It is when the economy is most difficult that consumers take stock of their spending habits and cut back on everything but the most essential purchases. Should organizations follow suit and match consumer cutbacks with their own? Not necessarily. That’s the time to re-focus on the value proposition.
Promising and delivering high value—at a time when consumers are feeling most needy—can prime an organization to win new customers and develop strong, profitable long-term relationships that pay big dividends when the economy picks up.
“If it ain’t broke, don’t fix it” is a well-established axiom, which is why it’s hard to change the status quo when business is good. But when business is bad, too many organizations try to “cut” their way to success. While reducing costs and lowering prices may be a grim necessity, it all-too-often eclipses what may be a significant opportunity for an organization to out-flank the competition, grow its customer base and deepen its customer relationships
“In tough times, it is particularly critical for an organization to reexamine, redefine, and reinforce its value proposition,” asserts Donn Rappaport, Chairman and CEO of data marketing firm ALC. “When everyone is cutting back, and while deep discounts are always welcome, more often than not, the ‘total consumer experience’ is neglected. History has shown us that what results in long-term, profitable relationships is a welcome and fulfilling consumer experience—not necessarily the lowest price.” If you’re dubious, he adds, consider the rioters looting the shops in Baghdad after the U.S. invasion: “Can’t beat the prices, but not a likely strategy for building customer loyalty.”
An Historical Perspective
The concept of value proposition was initially introduced in the early 1980s in Theodore Levitt’s book, The Marketing Imagination. Levitt, an economist and Harvard professor, described the “augmented product” as a cluster of both tangible and intangible customer expectations that surround any given product or service. Levitt contended that there is no such thing as a commodity; instead, there are simply products that have not been differentiated in the mind of the customer.
In 1984, Michael Lanning advanced the concept in a white paper entitled “Delivering Profitable Value,” a precursor to his 1998 book of the same name. In the paper, he defined value proposition as the customer’s total experience with a product. He noted that once this total experience is defined, an organization should focus all of its efforts on delivering it to the customer.
Today, the key to an effective value proposition is that it meets a very real or perceived need held by a significant portion of an organization’s customers. Otherwise, it’s like the sound of one-hand clapping. It may make someone within the organization happy, but it won’t do a whole lot for the health and well-being of the business.
Your Customers Will Tell You
“To that end, you’ve got to really get to know your customers,” says Eric Bradley, former Vice President of Small Business Marketing at Reliant Energy, based in Houston, Texas, and now a partner at EBConsulting. Despite heavy competition, Reliant Energy has become the number-one marketer in the city and is expanding rapidly throughout Texas and the U.S. “The way we did it, he explains, “was by maintaining an ongoing dialog with our customers. That’s how we got to know what was important to them, and what wasn’t.”The company is constantly interacting with its customers through surveys and both online and offline customer service communication.
According to Bradley, Reliant’s customer research has produced a number of insights that have led directly to the development of its value proposition. “For example,” he notes, “we learned that our small business customers really dislike the hassle of worrying about their energy service. Sure, they want good service, but that’s almost a given. What they don’t want is the hassle. So a core component of our value proposition is, ‘Make it easy to do business with Reliant Energy.’”
Another critical aspect of an effective value proposition is that it can stand the test of time. A good value proposition should help an organization navigate through an evolving market, and not need to be re-vamped over and over again to meet changing market needs. “Our value proposition hasn’t changed in 30 years,” comments Rappaport. “When we started the company in 1978, we said we existed to enable our clients to utilize marketing data to acquire new customers profitably and to help them realize maximum value from each and every one. While the tools and technology we employ to achieve those ends has certainly changed, as have the media options and strategic opportunities available to us, the essential value proposition remains the same.”
A good value proposition also has to set an organization apart from its competitors. It has to answer the ultimate question, “Why should a consumer do business with you vs. your competitors?” At a time when customers had an array of choices in package delivery services, Federal Express set itself apart by focusing their value proposition on reliability (“When it absolutely, positively has to get there overnight.”) FedEx’s service itself did not necessarily differentiate it from the competition, but the focus of its attention—and its promise (value proposition) to its customers—certainly did.
Beyond relevance, consistency, and differentiation, a good value proposition must also be credible. To a large degree, it’s about being true to your brand, observes Julia Stewart, CEO of Dine Equity, operator of IHOP and Applebee’s restaurants. “We go to great lengths to ensure that everything that appears on our menus is in keeping with our brand,” she says. “I can make a lobster bisque, but no one would buy it from us.”
And finally, “value” itself, as self-evident as that may be, is also critical to an effective value proposition. “We strive to engineer value into everything we offer,” states Stewart. “That doesn’t necessarily mean low prices. We achieve high, perceived value through portion sizing and the cuts of meat we provide. It’s all about making certain that for the price we’re charging, we always deliver a ‘wow’ for our customers. And since we see about 3,500 people a week in our IHOP stores, we get immediate feedback on how well we’re measuring up.”
Developing and effectively communicating your value proposition or propositions is always an important means of differentiating yourself from the pack. But it is absolutely critical in a tough economy when consumers are far more careful about the purchasing, investment, and relationship decisions they make. In a weak economy, your value proposition has got to let customers know that you’re their best choice. Otherwise, they are likely to look in another direction.
This article was originally published 9/14/10 and is courtesy of Wells Fargo Business Banking Roundup (newsletter)http://images.delivery.net/cm50content/wellsfargo/bis_hosted_pages/20100901_BBR_NEWS/feat1.htm ©2010 Wells Fargo Bank, N.A. All rights reserved. Member FDIC