Crafting a value proposition that actually gets you customers
One of the most widely used terms in business markets nowadays. Why then, does it seem so hard to communicate your value to customers. A value proposition that resonates with customers. An offering may actually provide superior value — but if the supplier doesn’t know how to demonstrate that value, a customer will likely dismiss it as a bad pitch.
Even worse, some managers view the value proposition as a piece of puffed up text to use for advertising and promotional copy. It’s short sighted. Neglecting the tremendous contribution, a well-constructed value proposition has on superior business performance.
Taking the time to construct a value proposition, forces companies to thoroughly focus on what their offerings are really worth to their customers. Once companies become disciplined about understanding customers, they can make smarter choices about where to allocate company resources in developing new offerings.
According to Anderson, Narus, & Rossum (2006), there are three kinds of value propositions. All benefits, favorable points of difference, and resonating focus. (p115.)
All benefits occur when managers who construct a value proposition, simply list all the benefits they believe that their offering might deliver to target customers. The more the better. Often used because it requires the least amount of knowledge about customers and competitors, consequently the least amount of work to construct. A major drawback is this: benefit assertion. Managers might claim advantages for features that actually provide no benefit to target customers. A feature that in the eyes of the consumer does not provide an added value.
Another drawback of the all benefits value proposition is that many of the benefits may be points of parity with the next best alternative. Masking the effect of the few genuine point of difference. It is important to clearly identify in your customer value proposition, which elements are points of parity and which are points of difference.
Which brings us to the second value proposition: favorable points of difference.
This is when the manager lists all favorable points of difference a market offering has relative to the next best alternative. Answering the question: why should we purchase your offer instead of your competitor’s? This requires detailed knowledge of your competitor’s offer. However, mentioning a point of difference relative to the next best alternative does not convey the value of this difference to the customer. Furthermore, additional points of difference might complicate the customer’s understanding of which one delivers the greatest value. The pitfall of this value proposition is called value presumption: without a detailed understanding of the customer’s requirements and preferences, and what it is worth to fulfill them, suppliers may stress points of difference that deliver relatively little value to the customer.
The third value proposition, and arguably the best is called resonating focus.
This approach acknowledges that the managers who make purchase decisions have major, ever-increasing levels of responsibility and often are pressed for time.
They want to do business with suppliers that fully grasp critical issues in their business and deliver a customer value proposition that’s simply, yet powerfully captivating. Suppliers can provide such a customer value proposition by making their offerings superior on the few elements that matter most to target customers, demonstrating and documenting the value of this superior performance, and communicating it in a way that conveys a sophisticated understanding of the customer’s business priorities (Anderson, et al. 2006).
Where this proposition is different from favorable points of difference is:
- More is not better
- The resonating focus proposition may contain a point of parity
The second one probably needs some clarification. A point of parity may be critical for a customer to even consider the supplier’s offering. For example, order now delivered tomorrow. A lot of consumers wouldn’t even check out web shops who do not offer this service since we are so used to immediate gratification.
Another reason to include a point of parity is when a customer believes that the competitor’s offering is superior but the supplier believes its offerings are comparable.
An example to illustrate:
Sonoco, a global packaging supplier, approached one of their customers, a maker of consumer packaged goods. They proposed to redesign their packaging for one of the product lines. Sonoco believed that the customer would benefit from updated packaging. Although the redesigned packaging provided six favorable points of difference relative to the next best alternative, Sonoco chose to emphasize one point of parity and two points of difference in what it called its distinctive value proposition:
The redesigned packaging would deliver significantly greater manufacturing efficiency in the customer’s fill lines, through higher-speed closing, and provide a distinctive look that consumers would find more appealing — all for the same price as the present packaging.
Point of parity: same price as the present packaging. Why? Because the customer would not even consider a packaging redesign if the price went up.
The first point of difference: increased efficiency which meant to move from a seven-day, three-shift production schedule during peak times to a five-day, two-shift operation.
The second point of difference: an advantage at the consumer level, (a distinctive look that consumers would find more appealing) helping the customer to grow its revenue.
Sonoco did not leave the other points of difference out completely. Rather, it chose to place much greater emphasis on the two points of difference and the one point of parity that mattered most to the customer.
Thinking about a resonating focus value proposition disciplines a company to research its customer’s businesses enough to help solve their problems. And that is what a business sets out to do in the first place, right?
Source:
Anderson, J.C., Narus, J.A., & Rossum, W. (2006). Customer Value Propositions in Business Markets. Harvard Business Review.
