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.
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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