|In Search of a Value Proposition|
|Tuesday, 25 April 2006|
Topic: In Search of a Value Proposition — If you had just ten words with which to describe why people should buy your company's products or service, what would you say?
We recently released the audio recording of our clinic on this topic. You can listen to a recording of this clinic here:
You probably remember the "elevator speech" concept from back when venture capital companies were pouring billions of dollars into Internet start-ups.
And hopefully you heard about our own "Back of a Napkin" contest, in which we offered over $100,000 in services to the best new business idea.
Whether spoken in an elevator or written on the back of a napkin, one of the key indicators of a strong value proposition is that it lends itself to being articulated simply, clearly and very briefly.
These are some of the questions we have set out to answer.
Our research was motivated by two additional questions:
This brief starts to answer these questions and helps you apply the findings to your own business.
In previous reports, we have stressed the importance of a Unique Value Proposition (UVP), which is one of the most essential elements of a successful online business. A UVP is a succinct statement of the uniqueness of a business that sets it apart from all competitors. Without a UVP, a company risks becoming lost in a sea of similar businesses.
The UVP statement will often contain quantitative statements about the uniqueness of a business. Precisely WHY should customers do business with you?
Competitive analysis will help you develop your UVP and test the validity of the claims you make about your business. We covered online competitive analysis in a recent report:
When evaluating whether a business will grow, we use the following formula:
As marketers, we have complete control over "P" and some control over "C." We typically have no control over "V," at least once the business has reached the level of being marketed.
However, "V" is always the most important. This is reflected in the above equation by giving it twice the weight of both "C" and "P" individually.
Every day, we evaluate the "value proposition" (not always truly "unique") of business opportunities. We score the value proposition on a scale of 1–5:
The 1-5 scale is broken down as follows:
Recently, we went in search of a unique value proposition on par with the following:
Google is the search engine of the world.
We receive hundreds of applications each month from companies seeking assistance with market research and business development. Many of them are successful and growing. Most of them have smart management teams. But very few of them have truly compelling value propositions that can be conveyed in a concise manner.
A common response to the question, "What is your company's value proposition?" is: "Great customer service."
Customer service on its own is not a value proposition. It is a service delivery factor. Great customer service should even be considered an essential part of your marketing:
We finally decided to issue a call around the world. In February of 2006, we announced a contest with a $100,000 prize.
The rules were simple: send us a business plan but articulate the value proposition on a 5 x 7 index card (the size of a cocktail napkin).
Within 24 hours, the plans began pouring in. We received almost 400 entries in 4 weeks. Many were from some of the top business schools in the U.S. Even more were from existing, profitable businesses looking to grow.
Most lacked a really compelling value proposition. For many, due either to oversight or to inexperience, there was no value proposition at all.
Only a handful of companies could articulate the value of their offers.
The following table illustrates the breakdown of value propositions according to the 1-5 scale presented above. Applications with no value proposition are not included in the table.
What You Need To UNDERSTAND: Out of 275 plans with value propositions of some kind, there were only 6 (2.18%) that scored a "4." No companies scored a "5." The great majority (86.18%) of companies scored a "2" or below.
KEY POINT: Companies around the world devote extraordinary time and resources to developing and fine-tuning the product delivery chain (sales, marketing, distribution, customer service, etc.), but FAIL to assess the most fundamental of business success factors: their value proposition.
So how do they survive?
Most do not. According to the Small Business Association, as of 2004, more than 50% of small businesses fail within the first year; 95% fail within 5 years (*1).
Many fail due to lack of experience or business sophistication. However, even companies with experienced management teams often fail due to causes stemming from a poor (or poorly utilized) value propositions.
A smart value proposition can make a mediocre management team look very smart. (And vice versa, of course.) But only the best ideas succeed and grow to become billion dollar companies in the long run.
Basics Body Care is a 100% natural body care products company. We sell handmade soap, lip balm, hand balm, belly balm (for pregnant moms), and spa gift baskets. We personalize our soap labels for baby and bridal showers.
User-friendly website that customers use to select options for customization of magazine. Back-end content management system that allows magazine publishers to add editorial content, control advertising database, filter user profiles, etc.
I want to supply boat owners with high quality boat names, registration numbers, and graphics by using our website. My site is unique in the fact that it allows the end user to have a hand in the design process and by allowing the customer to preview the image before submitting the order. EVERY boat owner is a potential customer of ours due to the fact that EVERY boat MUST display its registration numbers on the bow of the boat.
For a CEO, being able to explain a value proposition to customers, employees, and shareholders is the most important part of his or her job. Many times, a company will start out with a very clear, strong value proposition, only to have it gradually become diluted as the company matures. New products or services are often developed based on cash needs, new major partnerships, or at the request of large customers. As companies expand, value propositions become a murky affair. We have all been to conferences in which CEOs have stood up to explain their businesses, taking five minutes or longer for what should be a fairly basic, straightforward task.
Keeping these guidelines in mind will help you create a Unique Value Proposition for a new business or "discover" one for an existing business. And remember, if your UVP can't fit on the back of a napkin, you probably haven't found it yet.
(*1) Why Small Businesses Fail (SBA):
RELATED MEC REPORTS:
Editor — Flint McGlaughlin
Writers — Brian Alt
Contributors — Jalali Hartman
HTML Designer — Cliff Rainer