Why should customers buy from you, rather than the gazillion other businesses selling pretty much the same thing? What’s special, unique, or innovative about what you sell, compared to the competition?
I’ve talked about the difference between price and value before, and the dangers of disappearing down the rabbit-hole of thinking all you need to do to gain customers is offer your product at a better price than the competition. But what do we actually mean when we talk about ‘value’?
Simply using the word ‘value’ opens-up a can of worms, since its meaning depends on who’s using it. For example you can deliver your product or service more efficiently than your competitors. This is one of the competitive advantage strategies from Competitive Strategy, Michael Porter’s seminal work on the subject. If you don’t know the book, it talks about how a business can gain advantage over the competition in 3 ways:
- Cost Leadership – delivering your product more efficiently than the competition, allowing you to sell your stuff cheaper while maintaining a healthy margin. That could mean selling online when everyone else sells on the high street. Or perhaps your raw materials supplier gives you a better rate because you order in larger quantities.
- Differentiation – being seen by your customers as being somehow unique, based on criteria they themselves have deemed an indicator of value. That last part is key – being different for the sake of it doesn’t work: it has to be in a way that your audience sees as having tangible value over the competition.
- Focus – Targeting a narrow segment within a broader marketplace, with a view to dominating that space. For example, aiming to be the best manufacturer of left-handed can openers in South-East Australia. No, I don’t know where I came up with that example either…
Business Value Proposition vs Customer Value Proposition
Another way of thinking about value is in terms of the business itself. If you sell stuff at a high level of profitability and don’t have high costs doing it, your business is worth more than someone else who’s selling the same stuff but barely breaking even.
Alfred Rapport’s book gives arguably the best explanation of business value analysis, sometimes called ‘shareholder value analysis’. It outlines the ways in which business decisions influence the bottom-line, measuring a organization’s ability to earn more than its total cost of capital – thereby creating value to shareholders. From a strategic level, it describes various frameworks that can be used to determine how best to generate value. For example perhaps reinvesting profits in the current business model won’t generate as great a shareholder value as using that money to invest in new business areas.
The Importance Of Communicating Customer Value
There are other ways of looking at value (such as an accountant’s definition) but the one I want to talk about is the perception of value from the point of view of the customer. After all, nothing happens until there’s a sale, right?
Hopefully, we all agree that getting people to buy your stuff simply because they can buy it cheaper from you isn’t a long-term business plan. No matter what you sell, there will always be someone, somewhere, who’ll sell it cheaper. Moreover, if you have a product that you make for $8 and sell for $10, giving a 5% discount means you have to increase sales by 33% to make the same profit. Give a 10% discount and you’d need to double your sales. Ouch.
Discounting is a mugs game. Selling cheap is for marketers who have run out of ideas.
The only way to build long term business value and ongoing sales success is in delivering – and communicating – a differentiated value positioning that potential customers can appreciate. Perhaps customers value the fact your widget is available in blue, while everyone else only sells them in red. Or maybe your products are so well made they last twice as long.
And here is where many businesses go wrong. The important part of customer value communication isn’t about your widget being available in blue. It’s about how buying a blue widget means the customer doesn’t have to faff about painting it. Similarly having a widget that lasts twice as long isn’t the inherent ‘value’. It’s that the reduced downtime increases customer profits. It’s not about what your product or service does. It’s about what it does for them.
It's Not About What You Do. It's About What You Do For Them
So having a customer-benefits led value proposition is clearly A Good Thing. If customers determine your product or service is better (in whatever ways they measure ‘better’) it potentially enables you to close more deals, reduce the sales cycle, reduce discounting, and increase profitability.
A no-brainer, right? In which case, why do so few businesses have a value-added customer proposition? Based on the thousands of business owners I’ve spoken with over the past 11 years, I’d say that less than 2% of small businesses can articulate a commercial differentiation advantage on whatever it is they’re selling.
Why is this a problem? Because without a customer-benefits led value proposition, customers don’t see a difference between your product or service, and your competitor’s.
Result: the customer buys on price. Even if you didn’t lose the sale, you’ve certainly lost a chunk of margin.
Perhaps you’re a small business owner who’s been ‘playing’ at marketing (i.e. trying stuff out that you’ve read about on the web, with mixed results). Or perhaps you’re in a marketing role but haven’t had any formal training or education in marketing. Where should you start along the path to creating a value proposition model?
OK, I'm On Board. Now Where Do I Start?
Well, you don’t start with Facebook. Neither do you start with Twitter, Instagram, or Google Ads. You don’t redesign your logo, or build a new website. You start with your customers.
Spend some time with your accountant, or Finance Director. Take your existing customer base and divide it into segments based on profitability. Find out which are your most profitable customers (as well as your least profitable ones). Note we’re not talking just about products; look at the entire customer profitability profile. If you’re like most businesses, you’ll probably be surprised to learn where the majority of your profits come from.
Once you have that list of most profitable customers, spend time with them and ask them questions. If it makes sense to take time out to go and visit them, that’s great. If you can’t, then call them on the phone.
Don’t just find out about how and why they bought your product. You probably know the answer to that already. What you want to do is find out about them, as individuals. Their lives, their business, their hopes and fears. The goal is to better understand a particular segment of your market, so that you can use this information to help build what will ultimately become a value proposition for that audience profile that you can quantify from the point of view of the customer.
At the end of the day, once again we’re talking about strategy. Tactical niceties such as digital advertising, content marketing and social media might make the headlines, but they won’t bring you sales. Before any of that stuff we need to get back to basics and do our job, away from the arts and crafts ‘making it look pretty’ perception nonsense that plagues marketers wherever they’re to be found.