A White Paper by Quantum Co-Founder Jeff Downs
How to develop your value propositions to protect gross margins
Money makes the world go round….
Before ‘money’ was introduced as a common currency. Cost was determined by the effort / innovation we personally had to apply in return for other things that we needed to be supplied by others. For example, the local Blacksmith might shoe a farmer’s horse in return for a few sacks of flour. In the modern world, common currency allows us to purchase products and services from a broad range of suppliers, many of them offering similar items at sometimes similar and sometimes very different prices! Why is this? Why does a hot dog at a pop concert or a football match cost 3 times as much as at the village shop? Why does a bunch of bananas sell for 3 times as much in a high street store as it does from a market stall? Why do a large majority of consumers use a national market leader for their domestic telephone services when the same services are available from other vendors at half the cost?
The answer lies in the ‘value propositions’ that these products and organisations offer in terms of the customer’s perception of the cost / benefit equation. The, key word, of course, is: ‘perception’ which gives us a clue regarding the importance of, not only our value propositions, but also how we communicate them to our customers.
Why is it important for a company to define its value propositions?
Any organisation that has to sell things (and most do), needs to be able to communicate value to its customers if it is to optimise its long-term profitability. The sales team in particular needs to be able to articulate value to its customers to demonstrate that their cost / benefit equation is stronger than the competitions’. But what is customer benefit? It is clearly not just a long list of the company’s offerings in terms of features and advantages. It is only a benefit if the customer gains ‘pay-off’ in relation to their needs and wants. The salesperson’s job is to define these needs and wants through careful positioning, questioning and listening but to do this, the value propositions of the organisation and its products / services need to be clearly defined.
So who seeks the value?
Shareholders want value in terms of profitability and ROI. The CEO and Board members usually have a weather eye on this! Departmental heads tend to look at the value that is added to the department and the achievement of their local objectives. In all cases, value is sought by the individual driven by their personal, emotional wants as much as the needs of the business. Again, sales people need to expose and develop these.
There are likely to be several key people in your organisation or among your friends who are well placed to help build value propositions. Form a ‘task group’ comprising sales people, marketing, product development, finance and any others who might be able to contribute (they can soon leave the party if they can’t).
In traditional brainstorming style, fill up flipcharts with all ideas, no matter how ‘zany’ they may be at first. (Mind Mapping software can also be a useful tool for doing this). Assuming you are in a business-to-business selling environment, start with the fundamentals of the value a customer might be seeking. The central theme is profit. How to increase sales and / or how to reduce costs. Remember you can sell more by increasing volumes or prices. You can reduce costs by paying less or increasing productivity. Consider the functions within the customers’ business that contribute towards these goals, and then consider what your value propositions are to help your customers to achieve them. Think about the negative consequences of them not having your products / services. These negative impacts can soon be converted into positive value propositions. Draw up where your product / service fits in their value chain. How much value does it add? What profits do they make as a result of your inputs? If in a ‘product’ business, don’t forget your service ‘wrapper’. Very often, in the customers’ eyes this is of more value than the product!
Once you have listed your value propositions, prioritise them into ABC’s in terms of how much competitive edge you think they represent. A’s being USP’s (unique selling point), B’s generally strong v the competition and C’s as ‘me toos’. Then consider these propositions in relation to different job functions and buyer / influencer types in your customers’ organisations. What is the board interested in? Who are the direct beneficiaries? Who is more concerned with the technical detail or buying criteria? Draw up a matrix (similar to that below) of where your various value propositions ‘hit’.
Product example: Paper towels for washrooms
|Propositions||Users||Financial Director||Facilities Manager||Procurement|
|Easy to maintain|
|Just in Time delivery|
|Easy to install|
Finally, alongside each proposition, consider the best possible ‘proofs’ you have to substantiate your claims. Technical bulletins, case studies, presentations, testimonials etc.
Oh, and one more thing! Make sure you develop the value propositions by adding the questions that need to be asked of specific individuals to engage needs and wants for your propositions. Otherwise, no deal!
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