Introduction
Robert Norton and David Kaplan are the creators of the Balanced Scorecard. They view the customer value proposition (“CVP”) to be the “heart” of strategy. They stated very clearly that strategy is built on a unique customer value proposition. The source of sustainable value is satisfaction with [your] customers.
Customer value propositions are a way to help customers do a crucial job better, more efficiently, and/or cheaper than other options. It is “the heart and soul of strategy”, as well as being one of the four key components of a business plan (which includes 1) customer value proposition; 2) revenue/profit formula; 3) resources; and 4) manufacturing processes. My view is that successful customer value propositions share certain characteristics. They are directly linked to the offer(s), and must be supported by people, processes, and technology that allow them to deliver on the CVP with an intimate understanding of their customers’ needs.
Businesses that thrive in competitive industries know how important it is to maintain and gain sustainable differentiation through a superior customer value proposition. They understand that customer value proposition is not an isolated undertaking. Customers’ experiences, wants, and needs change over time. It is important to understand that developing and maintaining a superior CVP should be done at a “C” level and not to sales or marketing as a way to position. To develop a customer value proposition, the traditional marketing exercise was to look at the following “tweaks”: Improve, transform or reinvent the CVP to the generic product/service:
* Raising benefits.
* Lowering costs.
* Increasing benefits and lowering costs
* Increasing benefits more than an increase in costs.
* Less benefits than cost reduction
Although this is a good start, it’s too simple, geared towards a specific offer, and missing some essential elements.
7 Essential Elements of a Customer-Value Proposition
These 7 elements are essential to a customer value proposition that is truly effective:
1. The CVP is created by conducting a thorough needs analysis. This involves understanding the customer and determining their needs and preferences. Once again, the CVP is created by identifying the customer’s current needs and then applying the litmus test for an improved product or service in terms of effectiveness, affordability, and convenience. (See the definition of CVP). CVP creators need to determine which elements deliver the most value to customers. An extensive customer profile analysis is a great way to identify your most valuable customers and the ones that are least valuable.
2. CVP is truly customer-focused. It is based on the customer’s experience with the product or service. CVP must be integrated in all customer-facing activities, marketing materials, and messaging. You should follow the McKinsey Quarterly authors’ advice when developing the CVP. They wrote an article challenging the traditional sales funnel, entitled The Customer Decision Journey.
“Marketers need to move beyond push-style communication. They must learn how to influence consumers-driven touch points.”
You must take into account the customer decision journey phrase, each contact point along the way, and the influence that the CVP has on customers and their decision-making process when developing your CVP. So, how can marketing and sales leverage the CVP to influence and motivate purchase, trial, repurchase, and advocacy components of the customer decision-making process?
Jeff Bezos is the CEO and Founder at Amazon.com and has clearly understood this concept. He stated that customers will tell their friends about a great experience if they have one.
3. The CVP is both simple and distinctive, but it covers all aspects. This means that it should reflect two aspects of what I call value elements: 1) points o parity and 2) points o difference. Element (i.e. Points of parity are elements (i.e., functionality and performance) that have something in common with the next-best alternative. Points of difference are elements that make your product more valuable than the next-best alternative. Points of contention are the third value element. They occur when the customer and you disagree about how the elements compare with the next best option. You can demonstrate value elements by simply proving your product or service’s value against the competition. This will allow you to make an apples-toapples comparison. This is how Internet Security software companies compare the free software to paid subscriptions and popular brands. BMW-chasing companies, such as Hyundai, also demonstrate and document their value proposition by testing safety, speed and duration of warranty, handling and affordability, quality, resale value, customer satisfaction, and handling. Many companies have adopted Net Promoter Score, which asks Fred Reichheld The Ultimate Question. It simply asks “Would you recommend this company? to a friend?” It produces a metric called the Net Promoter Score, where P – D = NPS”.
P = Promoters are loyal fans who continue to buy from the company and encourage their friends to do so. Passives are happy but not enthusiastic customers who are easily seduced by the competition.
D = Customers who are unhappy with their customers.
4. Your Customer Value Proposition is Measurably better than the competition’s. All customer value propositions should be built upon tangible points that differentiate, in quantitative, qualitative and ultimately monetary terms. A “resonating focus” in a CVP is one or two points that are parity or points of difference.
5. Validation and substantiation by customers – To avoid being branded as marketing hype, you must back up your value proposition with actual case studies and/or testimonials. It is important to show why the customer chose to buy your product or service. Customer testimonials are crucial and should be written from the customer’s perspective. They are a way to support and authenticate the customer’s value proposition.
6. It is sustainable – cannot be easily copied, substituted, or subject to rapid obsolescence. If it is, the new customer value proposition should also be in the process for simultaneous development. This requirement requires that you can execute the value proposition for a substantial amount of time. The intensity of your competition will affect how long it takes. To avoid morale issues, you must communicate with your employees what the next value proposition will be.
7. CVP should be tied to business reviews and a performance evaluation program. Accountability is one of my “pet peeves”. CVP reviews should be performed in conjunction with quarterly and/or monthly business reviews. The formal performance review should not only include the usual measures of business unit performance, but also an evaluation of how the manager delivers the customer value proposition to each target segment or key client in their position within the company.
Conclusion
A Customer Value Proposition must be unique, have a strong focus, and contain the following 7 elements to be effective:
1. It should be based on a thorough customer analysis. This increases effectiveness, affordability, and convenience vs. other options.
2. Is customer experience driven.
3. It is simple in design but distinctive.
4. It is measurably more, expressed in monetary terms.
5. Validation, substantiation, and data are required to prove authenticity.
6. It is sustainable now and into the future.
7. It is tied to the performance evaluation and business review process.