Value Proposition
Value proposition is a promise of good things coming to your customer. This promise should be always on top of your mind and minds of your team members.
Value proposition helps you to do three things:
- Define product roadmap. Cut anything that does not contribute to value proposition.
- Promote and sell your product. Value proposition is the opening to your customer pitch. It is the biggest text on your homepage. It is the first line in your social network profiles.
- Justify higher prices. If the value is unclear, the customer is thinking in terms of cost-based prices. How many hours it took to build, what was the cost of materials, how much would it cost to make it in-house. Value-based pricing is about revenue increase and money savings. If you want to have high profit margins, use prices based on value.
Every product delivers many values to many customers. You can think of a whole “value map” for your offering. It helps both to have the list of all values you deliver and the one-line value proposition for the central use case.
Action steps:
- Define your value proposition.
- What is your plan to increase value?
- What is your differentiation?
Levels of value
Use the following guiding questions to describe the values of your product at different levels.
Function. Start with a functional solution to some problem. Functionally, a car is a transportation solution to get around a city and its suburbs. Its functional characteristics include number of seats, top speed and the range on a full tank.
What is the primary function of your product? What are the key functional characteristics?
Function is “we do”, higher-order values are “you get”.
Underlying needs. Why do people use products or services from your category? What do they get? Saving time and money? Business success, dating success, health, safety?
People value what they have far more than what they could get. A saved 100$ is better than additional 100$ earned. What kind of loss and failure are you preventing?
What kind of opportunities are unlocked by using your product? What does customer get, once your solution is implemented?
Ice cream place with high variety of flavors is a function. Best place for a romantic date is a solution for the underlying need.
A smartphone gives you access to work email, so you can leave your laptop at home or in office. Be more mobile and free to go.
Emotions. Make people laugh. Deliver happiness. Entertain. Save from fear and uncertainty. Create emotional connection. Offer great customer service.
Starbucks is calling customers by their first names to announce when the drinks are ready. A small ritual that brightens the life of millions.
Social benefits. How would your customers look like when using your product or service? Does it generate more prestige, respect or envy? Do customers become more attractive? Can they tell great stories to their friends? Do they become more valuable?
Self-identification. Great product fill people’s life with purpose, meaning, and belonging to something bigger than themselves.
“So what?” technique. Ask yourself: “What is my product doing for customers?”. Then ask: “So what?”. Get an answer and ask again: “So what?”. Repeat this cycle 3-4 times. You get deeper and deeper values propositions. But do not ask “so what?” too many times. After 6 or 7 iterations, you come to discussion on purpose of life. This level of thinking is not very constructive for most products.
Increase value
Accessibility. More and better locations, languages, delivery options, payment options, business hours. Choice between leasing and buying.
Variety. Larger inventory. Bigger menu. More members in the marketplace.
Customizations. Colors, sizes, options, personalization. More customer control.
Performance. Faster, more efficient, more capacity.
Price. Lower prices. Pay later. Government subsidies or tax credit. Third-party financial aid. Group discounts. Loyalty program.
Handling special circumstances. Restaurant that is good for groups, app that can work without a network connection.
Social proof. Endorsements, awards, rankings, reviews, notable customers. Makes customer choice more safe.
Secondary functions. Can do more.
Ecosystem. Complete solution for the underlying problem. Third-party add-ons. Integration with other products and services. Support, warranty, buy-back options.
IKEA value proposition: wide range of well designed, functional products at low prices. Increasing value: shopping experience and availability (stores, catalogs, online, consistent country-to-country, product variety).
Differentiate
There are different ways to be different:
- Better in something functional.
- Better results for the underlying need.
- Better high-order benefits. Emotions, social status, self-identification.
- Better ecosystem. Better basis for the complete solution.
- Better for a certain customer group.
- Better availability. The only possible solution in a certain circumstances. Niche monopoly. E.g. the only 24/7 convenience store in the neighborhood.
Define your value proposition
In a well-understood category, focus your initial value proposition on functional advantages. E.g. printing business cards that is better in type of paper and colors, order fulfillment time and online design tools. If your product type is new, focus on underlying needs and the results you can deliver.
- Listen to customers. Why would they choose you? What aspects of your offering are most important for them? What aspects are irrelevant?
- Define several types of potential customer. What are the key needs and priorities for each customer group? If you are a marketplace, think separately about the value proposition for sellers and buyers.
- Generate several alternative value propositions. Ask which one is more convincing. “Would you be more interested in X, Y or Z?”
- Do a Google test. Search for your value proposition. What is showing up? Do people discuss this value proposition?
- Rethink your value proposition every month or so. Your market understanding changes, your product changes. The right value proposition can come in third or forth iteration.
- Start with a single and narrow value proposition. With time you can make it stronger add more additional values. Focus on what you can deliver with version one, not on the long-term vision.
To grow a company you need to grow the total value it delivers. Understand all value proposition options and focus on the most promising one. Deliver more value to current customer base or scale current value proposition to more customers.
This article is a part of Earlydays, an open guide for first-time entrepreneurs.
Written by Yury Lifshits — yury@yury.name — @yurylifshits
