A “value proposition” is a promise of value to be delivered, communicated, and acknowledged. It is also a belief from the customer about how value will be delivered, experienced and acquired (from Wikipedia). As per Michael Treacy co-author of “The Discipline of Market Leaders” book, there are four types of basic value propositions; each has its own advantages and disadvantages. Let’s discuss in detail about four value propositions:
- Our prices are the lowest.
To implement this value proposition, you should bring down your expense of merchandise with the goal to offer at a lower price. This requires a manufacturing and distribution approach that crashes each drop of additional operational cost.
For instance, if your competitor is outsourcing products to China, you might outsource to some other location, say Ethiopia, where workforce costs are even lower. Similarly, if the shipping expense is higher, then you might think to relocate your manufacturing locally to the customer.
The benefit of a “lowest price” value proposition is that it is very easy to convince and communicate to the customer. You have got the best price. Deal closed.
The disadvantage is that you are compelled to battle endless price wars, because competitors may follow your footsteps to sell at a loss to grab the market share.
- Our product is uniquely better.
To implement this value proposition, you find out through market research, surveys and interviews, to know features which will make customers choose your product superior to the competition. Then you build the product on those features and take it to the market, targeting a set of customers.
For instance, if you are introducing designer chairs, you use a special type of fabric which makes your prospective buyers feel “successful”. Similarly, Volvo projects themselves as “safer cars” than other cars and sells to safety-conscious parents.
The benefit of a “uniquely better” value proposition is you stay away from price wars as long as you are offering a unique product.
The disadvantage is that competitors will immediately come up with identical products and sell for a lesser price.
- We make things easier for you.
This value proposition is all about creating a user-friendly customer experience with products or services which are difficult to buy or use. The customer is ready to pay more in order to save time and avoid mental stress.
The classic example is FedEx, which can charge a premium for absolute, positive on-time delivery. However, organizations make things easier by having a salesman do the legwork for the client.
The benefit of a “make things easier” value proposition is that the customer stops thinking about your item or benefits and just gets it.
The disadvantage is that you are always at risk of turning an item that can undoubtedly be swapped out. (E.g. UPS rather than FedEx.)
- We take ownership of customer results.
This is the objective of any value proposition. You establish and deliver strategically to the customer’s business so that it can perform better than what they have expected. As a result, they will consider you as part of the “enterprise” rather than a vendor.
For example, instead of selling business stationery to the customer, hold a special position as a facilities manager, to make sure that employees receive what they want on time while maintaining overall costs.
The benefit of a “customer results” value proposition is that once you are involved in the customer’s operations, it will be difficult for them to replace you.
The disadvantage is that you need to hire skilled employees, who understand customer’s business because they have work experience in the customer’s industry.