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Direct from the Source: What a value proposition is, what it isn’t and the 5 questions it must answer

March 30th, 2015 No comments

Michael Lanning invented the term “value proposition” back in the 80s. Since then, it has become a staple in the marketing lexicon, and volumes have been written on the subject, including Lanning’s own book, Delivering Profitable Value: A Revolutionary Framework to Accelerate Growth, Generate Wealth, and Rediscover the Heart of Business.

I had the privilege of speaking with him recently about how the concept has evolved over the past three decades and what he thought about that evolution.

“‘Value proposition’ has been widely adopted since the 1990s as a marketing and selling tool — everyone knows they need a good value proposition to sell their product,’” Michael said.

However, Michael believes the focus is too narrow and misses the opportunity to influence business strategy. Michael explained that value propositions should:

 

1. Drive, but not be equated with, your message. It should be an internal articulation, to be echoed by your message. It should not be your actual selling line or slogan.

 

2. Focus on the specific, measurable experiences customers will derive by doing business with you.

“Contrary to how things may seem, customers don’t really care about your product. They care about their lives or businesses; they care about what they may or may not get out of using your products or services,’” Michael said. “So what matters and what must be at the heart of a real value proposition is those customers’ resulting experiences that happen because they buy [or] use your stuff rather than some other option.”

 

3. Be reflected across and influence your entire business — not just your messaging, marketing and sales.

“It should be the fundamental choice, creatively discovered, then debated, articulated and agreed internally by leadership across your entire business,” Michael  said. “It should fundamentally determine the very business you are in, which customers you seek and what your business will do to improve their experiences in return for their business.”

 

Lanning believes marketers often write reasonably defensible value propositions in the sense of telling people why they should buy a product or at least implying what they’ll experience. But these marketers’ organizations don’t necessarily go through the rigorous process of deciding internally what those experiences will be or how they will happen.

“You do have to communicate to customers, giving them a strong reason to use your offerings, but you also need to ensure the customer will get the results thus promised,” Michael said.

Michael acknowledged that it is a major challenge to integrate an entire business around delivering — both providing and communicating — a value proposition. However, for this discussion, the focus was on what a value proposition should include.

He believes a real value proposition is a strategic document that expresses the purpose for your business. It thoroughly answers five questions:

 

1. Who are the target customers?

What are their demographics, current product and service usage and other key behaviors? What situation makes them your target?

 

2. What is the timeframe?

“If you write a vague enough value proposition, it will be good in 2015 and 2050 and anytime in between,” said Michael. “But that just means you’re being vague.”

In reaction to new competitors, technology or regulation, it may be necessary to eventually revise the value proposition.

“Write a specific value proposition for the current timeframe and another for the future, or at least indicate that one will need to be developed,” he advised.

 

3. What do you want these target customers to do?

  • Buy your product or service?
  • Use your product or service in a particular way?
  • Sell your product or service to their customer?
  • Use it to make another product, etc.?

Be clear on what you want the customer to do. This might include adopting new behaviors and experiences, changing business processes or how they manufacture in major ways.

 

4. What are their competing alternatives?

What action could these customers take  if they are not doing what you want? This could be using your direct competitor’s product or maintaining the status quo.

 

5. What resulting experiences will customers derive by doing what you want, compared to their alternatives?  This includes price and any costs and tradeoffs they must accept.

Here you must decide what impact, in net, your business will have on your customers’ lives or businesses compared to their competing alternatives:

  • If B2B, how will their business be improved? Will they increase sales? Reduce cycle times? Cut operating costs?
  • If B2C, how will some aspect of their life improve? Will they have more fun, save money, be better entertained, save time or improve their health?
  • What do you believe is the value of these experiences, compared to the alternatives?

“If you’re not clear on how the customer is better off and to what extent, you aren’t even close to having a value proposition,” Michael said.

This requires diving deep into specifics. For example, a company with a product meant to reduce cycle time would ask questions such as:

  • By what measure does it reduce cycle time?
  • How much more time will this reduce than the competition?
  • Are you comparing it to the status quo, or are you reducing it against three other solutions that are quite different?

 

Will the customer’s experiences improve enough so that they’ll pay the price you’re asking and accept any tradeoff? The hard truth is that few value propositions beat the competition on everything.

Most winning value propositions include some tradeoff where using your product delivers one or more experiences that fall short of the competition. These tradeoffs need to be included in the value proposition, regardless of whether you communicate them to customers.

“You need to understand and, at least internally, recognize any tradeoffs. The customer will have to accept those tradeoffs and experience what’s inferior. That’s a part of the value proposition,” Michael said. “And net of the tradeoff — that inferior experience — you have to ask, ‘Does the customer still get superior value from us?’”

He provided an illustration:  “An expensive sports car may be notoriously unreliable but popular anyway because of its beauty and speed. The value proposition is a tradeoff, but, for the target customer, it’s superior in net.”

In essence, what in your product and all other aspects of your business going to make happen, in the life of your customer, so that they’ll buy into your offer, including the price you’re asking?

“A strong value proposition makes you think through what the customer gets and will conclude at the end of the day,” Michael said. “It is a strategic decision, and among all functions in the business, there must be consensus around it.”

Here’s a summary of the five key questions for a real value proposition: 

 

You can follow Brian Carroll, Executive Director, Revenue Optimization, MECLABS Institute, on Twitter @brianjcarroll.

 

You might also like

4 Perspectives That Should Shape Your View of Value Propositions [More from the blogs]

Michael J. Lanning’s Academic Lecture Series [From MECLABS.com]

Powerful Value Propositions [MarketingExperiments resource]

Value Proposition: 4 questions every marketer should ask about value prop [More from the blogs]

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Value Prop: How Radio Shack lost its way by losing sight of its ideal customer, Pt. 3

March 23rd, 2015 No comments

As marketers, Radio Shack should serve as an important cautionary tale of how quickly our businesses can erode if we lose sight of our core value proposition. The first two parts of this three-part blog series (read part one here and part two here) documented Radio Shack’s meteoric rise to retail prominence throughout the 1960s and 70s, accomplished by identifying the ideal customer (the hobbyist) and offering to the market a unique, authentic value proposition built upon a foundation of four key factors:

Credibility — Can I trust your claims?
Clarity — What are you actually offering?
Exclusivity — Can I only get this from you?
Appeal — How much do I desire this offer?

By honoring this core value prop — Radio Shack stores provide specialized, innovative parts and merchandise not available anywhere else, sold by the most tech-knowledgeable staff in retail Radio Shack grew from a handful of bankrupt Boston electronics stores to a retail juggernaut with more storefronts than McDonalds.

The mid-1980s would mark the beginning of the end for Radio Shack, as the company continuously diluted, rather than refined, the comparative strengths of the exclusivity, appeal, credibility and clarity that served as the bedrock for its core value proposition.

 

The Mid-1980s — Marginalizing the core customer

Who is your customer? How did that customer find you, and why did he buy from you? What does that customer tell others about you? Even more important, what does the customer wish your company would do for him? That knowledge is your only true source of power.

— Kristin Zhivago, Revenue Coach, Author of Roadmap to Revenue: How to Sell the Way Your Customers Want to Buy

By 1984, even though Radio Shack’s stores continued to stock parts and components popular with hobbyists, the company’s specific focus on the DIY market was clearly beginning to shift.

The success of the TRS-80 had given Radio Shack a sense of arrogance, and the company began claiming that small businesses and schools were Radio Shack’s new target market, rather than hobbyists, who were “not the mainstream of the business.” This pinched-nose approach to hobbyists would pervade Radio Shack’s messaging for the next 30 years, whether explicit or implicit.

In fact, hundreds of neighborhood Radio Shack stores saw products aimed at the hobbyist and tinkerer disappear entirely when the stores were converted into Radio Shack Computer Centers.

 

Ironically, these hobbyists that Radio Shack alienated were among the earliest adopters for new technology, including the TRS-80, and many were quickly growing frustrated with some of Radio Shack’s practices.

Although Tandy’s computers boasted superior hardware performance to competitors — often running up to three times faster than its IBM counterparts — the software library for Radio Shack’s line of personal computers was not nearly as robust as IBM or Apple’s.

Because of the company’s insistence on offering mostly private-label products, the TRS-80 computer was designed to work primarily with inferior Radio Shack-brand software. In the absence of MS-DOS, largely superior IBM-compatible software was not compatible with the TRS-80.

Further, expensive peripherals that customers bought for the TRS-80 were purposely designed to be incompatible with other personal computers.

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Value Prop: How Radio Shack lost its way by losing sight of its ideal customer, Pt. 2

March 19th, 2015 No comments

Part 1 of this three-part blog series focused on Radio Shack’s origins and how a savvy businessman named Charles Tandy began to transform a chain of bankrupt Boston radio stores into America’s one-stop shop for consumer electronics. By identifying his ideal customer (the hobbyist) and offering to the market an authentic value proposition, Tandy laid a foundation that would open the door for decades of prosperity and growth.

Here in part two, we’ll look at how strengthening one key element of Radio Shack’s value proposition transformed the company from an emerging electronics chain into an American retail juggernaut.

 

The four elements of a strong value proposition

Though the “value proposition” we modern marketers speak of has gone by numerous names over the years — unique selling proposition, basic selling proposition, strategic differentiation, etc. — one underlying principal has remained largely the same:

The most successful value propositions boast credibility, clarity, exclusivity and appeal.

As the 1970s began, Radio Shack had their specific market cornered in three of these four key elements. The chain was widely regarded as having the most knowledgeable sales staff in retail. (Credibility — Can I trust your claims?)

Radio Shack’s meticulous mass and targeted marketing campaigns clearly communicated the specific goods sold within stores. (Clarity — What are you actually offering?)

Each store’s unique inventory of specialty parts and equipment gave Radio Shack a near-monopoly on the hobbyist market. (Exclusivity — I can only get this from you)

The only area where Radio Shack lagged behind was appeal. (How much do I desire this offer?) Though small, high-margin, house-brand items drove the majority of the company’s sales, batteries, capacitors and wire weren’t exactly the type of glamorous items that lured in window shoppers.


Early 1970s Radio Shack Value Proposition Lacked Appeal

 

Staying on the forefront of innovation

An exclusive offer without appeal has its force undermined by a lack of attraction. ­

— Flint McGlaughlin, Managing Director and CEO, MECLABS Institute

While selling exclusive, highly-specific parts and accessories to its target customers kept Radio Shack’s margins and gross profits high, CEO Charles Tandy decided to also position the chain as the leading seller of cutting edge consumer technology. The newest innovations in home audio equipment, gadgetry, robotics and productivity devices, such as personal calculators — which drew a broader interest while still resonating strongly with Radio Shack’s target customer — could all be found and tested at the neighborhood Radio Shack.

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Value Prop: How Radio Shack lost its way by losing sight of its ideal customer

March 16th, 2015 No comments

 Companies prosper because they offer to the market an authentic value proposition; companies then suffer because they extend to the market an increasingly diluted value proposition. 

— Flint McGlaughlin, Managing Director and CEO, MECLABS Institute

For decades, Radio Shack was one of America’s most trusted and beloved brands. It was a place where DIYers sought parts and advice, where the brightest minds gathered to share ideas and where the latest in technological innovation was showcased. Radio Shack was a mecca for tinkerers looking for that specific part, students looking for science project materials and tech enthusiasts looking for cutting-edge products.

Now, the once-beloved retailer has filed for Chapter 11 bankruptcy protection after losing nearly a billion dollars since late 2011. Prior to the filing, capital was stretched so thin that the company couldn’t even afford to close its 1,000 lowest performing stores.

Radio Shack’s stock (RSHCQ) was delisted by the New York Stock Exchange in early February after losing 90% of its value in the last year, tumbling as low as $0.09 per share from a high of $76.77 in 1999.

 

By the end of March, 1,784 of Radio Shack’s 7,100 stores will close, and companies like Sprint, Gamestop and Amazon are already circling overhead, ravenously waiting to pick at the bones of this once-iconic company.

Meanwhile, Rhode Island Attorney General Peter Kilmartin has issued an urgent warning to his constituents, pleading with them to spend their Radio Shack gift cards as quickly as possible.

How did things go so wrong for this company?

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Value Proposition: NFL’s Jaguars increase revenue with customer-centric marketing

February 12th, 2015 2 comments

The Jacksonville Jaguars, located in the home city of MECLABS Institute, have not had a winning season in nearly a decade. By some measures, the team has actually gotten worse in recent years.

Yet, despite a miserable 1-7 home record for the 2013 NFL season, the Jaguars actually enjoyed a significant lift in local revenue in 2014 and increased average game day attendance by over 3,000 fans.

How did they accomplish this feat?

By viewing their product from the perspective of their prospects and answering one simple question: “If I am the ideal customer, why should I purchase from you rather than your competitor?”

 

Background

Jacksonville is the NFL’s smallest true market, and by most metrics, it’s a borderline miracle that a metropolitan statistical area of only 1.35 million people has been able to sustain a franchise in the country’s most expensive sports league for 20 years and counting.

The per-capita ticket buying pressure on the city is astronomical — approximately one in 20 citizens must purchase a ticket to each game to keep the stadium full on Sundays — as is the sponsorship demands on local corporations.

For this reason, the Jaguars do not enjoy the same leverage to arbitrarily raise ticket prices as do teams in much larger cities where season-ticket waiting lists are the norm and NFL tickets are truly a scarce commodity, cities where demand will likely always outstrip supply.

We live in an age when professional sports (particularly in mid-sized markets) have never faced tougher competition for discretionary income and mindshare. Whereas once there was only a handful of entertainment and recreation options available to consumers, major sports now must compete with the likes of Netflix, Hulu, Spotify, YouTube and a rapidly expanding universe of low-cost entertainment options hyper-specific to each customer’s personal tastes.

At the same time, live professional sports also have to compete with the home theater experience.

In the last 10 years years, economies of scale have made it possible for the average family to afford a high-fidelity home theater setup that provides a perfectly suitable alternative to being at the game in person, at a fraction of the cost. No parking hassles. No overpriced concessions. No traffic bottlenecks. And no $85 tickets, on average.

Without the leverage or on-field product to justify a price increase, the Jaguars made a multi-million dollar bet that they could positively impact local revenue at existing prices simply by putting customer-experience first and enhancing the value proposition of their existing game day experience.

Perhaps the best way to visualize this customer-centric approach is via the exchange fulcrum.

 

The exchange fulcrum:

 

Every purchasing decision that a prospect makes is driven by a competing set of forces — value and cost.

“What value am I receiving, and at what expense?” Every time a customer is confronted by a call-to-action, these two elements will wage war in his or her mind until the scale is ultimately tipped in favor of either conversion or rejection.

The exchange fulcrum — with value force and cost force on opposing sides — brings life to this analogy. Taken one step further, the fulcrum can be given predictive powers via the exchange heuristic:

VfAC – CfAC = Nf

Where Vf = Value Force

AC = Acceptance

Cf = Cost Force

Nf = Net Force

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4 Essential Marketing Insights from Freakonomics Author Stephen J. Dubner

February 9th, 2015 No comments

As all marketing professionals and watchers of “Mad Men” know, marketing is a tricky field. It’s one of the few industries that rely equally on creative ideas that have never been seen before and cold, analytical testing.

But what do you do when you feel stuck in a marketing rut?

Luckily, Steven J. Dubner was there to the rescue. Co-author of the popular Freakonomics book series, which have sold more than 7 million copies worldwide, Dubner is a seasoned pro at looking at seemingly obviously problems from a new angle.

As a self-identified “freak,” I jumped at the opportunity to interview Stephen J. Dubner about what his advice is when it comes to breathing some new life into your marketing strategy. The following interview offers a glimpse into the Freakonomics way of thinking, while giving a taste of what Dubner will be covering during his session at Email Summit 2015. So without further ado, enjoy.

 

First things first, what does it mean to Think Like a Freak?

Whereas Dubner and Levitt’s first two books, Freakonomics and SuperFreakonomics, melded pop culture and economics to explore topics and arguments that “traditional” economists would typically never touch, their latest book explains the thought process behind Freakonomics.

Think Like a Freak explains how to apply this questioning mentality that Dubner and Levitt have employed so successfully in both of their books to answer questions in everyday life. But I’m making this all sound more complicated than I need to.

Essentially, thinking like a freak involves looking at common, everyday problems from a new lens. It encourages the “freak” to be unafraid to question every step of the processes and conclusions that surround them.

The practical idea behind this mentality is simple — how can we be absolutely sure that we are performing at our best if we never try anything new? Thinking like a freak really boils down to one idea: testing.

Here is just a taste of what this freakish mentality is:

So what was Dubner’s advice on revitalizing your marketing?

 

Lesson #1: Get creative

First start with a white sheet of paper. Don’t hold back. What types of things might your customers relate to?

One of the biggest challenges that can come from running campaign after campaign is finding new and exciting ways to look at problems. After all, constantly being on your creativity A-game is draining. Luckily, this is a feeling that Dubner knows all too well:

MarketingExperiments: What are your top strategies to avoid falling into a creative rut?

Stephen J. Dubner: Surround yourself with people who don’t think like you (or come from different age or income or ethnic or political or vocational brackets, etc.). When you’re traveling, always pick out one site to see that you think sounds ridiculous, and see if you can learn something with it. And here’s my favorite: when you meet someone new, no matter what they do, just say this: “Tell me something I don’t know about [whatever you do].” It’s the best ice-breaker in the world, and you’ll learn a lot.

I feel more creative already.

Read more…

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