Value Proposition is a term like Partner that is both over used and misunderstood in the business world today. I have borrowed a definition that I learned at the Kellogg Graduate School of Management that I have used for 15 years and shapes work we do in this area. In their language, a Value Proposition can be defined as the perceived worth in monetary units of the set of economic, functional/technical and psychological benefits received by the customer in exchange for the price paid for the product offering, taking into consideration the available competitive offerings and prices. Sounds very official but there are some critical components  that should shape your way of looking at value creation.

Here is an interesting data point for you from a study conducted by the Marketing Executive Council. When Executives were asked whether their company had a clearly defined Value Proposition, just over 30% responded with a “Yes”. They took it one step further and then asked their customers the same question about their supplier and that cut the 30% number in half. So, let’s say that this might be an area of opportunity for most organizations.

If you struggle with the clarity and differentiation of how you create value, then here are 3 ways or things to consider to help sharpen your value story.

  1. Align “How You Create Value” to “How You Are Being Judged.” In most industries the decision making criteria or factors of competition are relatively consistent from deal to deal. This is how you are being judged by your prospective customers. If you model the common decision making criteria and where you think you are positioned against known competition, you have a map that shows where you are positioned and where value can be attained by making tactical shifts. This sounds like a common practice and simple, but it is not.

  2. Build or enhance your Psychological Value. From the Kellogg definition and teachings, psychological value is far and away the most compelling component of value creation. It has power to potential customers and also as a strategic differentiator because it is difficult to see and copy. Examples of Psychological Value include risk, trust, relationships, service, cultural fit and brand momentum. Think of Apple and the Psychological power they have earned. This is often how decisions get made and should be both understood and an area of focus.

  3. Resolve Industry Compromises. Industries impose standards that force customers to accept compromises or concessions. These are not trade-offs, but are imposed on us. Staying at a two star hotel versus a five star is a trade-off. You know what you will receive for the price that you pay. Not being able to check-in to either of those hotels until 3 pm is a compromise the industry imposes on you as a standard. Every industry has them. Bankers hours is an imposed standard that some Banks try and break through opening on evenings or weekends. My favorite is the home services or repair industry. If you were starting one of those companies, you would break massive compromises by providing an exact time you will arrive versus between 9-5. What standards does your industry impose that could create value innovation if you could break them?

A Value Proposition is the center point of any business model and needs to be continually revisited, understood from your customers point of view and communicated as much internally as externally.



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