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How to Create a Value Proposition

The value proposition is a clear statement of what value you offer, to whom, and in what way. It is different from a mission statement because it focuses on differentiation, or the compelling reason why customers should choose you and not your competitor.

Over the next few years the forces of competition will intensify – even for BAM businesses. Although there is growing evidence that some businesses can offer a premium product or service and simultaneously reduce unit cost, this ‘increasing returns’ phenomenon is a mainly a characteristic of the knowledge economy (e.g. for an internet based service where the variable cost is very small). Usually a business has only two positioning choices: increase margin by lowering costs and charging what the market will bear, or increase margin by premium pricing based on a distinctive value proposition, consistently delivered, which gives customers a compelling reason to purchase.

A value proposition must be written in clear language using simple words, so that all your employees can work out the things they must do to deliver it consistently. A clear proposition will make resource allocation choices easier for you. When money is tight, you will want to spend on the things which maintain or extend your value proposition. The value proposition will also act as an attractor for new customers – it will define your position in the market and give you a reputation and therefore a brand. It will unify the actions of your board and employees and it will act as a deterrent to competition; the key to becoming a “price setter” in the market because you can then control your margin.

Your value proposition must answer these questions:

What are the specific products or services you are going to offer, including a clear statement as to what is special about your product/service?

What exact needs or wants does it satisfy for customers, considering very carefully things like how will they use it, what will they expect it to do for them, and what is it made up of?

Then you must consider what products/services might complement it and/or add value to it.

Will it be a similar product or service to one already in the market, but cheaper; or will it be an innovation that will save the customer money?

Who are the people (groups, demographics, age etc.) who are going to buy your product/service? Understanding who your target customers are will enable you to develop your brand positioning so that marketing budgets will not be wasted.

Will your customers be individuals or other businesses and why are they going to buy it? Perhaps an additional, but not so obvious, question to answer would be who isn’t going to buy it and why?

How will you deliver your product or service? How you will get your product/service to your customer i.e. your distribution and communication channels must also be strategized before you launch your business. Also decide your marketing strategy: how will customers find out about it, try it, see how it works and test it? How will you promote your product/service? Will you have a shop, a website, a call centre etc? 

Building customer relationship cannot be understated in its importance. One must consider what sort of relationship and interaction will you have with your customers and how to build a loyal customer base. Will you have a few big regular customers or many smaller irregular ones? How involved will buying your product/service be for your customers and how can you make it as simple as possible?

Here is a real example from a greeting card company:

The positioning statement (the value offer):

We aspire to transform your communication, to elevate and enhance what you say, to give the right voice to your feelings so that you are and always will be proud to send, and honoured to receive an ‘Acme Company Card’.

To whom:

To become all upmarket retailers’ core card supplier To be the mainstream retailers’ key niche supplier

In what way:

To provide the most desirable and inimitable cards, using the most reliable, robust and ethical supply chain in the country.

Now the value proposition, the source of differentiation and things that separate Acme Company Cards from the rest: the compelling reason to purchase

Our customers (the card retailers) choose us because:

1. They find unique and best selling ranges not available from other publishers.

2. They appreciate our delivery guarantee: 5% off order value for each day we are late.

3. They are assured by our manufacturing processes, using environmentally and ethically sourced materials.

4. They receive the best planning service in the country.

5. They find we can offer them by far the largest choice of upmarket cards in the country.

6. They like us, and can trust us, because we lay our company reputation on the line every day with our service promise.

 

Can you write a similar set of propositions for your business? It is really important to avoid “weasel words”. This is a term for words and phrases that are ambiguous and not supported by facts. They are typically used to create an illusion of clear, direct communication which is generic, sounds right but actually gives no certainty or clarity. An example of weasel words: “We are a professional marketing company who offer exceptional value for money.” What does this really mean?

If you cannot craft a weasel free value proposition, then you do not have a clear strategy – or the strategy is in your head alone and not in the heads of your board and employees. Your customers will be unclear why they should buy from you, and your employees will not understand the context for the choices they have to make.

by David Skews

 

Read more on Business Planning Part 2: Product and Market on The BAM Review blog this month.

david skews profileDavid Skews is a businessperson called to mission. In 1989, he established EDP Health Safety & Environment Consultants Ltd performing the role of CEO as he led EDP through sustained growth for over 25 years in both the UK and Asia. In 2004 he fully engaged in business as mission, as well as continuing to lead his business. Since then, David has focused his efforts into training entrepreneurs in Asia and Africa, and speaking internationally on business for good. He has also helped lead a mission agency through the process of embracing missional business. Today, he acts as a non-exec director for six successful BAM businesses and is part of the Advisory Board for BAM Global. David transitioned out of his business in 2015 and into new BAM fields! David is married to Lesley and is based in the UK.

David serves as a regular mentor for the Ask a BAM Mentor column and a member of the website Editorial Board.