Strategy to Win Element 5 - Value Proposition

 

Create a Unique, Sustainable, and Defensible Value Proposition

Welcome to element number five in creating a Strategy to Win. In the previous four elements, we asked you to set a strategic objective three years out and conduct market research to define your addressable market and competitive positioning. You also examined your internal factors through a SWOT analysis and explored the customer journey. With all this background, it's time to determine the implications for your business and develop a unique, sustainable, and defensible value proposition.

 

The Importance of a Value Proposition

Every company has an identity, whether consciously developed or not. Your customers also have a perception of your company's identity. This perception is what we call a value proposition. It consists of claims that, when taken together, make your company unique and valuable enough for customers to choose your product over others. Developing a deliberate value proposition is critical for your company's success. Similar to how individuals have unique personalities, your company's value proposition defines who you are as a business.

 

Your value proposition is not only the reason why customers buy from you but also what keeps them loyal and prevents them from switching to competitors. It encompasses claims of innovation, services, features, or benefits that make your company appealing to customers. It communicates how your product solves their problems, improves their situation, or delivers specific benefits. Moreover, it differentiates you from the competition and tells your target customers why they should choose you.

 

Developing a Compelling Value Proposition

Your value proposition claims should reflect your company's identity and how you plan to compete in the marketplace. Consider what unique claims you can make that set you apart from others. Additionally, understanding why customers might not choose you or why they might seek alternative solutions is equally important. By delving into your customer journey, you can gain valuable insights and shape a strong value proposition that resonates with your audience.

 

The Role of Value Proposition in Customer Engagement

A value proposition serves as a promise of value to be delivered to your customers. It is the primary reason prospects decide to buy from you, and it greatly influences whether people will explore your product further or simply leave your website. Therefore, it's crucial to get your value proposition right. A well-crafted value proposition can significantly boost your company and sales, while a poorly executed one can hinder your growth and success.

 

Clarifying Misconceptions about Value Propositions

It's important to clarify what a value proposition is not, as there can be confusion surrounding this concept. First and foremost, it is not a slogan or catchphrase. While slogans might aim to sell a product, they often fail to communicate the true value to the customer. For example, L'Oréal's slogan, "Because you're worth it," did not effectively convey a compelling value proposition. Similarly, Wendy's humorous commercial asking "Where's the beef?" may have been entertaining, but it did not address why customers should choose their product.

 

A value proposition is also distinct from a positioning statement, company vision statement, or mission statement. Positioning statements like "Wheaties, the breakfast of champions" or Nike's "Just Do It" are catchy and memorable, but they do not provide a comprehensive value proposition. While they help create brand recognition, they lack the clarity to communicate the unique benefits and reasons customers should choose a particular product or company.

 

The Role of the Value Proposition

A value proposition is not just a reason why customers buy from a company, but also what keeps them loyal and prevents them from switching to competitors. It includes claims of innovation, services, features, or benefits that make the company appealing to customers. The value proposition should communicate how the product solves customers' problems, improves their situation, or delivers specific benefits. It creates differentiation and tells the target customers why they should choose the company over others.

 

Supporting the Value Proposition with Market Research

To develop a compelling value proposition, accurate and unbiased market research is crucial. Market research helps understand the frequency of words used to describe products or services in a particular industry. By conducting market research, companies can identify phrases that resonate with their target audience and support their value proposition. Additionally, market research provides insights into the context and needs of customers, allowing companies to tailor their value proposition accordingly.

 

Creating a Defensible Value Proposition

A strong value proposition must be defensible, even if competitors make similar claims. Companies must have evidence to support their claims and prove that they fulfill their promises better than competitors. The speakers use the analogy of building a moat around a castle. The more a company can reinforce its unique and defensible claim, the stronger the moat becomes. Companies should be able to answer the question, "If I had to crush my own products or services, how would I do that?" Toyota is an example of a company that has successfully built a strong moat with its value proposition.

 

Toyota: Quality and Reliability as a Value Proposition

Toyota, a leading automotive company, has built a strong moat by prioritizing quality and reliability in their vehicles. They recognized that compared to their competition, their cars lasted longer, required less maintenance, and had a lower overall cost of ownership. Toyota's understanding of its customers and their ability to fulfill value propositions that resonated with them played a key role in its success. The market share they currently hold, with over 10% of the world automotive market, is a testament to their ownership of these claims.

 

Starbucks: Creating a Unique Customer Experience

Starbucks, known for its premium coffee, has created a remarkable value proposition by focusing on quality, customer experience, and creating a unique environment. Customers visiting Starbucks feel special and enjoy a distinctive experience. From being treated with care to ordering in a language unique to coffee enthusiasts, Starbucks has crafted an atmosphere that sets them apart. They command a significant share of the US coffee market (around 60%) despite having only 40% of the retail storefronts. The loyalty and willingness of customers to pay a premium price for Starbucks' products highlight the effectiveness of their value proposition.

 

EGO: Addressing Consumer Concerns with a Powerful Value Proposition

EGO, a relative newcomer to the market (emerging in 2012), successfully entered the battery-powered residential yard care industry. They identified the primary consumer concern - power - and made it their value driver. With the slogan "Power Beyond Belief," EGO addressed the major challenge of battery power by delivering industry-leading lithium batteries with exceptional power. The same battery powers the full range of their products, including snowblowers, backpack blowers, and all of their yard care products. EGO's comprehensive value proposition and innovative products propelled them to become a significant player in the industry, earning a reputation as one of the biggest battery-powered brands.

 

The Significance of Sustainability

A value proposition must be sustainable, meaning that it is difficult for competitors to mimic or imitate. If a competitor can copy a company's value proposition and customers can't distinguish it from competitors, the value claim loses its impact. Sustainability is crucial in maintaining a competitive advantage and attracting and retaining customers.

 

Examples of Sustainable Value Propositions

The speakers provide several examples of sustainable value propositions. One example is Amazon, which has built its value proposition around offering a wide selection, competitive prices, and fast delivery. Amazon's ability to consistently deliver on these promises has made it a dominant player in the e-commerce industry.

 

Another example is Netflix, which pioneered the digital video streaming service. By adopting technology early on and continuously improving its service, Netflix has become the go-to streaming platform for 85% of customers who have a streaming subscription. Their sustainability is further demonstrated by their expansion into producing original content and earning critical acclaim.

 

Understanding the Customer Journey and Value Drivers

In highly competitive markets, such as the coffee industry or food specialty products, it is crucial to thoroughly understand the customer journey and value drivers. Companies must recognize the importance of obtaining permission from customers to compete in crowded spaces. This involves gaining shelf space in retail stores and ensuring high turnover to retain that space. By understanding customer needs and differentiating themselves from competitors, companies can carve out a sustainable position in the market.

 

Uber and Lyft are highlighted for their innovative approach to transportation services. By leveraging technology and offering features like real-time tracking and safety measures, these companies have disrupted the traditional taxi industry and created a unique value proposition for customers.

 

Chobani is commended for its success in the highly competitive yogurt market. Despite the crowded space, Chobani gained permission from consumers by offering high-quality products and appealing packaging. Within a short time, they captured a significant share of the Greek yogurt market, demonstrating the power of a strong value proposition.

 

Consistency and Reputation

Companies must deliver on their claims and meet customer expectations consistently over time. Building a reputation takes years, but it can be easily destroyed by failing to deliver on promises. Customer trust is vital, and any mistakes or blunders that disappoint consumers can have severe consequences for a company's success.

 

The Momentum of a Strong Value Proposition

Once a company establishes a strong value proposition and gains momentum, it experiences the flywheel effect. This concept, popularized by Jim Collins in his book "Good to Great," highlights the power of momentum. As a company consistently delivers on its value proposition, it builds momentum and experiences exponential growth. This positive feedback loop reinforces the value proposition and contributes to the company's long-term success.

 

The Power of Value Proposition in Building Momentum

In this session, we will discuss the importance of a strong value proposition in building momentum and sustaining success in the marketplace. As businesses grow and develop relationships, they can attract more promoters by consistently applying value drivers derived from their value proposition. This creates momentum and builds inertia as trust is maintained and repeat business increases.

 

The Flywheel Effect of a Strong Value Proposition

Few things in life feel better than witnessing the momentum that comes from consistently delivering on a value proposition. This creates a flywheel effect, where the more you apply your value drivers and sustain trust, the easier it becomes to attract customers and generate sales. It is crucial to create an effective value proposition that is reinforced through consistent customer behavior over time.

 

Maintaining Momentum with Focused Value Drivers

To maintain momentum, businesses must remain focused on their value drivers and stay attuned to shifting consumer demands. It is essential to understand where customers are gravitating and adapt accordingly. Developing a winning strategy is an ongoing process that requires continuous evaluation and reassessment of assumptions. By staying proactive and responsive to market trends, companies can sustain their momentum and competitive advantage.

 

Identifying and Justifying Value Claims

To strengthen your value proposition, it is important to identify and justify the claims you can make as a company. Some examples of value drivers or claims include warranty, quality, innovation, customer experience, breadth of product offering, and price. However, it is essential to carefully consider the implications of each claim and ensure they are sustainable and defensible in the long run. Conducting market research and understanding competitive offerings can help support your claims and differentiate your business.

 

Implications of Value Drivers

Each value driver carries implications that affect customer perception and behavior. It is crucial to align your claims with the desired effects on your customers. Failing to deliver on your value proposition can result in a disconnect between what you promise and what customers experience. Understanding the implications of your value drivers allows you to build a stronger value proposition that resonates with your target audience.

 

Maintaining Consistency and Customer Accountability

Consistency is key to upholding your value proposition. All employees should understand and be able to articulate the company's value proposition. From the receptionist to the executive suite, everyone must be aligned and accountable for delivering on the promised value. Customers will hold you accountable, and any inconsistency between your claims and actions will erode trust and credibility.

 

Critical Questions for Review

In reviewing your value proposition, ask critical questions to assess its effectiveness:

 

1. Is your value proposition simple enough for all employees and customers to repeat?

2. Is your target customer well-defined, and does your value proposition align with their values and interests?

3. Are there other industries or segments where your value proposition could be successful?

 

By answering these questions, you can refine and strengthen your value proposition, positioning your business for continued success.

 

A Strong Value Proposition Fuels Business Growth

A compelling value proposition is the foundation of a successful business. It generates momentum, attracts promoters, and builds customer trust. By consistently delivering on your value drivers, understanding your customers' needs, and adapting to market trends, you can maintain momentum and achieve your strategic objectives. Remember, developing a winning strategy is an ongoing process that requires continuous evaluation and adjustment. With a strong value proposition, you can differentiate your business and thrive in a competitive marketplace.