Value Propositions

Over the years, I’ve found that if executive teams do not have a clear understanding of their company’s value proposition, it makes it very difficult for them to develop a coherent strategic direction. That’s because the essence of most business growth strategies IS your value proposition.

The Link to Strategy - Harley-Davidson Gets it Right
A clearly stated value proposition defines your company’s targeted customer base. It answers the question "Who is the customer?" Since strategy is about choice, a company must choose the market segment or segments to which that value proposition will be the most attractive and target them. Your customers will then be those who value and buy into your value proposition. Without a clearly defined target customer, any "strategic direction" is foggy at best and damaging to your business at worst! Your focus should be on the benefits does a customer receive?” Joanne Bischmann, VP of Marketing for Harley-Davidson summarizes their value proposition this way... "Harley-Davidson stands for independence, freedom, individuality, expressing one’s self, adventure on the open road, and experiencing life to its fullest. This is what people are buying when they buy a Harley."

Wal-Mart Clears the Fog
Customers buy from you based on your perceived "value proposition"… that set of attributes including products, price points, service levels, etc. that makes your firm unique. Wal-mart's value proposition is clear... they are the leader in low prices and huge selection. Michael Treacy and Fred Wiersema, in their 1995 book, "The Discipline of Market Leaders", categorized these buying motives into three different types of value propositions. These are product leadership, customer intimacy, and operational excellence. For the most part, successful companies choose one and concentrate on it, strategically maintaining acceptable levels of performance in the other two.

How to Write Words that Sell

What does this mean? The Southwest Example
Companies choosing a product leadership value proposition typically offer unique one-of-a-kind products and services, state-of-the-art features, or innovative solutions. Customers purchase from these companies because of their unique capabilities. Often, they can’t get it anywhere else. These companies don’t strategically stress low price or world-class service. Microsoft, Intel, and Harley-Davidson are examples of product leadership strategy companies.

Firms adopting a customer intimacy value proposition will choose to focus on the quality of their relationships with customers and offer "complete solutions" as their value proposition. They don’t try to have the lowest price or the most innovative products. Customers that value intimate vendor relationships will tend to buy from them. Examples here are The Home Depot, Nordstrom Stores, and IBM. Companies that base their strategy on personalized service will maintain acceptable levels of product innovation or operational excellence, because they can’t focus on all three at once. Nobody can.

Over 30 years ago, Rollin King and Herb Kelleher got together and decided to start a different kind of airline. They began with one simple value proposition: "If you get your passengers to their destinations when they want to get there, on time, at the lowest possible fares, and make darn sure they have a good time doing it, people will fly your airline."

Organizations that choose an operational excellence value proposition opt to excel at attributes such as price, quality, on-time delivery, selection, availability, that their competitors can’t match. As expected, they tend not to be big product innovators or strategically offer dizzyingly high levels of customer service. That’s OK, because they execute extraordinarily well. Examples of operational excellence firms are Charles Schwab, Hertz, FedEx, Wal-Mart and Southwest Airlines.

Business Growth Strategy: More Value Propositions... Hertz is clear with their value proposition: Michael Senackerib, Chief Marketing Officer of Hertz Corporation relates... "Our goal at Hertz is to provide customers with a value proposition that exceeds their expectations. to help them maximize their budgets, especially during these trying economic times". For Charles Schwab, it is delivering industryleading knowledge and integrity at a fair price." For FedEx, it's the famous "When your package absolutely, positively has to get there overnight" Choosing a statement will define what your structure, core competencies, business process, and culture will look like, and provides the customer profile upon which you can build a well-constructed business strategy!

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