test it and test it again. Test it with staff (often not the best place), with customers, with stakeholders, with (yes) customers and potential customers. Repeatedly hit every word of your value proposition with the “so what” test.
 
At the same time and guided by feedback gather the evidence you need to back up your claims. If it is faster or cheaper get testimonials from customers. If it results in column inches of favourable press then get the cuttings. Build the evidence base for every part of the proposition. Remember to have both qualitative (feelings based) and quantitative (facts based) evidence to suit different personalities.
 

Overall

This is not an easy process for most businesses - however, it is immensely useful. It provides the core of the sales and marketing messages and identifies the target customer. It also identifies what the organisations needs to keep being very good at. Which means it shows the management team what it needs to focus on.
 
Better still, when someone asks “So, what is it you do?” you hit them right between the eyes and if they are a target customer it just might lead somewhere.

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