Why is the Value Proposition so Important

Why is a Value Proposition considered STEP ONE in strategic planning? Our take is simple. How well an organization creates value for a chosen customer is the number one reason for bottom-line success. A value proposition is NOT a marketing term. It is not something the biz dev, marketing, and sales guys/gals should be exclusively in charge of. The value proposition surpasses everything else inside the firm as the single most important element to driving shareholder value. Without this crucial element in place, how can the customer be expected to select your offering over others? Without this crucial element in place, how can your employees possibly know how to execute?

A value proposition shapes decisions that managers make: budgets, channels, and corporate culture. Executive teams spend weeks discussing the mission and vision of the company without touching on the most vital of all elements. Why? Our experience has shown that customer value propositions become marketing ploys. They change constantly any time a competitor does something new. Also, executive managers don't understand the value proposition concept as a key step in strategic planning. Many managers will put in place an operating initiative such as reengineering or Six Sigma and believe those concepts will create a sustainable advantage. The only sustainable advantage is decided by the customer. Market leaders don't change their fundamental customer value. They continue to improve it.

Choose Your Customer

In order to hone your value proposition and choose different components of value, you will need to clearly identify who your customer is. As we discovered with Marco's fruit stand, he has chosen a customer who is willing to pay (a little bit) more for the "best tasting fruit" in the area. When starting his fruit stand, he identified a customer demographic that preferred high-end organic fruit. This customer would drive past several other fruit stands to fill their need for the best tasting and nutrient-rich fruit. This customer looks for shops that constantly innovate and offer the latest and greatest products.

Marco excels and differentiates from the other fruit stands through his rigorous approach to delivering the best product...period. Marco knew he had a customer that would love this value proposition. He says, "Customers who are looking for a low price or lots of selection don't come here. They go down the street, and that is fine with me."

CHOOSE YOUR CUSTOMER

Honing the Value Proposition

In most of our strategy workshops, when we ask if businesses can be great at all of those components of value, we get a number of responses. We usually hear several answers that suggest you have to try to be great at all of them, and sometimes we hear answers that suggest lumping several of them together to focus on. The answer that we're looking for is the latter one. However, you have to be careful about which components you select to focus on. Some of the components, when you analyze them, are impossible to deliver together in a way that differentiates. In other words, it is very difficult to be great at offering a low price and delivering customization at the same time. Customization requires internal resources that cost money. This additional cost creates value for the customer that should be reflected in the price.

Of the components of value listed below, which ones might you be able to combine to offer to your customer in a differentiated way? In other words, which ones can you excel at?

Image
Time (Speed or Time Saved)
Price
Relationships
Performance
Convenience
Specific Solutions
Results
Hassle-Free Service
Ease-of-Use
Customization
Quality

Before You Do Anything!

Before you do anything else inside your organization, define specifically, clearly, and with a rigorous approach your firm's value proposition.

This is STEP ONE in strategic planning. If you are working on a strategy and haven't completed this vital step, then you are setting yourself up for mediocrity. Yes, mediocrity. I wouldn't say failure, but to most shareholders, mediocrity is considered failure.

The first step in STEP ONE is to do some looking around. For example, look at your favorite websites, visit your favorite places to eat, and research market leaders in other industries. Look at how they create value and hone in on who their target customer is. Then look at how they are set up to deliver that value. Zappos.com, a leading online shoe store, creates value by offering low-priced shoes, huge selection, and hassle-free service. Their operating model is set up to deliver those "components of value" in a way that could be classified as excellent.

Anybody care to guess what STEP TWO is?