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| Breakthrough Marketing: Choosing Your Value Proposition 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 strategy IS your value proposition. The Link to Strategy 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. Clearing the Fog Customers buy from you based on your perceived "value proposition"… that set of attributes including innovative products, low price points, high service levels, etc. that makes your firm unique. 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. What does this mean? Companies choosing a product leadership value proposition typically offer one-of-a-kind products and services, state-of-the-art features, and 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. 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. What is Your Value Proposition? A hiker cannot simultaneously go North, South and West at the same time… It’s impossible. Yet that is precisely what some companies try to do by not choosing and sticking to a single value discipline. Being decisive about which of the three you choose sends a clear message to potential customers as to why they should buy from you and to employees as to what they should be doing. Choosing makes a statement as to 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! -- Jim McCraigh © 2002 J. McCraigh All Rights Reserved. This may not be copied or reproduced an any way unless each installment is reprinted in its entirety and author fully credited. |
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