Value Proposition: why should customers choose your product?
If, like me, you’ve studied for one or more marketing degrees, you’ll be familiar with a textbook called ‘Marketing Management’ by a guy named Philip Kotler.
Kotler has a PhD in Economics, has taught for half a century at the Kellogg School of Management at Northwestern University, and is known as the father of modern marketing because he’s changed how marketers think about their jobs:
“Marketers influence demand by making the product appropriate, attractive, affordable, and easily available to target consumers.” Kotler says. “If the marketer does a good job of identifying consumer needs, developing appropriate products, and pricing, distributing, and promoting them effectively, these goods will sell very easily.”
If only that advice was displayed in every product development brainstorming meeting! It’d save a lot of people from pain.
Over the years I’ve worked alongside a variety of innovators, developers and creatives with abundant ideas. And I’ve noticed the challenges most folks experience when developing a product or solution is that they get so deep into their ideas they kind of lose track of the market.
They really enjoy making new stuff. But they forget about the market. Remember why Coco-Cola’s ‘New Coke’ flopped? The soft drink giant didn’t like losing ‘the Pepsi challenge’ (public taste tests of colas that heavily relied on first impressions) so it messed with the formula to make it sweeter and smoother, like Pepsi.
But after more than a sip of New Coke, most original Coke fans realised they preferred the classic formula. As the History Channel tells it: “The outrage caught Coca-Cola executives by surprise … the company had underestimated loyal drinkers’ emotional attachments to the brand. Never did its market research testers ask subjects how they would feel if the new formula replaced the old one.”
It’s not easy telling someone there might not be a demand in the market for their latest big idea, but I’ve had to do it quite a few times. Every product needs a simple and clear value proposition: it needs to offer something (or a host of things) a customer really wants. And its value versus competing products needs to be really clear.
So the big question is: how well do you know your market? Start with some market research to find out what will improve the perceived value of your product(s):
What problem are we helping solve for our customers? Can we solve it better than our competitors’ offerings?
Which customer needs are we satisfying? Can we meet those needs better than our competitors?
What are the different needs in different customer segments?
Can we bundle offerings to meet more of these needs?
How do we make it easy for customers to buy our offerings? How will they shop for them?
What is the minimal viable product customers will accept – and then how can we improve it?
The insights you gain from researching your market can then be used to design more attractive value propositions – and inform your tactics to promote, distribute and sell your offerings.
3 useful models to help you design value propositions
Kotler and Keller’s 5 Product Levels
Philip Kotler and Kevin Lane Keller co-designed a model that ranks offerings across Five Product Levels from core needs to emotional needs:
Core benefit – satisfying the basic customer need
Generic product – a version of the product that simply does what it says on the tin, offering only the features or characteristics required to meet the basic need at an entry level price
Expected product – a product that meets customer expectations of value: it does the job well and they’re satisfied
Augmented product – an enhanced version of the product with extra features and benefits (e.g. aftersales services) with more perceived value than those offered by competitors
Potential product – a pipeline of improvements, augmentations or add-ons
Image Source: Expert Program Management
Chernev’s Business Model Framework
My students at the Australian Graduate School of Management (UNSW) are more familiar with Alexander Chernev’s business model framework, originally published in 2017, which gives you a template for mapping your company’s value proposition according to the needs of three key participants:
1. Customer – What value does the offering create for customers?
2. Collaborator – What value does the offering create for the company’s collaborators?
3. Company – What value does the offering create for the company?
For each participant you want to consider multiple needs that must be met so they’ll choose your offering – not just the jobs to be done – including pre- and post-sales support.
Image source: Alexander Chernev
Osterwalder’s Value Proposition Canvas
Co-founder of Strategyzer Dr Alex Osterwalder developed a clean and simple Value Proposition Canvas that integrates with the Business Model Canvas I’ve mentioned a few times. It’s a useful model for creating a value map that addresses the needs of each customer segment (you’ll need to create a new customer profile for each segment).
It helps you make connections between your potential offerings and customer jobs to be done, by mapping customers’ expectations for any offerings in the market to address:
· Gains – benefits of getting the job done well, and
· Pains –the risks and hassles of getting the job done.
Your value proposition will include gain creators that add value for the customer when getting the job done and pain relievers that solve customers’ issues.
Image source: B2B International
Why you should consider all 3 value proposition models
Naturally you want to solve the value propositions for your company and collaborators if you want to improve profitability.
Toyota’s competitive advantages, for example, are apparent in the value it creates for all three categories of participants (customers, collaborators and the company).
The company is famous for pioneering lean manufacturing and managing a really efficient supply chain; Toyota’s strong brand image and commitment to innovation is well communicated across its dealer networks globally; local partnerships in each market help Toyota respond to different customers’ needs; and customers value the vehicles for their quality, reliability and high resale.
Above all, you need to make your value propositions for each customer segment very clear and compelling so they buy-in to the perceived value of your offering the moment they see it. Their satisfaction then depends on how well that perceived value is realised.