What Value do we deliver to our customer?
What is Value Proposition anyway?
Today, I want to discuss second elements of business which is the part of a series “Elements of successful business for modern age”
The value Propositions describes the bundle of products and services that create value for a specific Customer Segment.
The Value Proposition is the reason why customers turn to one company over another. It solves a customer problem or satisfies a customer need. Each Value proposition consists of a selected bundle of products and/or services that caters to the requirements of a specific Customer Segment. In this sense, the Value Proposition is an aggregation, or bundle, of benefits that a company offers customers.
Some Value propositions may be innovation and represent a new or disruptive offer. Other may be similar to existing market offer, but with added feature and attributes.
What Value do we deliver to the customer? Which one of our customer’s problems are we helping to solve? Which customer needs are we satisfying? What bundle of products and services are we offering to each Customer Segment?
A Value Propositions creates value for a Customer Segment through a distinct mix of elements catering to that segment’s needs. Value may be quantitative (e.g. price, speed of service) or qualitative (e.g. design customer experience).
Elements from the following non-exhaustive list can contribute to customer value creation.
01. Newness
Some Value Propositions satisfy an entirely new set of needs that customers previously didn’t perceive because there was no similar offering. This is often, but not always, technology related. Cell phone, for instance, created a whole new industry around mobile telecommunication. On the other hand, products such as ethical investment funds have little to do with new technology.
02. Performance
Improving products or service performance has traditionally been a common way to create value. The PC sector has traditionally relied on this factor by bringing more powerful machine to market. But improved performance has its limits. In recent years, for example, faster PCs, more disk storage space, and better graphics have failed to produce corresponding growth in customer demand.
03. Customization
Tailoring products and services to the specific needs of individual customers or Customer Segment creates value. In recent years, the concepts of mass customization and customer co-creation have gained importance. This approach allows for customized products and services, while still taking advantage of economics of scale.
04. Getting the job done
Value can be created simply by helping a customer get certain jobs done. Rolls-Royce understands this very well: its airline customers rely entirely on Rolls-Royce to manufacture and service their jet engines. This arrangement allows customers to focus on running their airlines. In return, the airlines pay Rolls-Royce a fee for every hour an engine runs.
05. Design
Design is an important but difficult element to measure. A product may stand out because of superior design. In the fashion and customer electronics industries, design can be a particularly important part of the Value Proposition.
06. Brand/Status
Customers may find value in the simple act of using and displaying a specific brand. Wearing a Rolex watch signifies wealth, for example. On the other end of the spectrum, skateboarders may wear the latest “underground” brand to show that they are “in”.
07. Price
Offering similar value at a low price is a common way to satisfy the need of price-sensitive Customer Segment. But low-price Value Propositions have important implications for the rest of a business model. No frills airlines, Southwest easyJet and Ryanair have designed entire business model specifically to enable low cost air travel. Another example of a price based Value Proposition can be seen in Nano, a car designed and manufacture by the Indian conglomerate Tata. Its surprisingly low price makes the automobile affordable to a whole new segment of the Indian population. Increasingly, free offers are starting to permeate various industries. Free offers range from free newspaper to e-mail, free mobile phone services, and more.
08. Cost reduction
Helping customers reduce cost is an important way to create value. Saleforce.com for example, sells a hosted Customer Relationship management (CRM) application. This relieves buyers from the expense and trouble of having to buy, install, and manage CRM software themselves.
09. Risk Reduction
Customers value reducing the risk the incur when purchase products or services. For a used car buyer, a one-year service guarantee reduce the risk of port-purchase breakdown and repair. A service-level guarantee partially reduces the risk undertaken by a purchaser of outsourced IT services.
10. Accessibility
Making products and services available to customers who previously lacked access to them is another way to create value. This can result from business model innovation, new technology, or a combination of both. NetJets, for instance, popularized the concept of fractional private jet ownership. Using an innovative business model, NetJets offers individuals and corporations access to private jets, a service previously unaffordable to most customers. Mutual fund provides another example of value creation through increased accessibility. This innovation financial product made it possible even for those with modest wealth to build diversified investment portfolios.
11. Convenience/Usability
Making things more convenient or easier to use can create substantial value. Spotify offered customers unprecedented convenience searching, downloading and listening to music. It now dominates the market.
Hope you get something out of this medium post. I am continuing developing this series, so follow along for more knowledge.
Much love
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