Align your business model to the real reason customers buy from you, rather than somebody else.
originally published by Inc. (Geoffrey James)
A “value proposition” is the reason that your customers buy from you rather than somebody else. According to Michael Treacy, co-author of the bestseller “The Discipline of Market Leaders,” there are four basic value propositions, each with its own advantages and disadvantages. Here they are:
1. “Our prices are the lowest.”
To execute this value proposition, you must lower your cost of goods so that you can afford to sell at a lower price. This requires a manufacturing and distribution methodology that squeezes every drop of extra operational cost.
For example, if your competitor is outsourcing to China, you’ll might outsource to, say, Ethiopia, where labor costs are even lower. Similarly, if shipping is a big expense, you might locate your manufacturing locally to the customer.
The advantage of a “lowest price” value proposition is that it’s extremely easy to explain to the customer. You’ve got the lowest price. Case closed.
The disadvantage is that you’re forced to fight endless price wars because competitors following may leapfrog your cost-of-goods or sell at a loss to build marketing share.
2. “Our product is uniquely better.”
To execute this value proposition, you determine, through interviews and market research, which features will cause customers to consider your product superior to the competition. Then you build that product and market it to that set of customers.
For example, if you’re launching a line of “designer” desk chairs, you use a type of fabric makes your potential buyers feel “successful.” Similarly, Volvo sells to safety-conscious parents because their product is seen as “safer” than other cars.
The advantage of a “uniquely better” value proposition is that you avoid price wars as long as what you’re offering remains unique.
The disadvantage is that competitors will quickly come up with “knock-off” imitations that they can sell for less.
3. “We make things easier for you.”
This value proposition is all about creating a hassle-free customer experience with products or services that are traditionally difficult to buy or use. The customer will pay more in order to save time and mental energy.
The classic example of this is Fedex, which can charged a premium because it “absolutely, positively” promises on-time delivery. Generally, though, companies make things easier by having a salesperson do the legwork for the customer.
The advantage of a “make things easier” value proposition is that the customer stops thinking about your product or service and just buys it.
The disadvantage is that you’re always in danger of becoming a commodity that can easily be swapped out. (E.g. UPS rather than Fedex.)
4. “We take ownership of customer results.”
This is the holy grail of value propositions. You perform a strategic function inside the customer’s business better than they could possible perform it themselves. As a result, you’re seen as part of the “enterprise” rather than a vendor.
For example, rather than selling the customer office supplies (a commodity), you become the de-facto facilities manager, ensuring that employees get what they need when they need it, while controlling overall costs.
The advantage of a “customer results” value proposition is that once you’re ensconced in the customer’s operations, it can become prohibitively expensive to replace you.
The disadvantage is that you must employ high-priced experts who understand your customer’s business, probably because they’ve worked in the customer’s industry.
Interested in going beyond basic to find out what your customers believe is your DIFFERENTIAL value proposition? Let’s talk.