Customer Value propositions (1) MBA: Lecture 4 Marketing Management Value Proposition Strategy is based on a differentiated customer value proposition. Satisfying customers is the source of sustainable value creation. Strategy requires a clear articulation of targeted customer segments and the value proposition required to please them. Clarity of this value proposition is the single most important dimension of strategy. (Strategy Maps, Robert S. Kaplan and David P. Norton, HBS Press, 2004) What is a Value Proposition A clear, compelling and credible expression of the experience that a customer will receive from a supplier’s measurably value-creating offering. (Barnes, Blake and Pinder, 2009, p.22). What is a Value Proposition? • Therefore a value proposition is: – about customers but for your organization; – not addressed to customers but must drive these communications; – articulates the essence of a business, deﬁning exactly what the organization fully intends to make happen in the customer’s life Customer Value Proposition Inputs Customer experience Output and outcomes Offerings New and retained customers Benefits Profitable growth Cost and Risk Enhanced offerings Price Corporate through to sales messaging Alternatives Source: Barnes, Blake and Pinder, (2009) Value proposition in different Markets • Value propositions for business-to-business (B2B) situations can be different as ‘customers in business markets predominantly focus on functionality or performance, whereas customers in consumer markets predominantly focus on aesthetics and taste’ (Treacy and Wiersema, 1995). • For a B2B enterprise, selling without value propositions must lead, sooner or later, to value dissipation and commoditization on the basis of that lowest common denominator, price. Case Study: 2008/2009 financial crisis • Financial services organizations caused pain for their customers to such an extent that it recoiled back on them, putting the entire ﬁnancial system in jeopardy. A very, very, very bad value proposition Benefit: A Home Sacrifices/costs: An expensive Mortgage, The risk that loan may increasingly exceeded the assets value, Worry, inability to pay, The risk (reality) that wholesale failure of these deals, could ultimately threaten global financial stability Source: Barnes, Blake and Pinder, (2009, p.26) Value proposition concept (1) • The articulation of the measurable value of the experience that an organization or individual will get from an Offering, • Where: Value = Beneﬁts minus Cost Source: Barnes, Blake and Pinder, (2009, p.28) Customer Value Propositions (2) Source: Kerper (n.d., p.4) Customer Value Propositions (3) Customer Value Propositions (4) Source: Kerper (n.d., p.5) Customer Value Propositions (5) Source: Kerper (n.d., p.6) Customer Value Proposition (6) Product Describe your product/service concept and how it solves the customer problem Price Describe your price/performance position on customer value map Customer Value propositions Describe your perceived cost/performance (benefits) over competitions Placement/Target market Describe the target customer group and estimate the market unit volume Promotion Describe your plan for communicating the value proposition for this idea to customer Customer Value Proposition (7) Value Proposition: Example of IBM Source: Kerper (n.d., p.15) Elements of Value Proposition • Capability – what you can do for a customer. • Impact – how that will help the customer to succeed. • Cost – what the customer must pay for the privilege. Source: Barnes, Blake and Pinder, (2009, p.28) Amazon value proposition (1) • Amazon’s value proposition is based on low cost prices for a high selection of books ordered through an anytime, anywhere extremely convenient mechanism. • To achieve this, they designed a unique organizational system relying on an entirely automated order management system, tightly linked to their suppliers and payment networks, allowing them to minimize human intervention, therefore reducing costs. • Special deals with their partners (suppliers) allow them to maintain very little physical inventory. • They also use unique roles to create a sense of community among book readers, who collaborate to serve as reviewers or salespersons (through the Associates program). • Technology is used both in the back-office as well as in the interaction with the customer (World- Wide-Web for product information and ordering, electronic mail for customer service). Source: Kambil et al (1996, p.29) Ikeas Value Proposition (2) • IKEA’s value proposition emphasizes high-quality furniture at rock-bottom prices. • In order to achieve that feat, the company has created a process to look for very low-cost suppliers in remote areas of the world (usually developing countries). • IKEA then sends in training and quality-control teams to insure that the quality of the production will satisfy its standards. • The production of its different suppliers is then coordinated through a global logistics system and a network of warehouses, which insures that the different components of a piece of furniture reach the warehouse in time for assembly and the shops in time to restock shelves Source: Kambil et al (1996, p.30) Dell’s value proposition (3) • Dell’s value proposition relies on state-of-the art technology, delivered at low price through a convenient ordering process, and offering top-notch remote support. • In order to deliver such a value proposition with profit, Dell designed a unique value architecture based on direct marketing, extensive use of call centers and magazine advertising. Source: Kambil et al (1996, p.30) Value Proposition Builder 1. Markets The specific group of customers you are targeting 6. Proof 2. Value experience Substantiated credibility and believability of your offerings How you are different from and better than alternatives 5. Alternatives and Differentiations Value propositions 3. Offerings How you are different from and better than alternatives The product/service mix that you are selling 4. Benefits How your offering delivers clear customer value Source: Barnes, Blake and Pinder, (2009,) Business to Business: Value Proposition (1) • Anderson et al (1996)- comes out with three value propositions – all benefits, – favorable points of difference, – and resonating focus. Business to Business: Value Proposition (2)- All Benefits • List all the benefits they believe that their offering might deliver to target customers. • This approach requires the least knowledge about customers and competitors and, thus, the least amount of work to construct • Limitation: Managers may claim advantages for features that actually provide no benefit to target customers. – Another pitfall is that all benefits value proposition is that many, even most, of the benefits may be points of parity with those of the next best alternative, diluting the effect of the few genuine points of difference. Business to Business: Value Proposition (3)-Favorable points of differences • Explicitly recognizes that the customer has an alternative. • Knowing that an element of an offering is a point of difference relative to the next best alternative does not, however, convey the value of this difference to target customers. • Without a detailed understanding of the customer’s requirements and preferences, and what it is worth to fulfill them, suppliers may stress points of difference that deliver relatively little value to the target customer. Business to Business: Value Proposition (3)- Resonating focus • This approach acknowledges that the managers who make purchase decisions have major, ever-increasing levels of responsibility and often are pressed for time • Suppliers can provide such a customer value proposition by making their offerings superior on the few elements that matter most to target customers Which Alternative conveys values to customer? Source: Anderson et al (2006, p.93) Alternative methods to identify value proposition • Payne (n.d). –three elements of value propositions • Kambil et al (1996)-Dimensions of value proposition Three key elements of value proposition (Payne, n.d) • Analysing Market based value • Assessing the opportunities in each segment to deliver superior value • Explicitly choosing the value proposition Analysing markets based on value Source: Payne (n.d, p.4) Assessing opportunities in each segment to deliver superior value • All markets are made up of market segments, or groups of customers with the same or similar needs. • Even where the offer made to customers is technically identical to competitors offers, efforts to differentiate the total or package offer in terms of customer segment as well as market segment can reap significant rewards. Explicitly choosing the value proposition • Having identified the target market segments, the next priority is to create a value proposition of winning relevance. • The characteristics of the segments that form some markets may vary so radically that different value propositions will be required for different segments A checklist to review your value proposition Source: Payne (n.d, p.4) Dimensions of Value Proposition (Kambil et al, 1996) Source: Kambil et al (1996, p.13) Product Performance Source: Kambil et al (1996, p.12) Product Cost Source: Kambil et al (1996, p.15) Customer Role • the buyer role defines how a customer determines needs, assesses suppliers, orders, and pays for and takes delivery of a product or service • the user role describes how the end user derives the expected performance from a product or service to satisfy a specific set of needs • the co-creator role refers to how customers cooperate with their suppliers to produce the expected value, often passing it to another customer • the transferer role defines how customers dispose of a product. For example, a physical product can be discarded, recycled, or resold, while information know-how can be stored, transferred to others, or resold. Source: Kambil et al (1996, p.16) Customer Role: Examples Dell • Dell Computer understood before everyone else that computers were quickly becoming commodities and should therefore be treated as such. • By focusing on streamlining the acquisition process for its customers through standardized components, direct sales, phone-based ordering and support, the company has redefined the standard within its industry. (Buyer role) Customer Role: Examples (2) Airbus • When Airbus, the European airspace consortium, launched the A320 family of aircraft, it created a family of airplanes (A319, A320 and A32I) sharing most characteristics, and differing only in size. • By using the same inside equipment, pilot instruments, maintenance procedures, etc., Airbus makes it easier for companies to schedule the use of these airplanes. • Substituting a larger airplane on a temporarily crowded route doesn't require a change in pilots, flight crew, food carts or any other equipment. • Airbus customers can therefore generate much more value out of the use of their aircraft.(User role) Customer Role: Examples (3) IKEA • IKEA, the Swedish furniture giant, is well known for partnering with its customers to co-create value. • if customers play the role IKEA assigns to them (drive out of town, shop alone, transport their furniture home and assemble it), then IKEA will provide them with one-stop shopping for quality furniture at excellent prices, while making their shopping experience fun and rewarding. (cocreator role) Customer Role: Examples (4) McDonald • McDonald's has established a system where everyone buses their own tray before leaving. In the these cases, the supplier focuses on adding the maximum value in its core specialty and "outsources“ the rest of the work to the customer or a complementor. (Cocreator role) Customer Role: Examples (5) Leasing Companies • Leasing companies have understood that customers were sometimes not interested in dealing with their cars after a few years. Rather than having to bother with reselling them and buying a new one, it is easier to outsource these chores to a leasing company. • The leasing company acquires the car, provides basic maintenance and simplifies its transfer (disposal) after its useful life. (Transferer role) Progressive Insurance Value Proposition (1) Source: Kambil et al (1996, p.21) Amazon’s Value Propositions (2) Source: Kambil et al (1996, p.21) EVALUATING Value Propositions (1) Evaluating value proposition (2) Lawton (n.d) Evaluating Value proposition (3): Ryanair's value proposition Lawton (n.d) Evaluating Value proposition (4): Ryanair's value proposition Statement Lawton (n.d) Evaluating Value proposition (5): Emirates value proposition Lawton (n.d) Evaluating Value proposition (6): Emirates value proposition Statement Lawton (n.d) Any Questions?