Thursday, March 17, 2011

Understanding Value

imageThis article was written by John Pietro, SCORE Orange County Management Counselor

When businesses think about how to bring their products and services to market, they often forget to define why their products bring value to the customer. Value is very motivating to your customer and can often give you a competitive advantage. First, let’s define value: Value is Quality over Price or benefits over dollars. What businesses do with these variables will determine the Value Proposition that will be presented to the customer. The customer’s perception of value is all that matters, therefore we had best understand what our current and perspective customers value.

Value does not mean discounting, in fact, discounting often lowers the customer’s perception of value for your products and services. Research has shown that long term discounting de-values brands. Stated differently, the customer thinks less of your products and services as a result of constant discounting.

Ultimately, the customer determines the impact and success of my value proposition, they validate or reject my value offering by shopping and purchasing my products or by buying my competitor’s products. How can we tell how our value proposition resonates with the consumer? We need to talk to current and perspective customers to understand what they want. We then need to develop our product offerings to give them what they asked for. Any size business can do this, it just takes time. People will tell you what they want if you ask, and will respond positively if you provide them with solutions to what they asked for.

Two well known Marketing Consultants, Fred Wiersema and Michael Tracy, have written a book on Value Leadership called The Discipline Of Market Leaders. In this book they define three valid Value Propositions, they are:

· Best Total Product

· Best Total Experience

· Best Total Cost

I’ll briefly explain each:

Best Total Product:

A company sets out to develop a “best in class” product as defined by the customer or target audience. The company does not bring the product to market until the customer validates their product as best in class. These companies often invest heavily in Research and Development. Examples of Companies who have successfully executed this strategy are Apple, Sony Television, Lexus and Microsoft. Small businesses can execute this strategy by focusing on making one signature product be best in class to their target audience. This is the most difficult business model to build, but very ownable and resonates very well with the target audience.

Best Total Experience:

This business sets out to deliver a “best in class” experience. To do this, a company needs to establish the current level of service and experience of the competition. They also need to understand what the customer expectations are. How? By asking the customer. They then build a business model to exceed customer expectations. Not in thought, but in deed. Small business can usually outperform much bigger businesses in the area of service. All this takes is effort and commitment by the business owner.

Best Total Cost:

This model is built to deliver very competitive pricing to the customer. This pricing is available everyday and all day. There is no need to discount because you deliver value every day. This model is built on very special relationships with vendors and suppliers. Examples are Target, WalMart and Costco. This is a very doable model for small business with proper planning. This has to do with careful planning of costs and understanding the relationship between product turn and margin.

The upshot of the value discussion is this: Every business needs to develop a strong value proposition that resonates well with the customer. Why? Because customers choose products and services that deliver value. We know there are different ways to deliver value, we also know that all businesses of all sizes need to have a strong value offering to sustain and grow. Value that is meaningful also provides you with a reason to be. What is your Value Proposition?