CRAFTING A KILLER
VALUE PROPOSITION
Jaine Lucas
Executive Director, IEI
CRAFTING
October 31,A2012
KILLER
VALUE PROPOSITION
VALUE PROPOSITIONS ARE
PART OF EVERYDAY LIFE
Ken or Blaine?
Which do I buy?
Drive or mass transit?
A VALUE PROPOSITION IS…
▪ Part of a firm’s business model
▪ An element of strategy
▪ A reflection of the value a firm offers its
customers
▪ And finally… A carefully crafted marketing
SO… WHAT IS A VALUE PROPOSITION?
message
o Communicates a clear point of differentiation
o Is highly persuasive
o Supports lead generation and sales
o And more…
DEFINITION - VALUE PROPOSITION
▪ A value proposition describes why a
customer should buy a product or service
▪ It targets a well defined customer segment
▪ It convinces prospective customers that a
particular product or service will add more
value or better solve a problem than
competitive products or services
Exercise: iPAD 3
iPAD 3 VALUE PROPOSITION
▪ From VentureBeat.com:
The iPad’s Retina Display is like the jump between DVD and
Blu-ray. Indeed, the new iPad’s value proposition is entirely
centered on a huge resolution bump.
The new Retina Display finally gives the iPad a feature that
you can’t find anywhere else. Few consumer computer
monitors reach near the new iPad’s 2048 by 1536
resolution. The screen is also far beyond the 1920 by 1080
resolution of HDTVs.
Because of its high resolution, the Retina Display makes
practically everything look better, even merely browsing
the web.
SEGWAY: WHAT HAPPENED?
Cover more ground. Be more productive. Move more intelligently.
▪ Revolutionary/disruptive
transportation device with serious
“cool factor”never reaches
its expected potential
▪ It’s value proposition didn’t resonate:
o Failure to properly segment the
market: they targeted basically
everyone
o The problem they were solving was
vague: “need” was missing
o The product couldn’t change
behavior: We are hooked on cars
o At $5,000 priced too high for most
Great Brands, Great Value Props
▪
Harley Davidson
o "Harley-Davidson stands for independence, freedom,
individuality, expressing one’s self, adventure on the open
road, and experiencing life to its fullest. This is what people are
buying when they buy a Harley."
▪ FedEx
o "When your package absolutely, positively has to get there
overnight"
▪ Walmart
o Leader in low prices and huge selection
▪ Nordstrom
o “While Nordstrom was growing nationally, it focused on
catering to customers’ needs, individually. Instead of
categorizing departments by merchandise, Nordstrom
created fashion departments that fit individuals’ lifestyles.”
▪ McDonald’s
o As introduced by their founder, Ray Kroc, many years ago:
"friendliness, cleanliness, consistency, and convenience."
MICHAEL PORTER’S MODEL
A value proposition answers three questions:
What
Which Which
relative
customers? needs?
price?
WHAT END USERS WHICH PRODUCTS, PREMIUM OR
AND CHANNELS? SERVICES, FEATURES? DISCOUNT?
Which Customers?
▪ Consumer markets can be segmented by:
o Demographics
o Geography
o Psychographics
o Behavioral
o Sociocultural
o Hybrids of the above
▪ B2B markets by:
o Type of business (manufacturer, retailer,
wholesaler, service provider)
o SIC / NAICS Code
o Size of Business
o Financial Strength
o Number of Employees
o Location
o Structure
o Sales Level
Customer Segmentation Examples*
▪ Walmart – Geography (underserved
rural areas with populations between
5,000 and 25,000)
▪ Progressive – Demographics
(“nonstandard” or “high risk” drivers)
▪ Edward Jones – Behavioral
(consumers who delegated financial
choices or who needed a high
degree of “hand holding” with
financial advisors)
*Understanding Michael Porter: The Essential Guide to Competition
and Strategy by Joan Magretta, 2011, Harvard Business Review Press
Customer Needs Examples*
▪ Enterprise –Renting cars meets
different needs at different times
▪ Fairly-priced convenient, home
city rentals primarily for non
business purposes
▪ ZipCar – People who choose not to
own a car but who occasionally
need to use one
▪ Also based on home city, but for
different needs
*Understanding Michael Porter: The Essential Guide to Competition
and Strategy by Joan Magretta, 2011, Harvard Business Review Press
Relative Price Examples*
▪ NetJets – Serves an “underserved”
clientele who want enhanced service
vs flying first class
▪ Steep, steep premium
▪ Southwest – Serves an “overserved”
customer base who prefers less frills
and lower fares with a side order of
convenience
*Understanding Michael Porter: The Essential Guide to Competition
and Strategy by Joan Magretta, 2011, Harvard Business Review Press
Great Brands, Great Value Props
Customer, Needs or Price??
▪
Harley Davidson
o "Harley-Davidson stands for independence, freedom,
individuality, expressing one’s self, adventure on the open
road, and experiencing life to its fullest. This is what people are
buying when they buy a Harley."
▪ FedEx
o "When your package absolutely, positively has to get there
overnight"
▪ Walmart
o Leader in low prices and huge selection
▪ Nordstrom
o “While Nordstrom was growing nationally, it focused on
catering to customers’ needs, individually. Instead of
categorizing departments by merchandise, Nordstrom
created fashion departments that fit individuals’ lifestyles.”
▪ McDonald’s
o As introduced by their founder, Ray Kroc, many years ago:
"friendliness, cleanliness, consistency, and convenience."
BUSINESS MODEL GENERATION
“A value proposition creates
value for a Customer
Segment through a distinct
mix of elements catering to
that segment’s needs.
Values may be quantitative
(price, speed of service) or
qualitative (design, customer
experience).”
CREATING VALUE FOR CUSTOMERS
▪ ACCESSIBILITY
o Make products and services
available to people who have no
prior access to them
o Can be through innovations in
business models or technology
▪ Examples
o ZipCar – Car sharing service
o Progressive Insurance – Car
insurance for high risk drivers
▪ *TRADE IS ABOUT VALUE. We have changed the value
proposition for investing and financial services, offering a good
deal more for a good deal less.
▪ Anytime, anywhere access through multiple gateways.
Quality transaction executions, and portfolio management.
Comprehensive, reliable information resources, delivered
through a customized financial “environment.” It isn’t just low
commissions that make E*TRADE different — it’s what
customers get for those low commissions.
▪ Our aim is to leverage technology, to offer more and more
valuable services without adding unnecessary costs to us or to
our customers. Technology lets us do more and do it for less.
CREATING VALUE FOR CUSTOMERS
▪ PERFORMANCE
o Improving the performance of
products or services
▪ Examples
o PCs: Increased disk storage and
speed
o Digital cameras: increased pixels
and resolution, more powerful
zoom
Volvo world firsts:
▪ 1944 – Passenger compartment steel
safety cage
▪ 1959 – Three-point front lap/shoulder
seatbelts as standard
▪ 1966 – Crumple zones, rear and front
▪ 1973 – Collapsible steering column
▪ 1974 – Energy absorbing bumpers
▪ 1984 – Anti-lock brakes
▪ 1987 – Frontal air bags
▪ 1994 – Side impact airbags
MORE PERFORMANCE-BASED
VALUE PROPOSITIONS
▪ Laundry detergent
o Bleach alternative
o Brightening agents
o Allergy free formula
o Increased cleaning power
o Enhanced with Fabreeze
▪ Toothpaste
o Whitening
o Breath freshening
o Cavity prevention
▪ Tires
o Run flat tires
o All weather
o Extended wear
CREATING VALUE FOR CUSTOMERS
▪ CUSTOMIZATION
o Tailoring products and
services to specific
customer segments or
customer needs
▪ Examples
o My M&Ms
o Dell computers
o Nike customized
athletic shoes
CREATING VALUE FOR CUSTOMERS
▪ CONVENIENCE
o Making products and services more
convenient and easier to use
▪ Examples
o iPod and iTunes
o Amazon – global marketplace
o Kuerig single cup coffee makers
o Online grocery shopping & delivery
o Online banking services
CREATING VALUE FOR CUSTOMERS
▪ REDUCING RISK
o Reducing risk of product or service
underperformance or failure
▪ Examples
o FedEx backs FedEx Express® shipments
and FedEx Ground® shipments within
the U.S. and to Canada with a money-
back guarantee
o Chevrolet’s “Love It or Return It” allows
new-car buyers to return vehicles for a
full refund (up to 4,000 miles)
▪ Introduced in 1927 by Sears
with an unlimited lifetime
warranty
▪ Requires no receipt or dated
proof of purchase… ever
▪ Consumers have ranked the
Craftsman brand second
(surpassed only by Waterford
Crystal) in terms of quality
▪ In 2007, Craftsman was named
"America's Most Trusted Brand"
and brand with "Highest
Expectations"
For more than a decade, America's Best Warranty
hasn't just changed how our customers feel about
their cars, it's changed how we build vehicles. To
make sure we deliver automobiles worthy of a 10-
year warranty, Hyundai initiated the Drive Defects
to Zero plan. This program has a dedicated team of
Hyundai engineers that are charged with catching,
learning about and fixing any issue, no matter how
small, before it gets to the customer.
America's Best Warranty does more than give you
peace of mind, it's a commitment from Hyundai to
maintain a high degree of quality, dependability
and reliability.
CREATING VALUE FOR CUSTOMERS
▪ DESIGN
o Firms can differentiate their
products and service through
superior design, via aesthetics,
ergonomics, environmental
implications and more
▪ Examples
o Virtually any Apple product
o Node electric outlet
o OXO swivel peeler
o Patagonia Synchilla fleece jacket
(made from recycled plastic
bottles
The ABSOLUT UNIQUE which consists of close to four
million uniquely designed bottles to grace shelves
worldwide. The liquor brand has always been at the
forefront in introducing creative collaboration efforts
from a range of artists, but in this particular project,
ABSOLUT has decided to take the artistic reigns. Using
a mix of 38 different colors and 51 pattern types,
applied through splash guns and color-generating
machines, each bottle produced was ensured that it
would look one-of-a-kind.
CREATING VALUE FOR CUSTOMERS
▪ COST REDUCTION
o Taking cost out for customers
creates value and loyalty
▪ Examples
o Salesforce.com
o Server hosting services
o Skype
o Bundled services such as
Comcast’s triple play: internet,
cable and phone
CREATING VALUE FOR CUSTOMERS
▪ LOW PRICE & FREE
o Similar value at reduced or no
price for specific customer
segments
o Many require new business
models to implement
▪ Examples
o Southwest Airlines
o Free email & free apps
o Overstock.com
o Smart Car
CREATING VALUE FOR CUSTOMERS
▪ INNOVATION & NEWNESS
o Creates new set of “needs” or solves
problems customers didn’t perceive
or recognize
o Usually related to technology or
innovation in business models
▪ Examples
o Video games
o Cell phones
o Tablet computers
o Satellite radio
IN B2B MARKETS*
IN B2B MARKETS
▪ All benefits
o Lists all benefits whether they matter to customer or not
o Requires least knowledge of customer or competitors
▪ Favorable points of difference
o Recognizes the customer has an alternative
o Requires an intense understanding of competitive offering
o Points of difference may deliver little value to the customer
▪ Resonating focus
o The “gold standard”
o Firm delivers value on the criteria which matter most to
target customers
o Can demonstrate and document the superior value
“Customer Value Propositions in Business Markets” by James C Anderson,
James A Narus and Wouter van Rossum, Harvard Business Review, March 2006
IN B2B MARKETS
IN B2B MARKETS
▪ Do a “deep dive” into a prospective
customer’s business
o What do they value?
o What are their challenges & opportunities?
o What are their unique requirements and
preferences?
o Can you help their products compete more
favorably with their competitions’?
▪ Show how your products/services outperform
others on the criteria that matters the most
B2B EXAMPLE #1
SUPPLIER: Paint Manufacturer
CUSTOMER SEGMENT: Painting Contractors
KEY CUSTOMER CHALLENGE: Cost of Labor
KEY INSIGHT DISCOVERED: Cost of paint is
just 15% of total costs
VALUE DELIVERED TO CUSTOMER: Paint that
dries so quickly two coats can be applied
per day, greatly reducing labor costs
RESULT: Customer switched products and
paid a 40% premium on price for it
B2B EXAMPLE #2
SUPPLIER: Plastics Mold Manufacturer
CUSTOMER SEGMENT: Medical Device
KEY CUSTOMER CHALLENGE: Sticking Parts
KEY INSIGHT DISCOVERED: Customer not
using release agents or coated molds
VALUE DELIVERED TO CUSTOMER: Mold
manufacturer developed a custom solution
that reduced sticking parts by 99.5%
RESULT: Received 85% of the business while
also charging 10% premium on the molds
Summary
Your value proposition must…
✓ Be based on what the customer perceives will
add value
✓ The firm’s value chain must be specifically
tailored to deliver the value proposition
o i.e. Activities that a firm performs in order to
deliver something of value (product or service)
✓ It must be based on truth, not “marketing spin”
✓ Must address a specific customer segment
✓ It most cases will address relative price
