As a Small Business Advisor/Consultant, one of the first questions I will ask a company when I first meet with them is:
“What is your value proposition?”
Very often, the response I get will be a list of the products and services that the business provides. Sometimes, I get a blank stare in return. They either don’t have an answer, or don’t fully understand what I mean by the question. So I follow up by asking the question a few different ways:
“What are your differentiators?”
“What makes your business different than your competitor’s business that is offering the same or similar products/services?”
When asked the question this way, clients usually respond with some standard buzzwords: Quality. Customer Service. Value. Integrity.
These are not bad answers to the question, but they are likely the same ones that all of the client’s competitors would give if asked the same question. Many companies use these words to describe their business, but do very little to back it up in their day-to-day operations. And if you are not backing it up, then there is very little chance that customers/clients/prospects would use those words to describe your business if they were asked the same question. If this is the case in your business, then you don’t have a strong value proposition, and it may be costing you business.
So what exactly is a Value Proposition?
The best definition I have seen comes from the recently published and excellent book Business Model Generation by Alexander Osterwalder and Yves Pigneur1: “A Value Proposition creates value for a Customer Segment through a distinct mix of elements catering to that segments needs. Values may be quantitative (e.g. price, speed of service) or qualitative (e.g. design, customer experience).”
So, how do you develop a strong value proposition?
“This above all: to thine own self be true.” – Polonius; Hamlet, Act 1, Scene 32
William Shakespeare wrote those words some 400 years ago, but they are still relevant today. Be honest with yourself about what your strengths and differentiators are and what you communicate, because your customers will figure it out pretty fast if you are not. It is important that businesses do a critical and honest assessment of themselves when trying to define and develop their Value Proposition. Here are some steps you can take:
- It’s self-assessment time. Define the “as is” state. What does your business do really well? What are the things that differentiate your products and services from your competitors? Be specific as possible.
- Hint: When articulating your strengths as differentiators, don’t forget list also what your weaknesses are - both actual and perceived. These are things that customers and competitors might use to describe your business negatively. For example, if your strength is “speed of service”, will your perceived weakness be “lack of quality”? When you get to Step 6, you will want to address these.
- Hint: Listen to your current customers at every customer interaction, they are not shy about telling us what they like and don’t like about our businesses. Sometimes our customers can tell us things that we are doing well that we didn’t even realize we were doing.
- Define your target Market & Customer Segment: when a business starts out, its customer segment may be defined as “anyone who wants the product/service”. But as a business grows and matures, it becomes more crucial to identify the customers/clients that you really want to work with vs. the ones you don’t.
- Customer Needs Assessment: now that you have defined your target customer segment, analyze what their specific needs are and how you are currently serving those needs.
- Competitive Analysis: research your competitors. Start with the ones that you are competing with for customers right now, but also look at those competitors who may be serving a customer segment that you hope to reach some day in the future.
- Hint: Benchmark your products/services against your competitors across every dimension – price, reliability, speed of service, performance, etc.
- Now that you have done your analysis above, go back and look at your “as is” value proposition. Is it strong enough? Does it match your target market? Does it differentiate you among your competitors? If you answer no to those questions, then articulate what you think your value proposition “should be” to capture your target market.
- Now, identify realistic ways to change your model, products/services, processes and employees to match that ideal value proposition.
So I Developed a Value Proposition, now what?
Your new value proposition should become your Brand Promise. Communicate it consistently in all internal and external communications. But most of all: back it up! Make sure that it trickles down throughout your organization - sales and marketing, operations and customer service – and that your efforts are aligned to deliver on that Brand Promise. Survey your customers to make sure that they believe you are delivering on the promise.
If you do this, consistently, your Brand Promise will lead to Brand Recognition. With Brand Recognition, you will find yourself differentiated in your target market.
By Benjamin Suggs
1 Alexander Osterwalder and Yves Pigneur, Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers (Self Published, 2010), 23.
2 William Shakespeare, Hamlet, Act 1, Scene 3, 78–82