Customer Value Propositions and Differentiated Value

C O N S U L T I N G

A L i m i t e d L i a b i l i t y C o m p a n y

ParCon Consulting, LLC Creating a Differentiated Value Proposition

A ParCon Consulting Training Module with Reference Notes

Discipline: Strategic Planning

June 10, 2014

Revision (1.5 wide) – Slideshare Public Release

© Copyright ParCon Consulting, LLC 2

SECTION ONE

Introduction to Creating Differentiated Value

Clarity for a complex but important topic

© Copyright ParCon Consulting, LLC 3 A ParCon Learning Module

DEVELOPED FOR : Introduction to Creating Differentiated Value Customer value and its role in strategy development

While people understand the meaning of a “price” for

an offering, defining “value” can prove to be a little

more challenging and subjective.

We like to think of value as simply the greatest amount

of money your targeted customers would pay for your

offering.

The strength (or differentiation) of your customer

value proposition (CVP) is a function of the value you

deliver to your customer minus the price they actually

pay – or the surplus value received (or perceived).

Creating differentiated & sustainable client value lies at the core of any successful strategy

Clients rarely buy if your cost exceeds the perceived value

Conversely, if perceived value exceeds your price, clients usually will buy & growth occurs

It’s easy to see that companies have two options to improve their value proposition; increase perceived value or lower price

Value is the subjective wildcard and is impacted by customer perceptions, competitive options and a myriad of other factors

It should also be clear that CVP’s require context (specific offering, price, customer, competitor) to make any sense

Value I perceive from your offering

The total “price” I

actually pay

Customer Value

Proposition - =

Simplified Value Equation

Clients Want to Understand …

What are you offering and what is the benefit to me? 1

What are my alternatives and why is your offering superior? 2


DEVELOPED FOR : Introduction to Creating Differentiated Value Value propositions form a critical link between you & your clients

Understand that “value received” is ultimately about client perception

Do not make the mistake of confusing your value proposition with what you sell

It is about what the client receives and perceives

Value propositions are not “eternal.” Changes occur as clients evolve, competitors act in the market and new offerings become available

Market focused companies are in constant touch with their clients and competitors – aware of important shifts in the market or driving them where possible

Your value proposition(s) is inexorably linked to your company thru the competencies and capabilities you sustain

The CVP acts as a lens that captures

and focuses the unique value you

provide in a clear, concise way

customers understand & respond to.

Can differ from how

clients see us

Client Perception

How we tend to view

what we do …

Heritage, Reputation & Culture

Unique Expertise, Resources & Process

Operating Units

Services and Solutions

Your Company’s

Value Creation Tree


DEVELOPED FOR : Introduction to Creating Differentiated Value What is a client value proposition?

A concise summation of the unique appeal of a product, service, or solution to a

targeted set of clients or decision makers. Ideally, it differentiates the company

from its competition by clarifying the sum total of important benefits that clients

care about and how it will deliver them. Value propositions are integral for any market driven strategy because they force you to focus on existing and future clients

The “strength” of your value proposition(s) directly impacts your ability to organically grow in strategic markets

While a Client Value Proposition is a “statement” it has broad implications in terms of

• client selection

• offering development

• investments in capabilities

• strategic priorities

How we identify

opportunities and

articulate our value

Our Markets

Customer needs,

challenges and pain

points

Visualizing Your Value Proposition

<< The Connection >> Our Business

Our company’s unique

capabilities &

competencies

Value propositions form a critical link between your clients and your capabilities

Unique Offerings “Strategic” Clients


DEVELOPED FOR : Introduction to Creating Differentiated Value A compelling value proposition….

forces clarity around the specific combination of; needs, wants, desires and values that uniquely characterize your highly desirable clients,

provides the foundation for creating a compelling and differentiated offering that sets you apart from competitors in the eyes of your client,

allows you to tailor your services and offerings to key client needs; driving enhanced value creation, increased profit, and higher client satisfaction,

improves operational efficiencies by helping you focus on the most important clients and the capabilities and processes that directly create value they want,

can help you realize rapid gains in market share for strategic client segments by driving enhanced messaging and focus of marketing and sales efforts,

Good strategies focus on what your value proposition is & what you expect it to become

Indicators that your value proposition might need work…

An inability to drive organic growth at or above market levels of performance

An ad hoc approach to the selection of clients and/or projects

The inability to articulate who your best clients are and why

A lack of awareness of competitors and competitive positioning

Lack of understanding of why & how clients make buying decisions

Inability to succinctly & powerfully articulate your unique value

The increasing commoditization of services or offerings (“me too” tends to degenerate into price wars)

“The aim of marketing is to

know and understand the

customer so well that the

product or service fits him or

her and sells itself.”

Peter Drucker

“The purpose of business is

to create a customer.”


DEVELOPED FOR : Introduction to Creating Differentiated Value The mechanisms of a value proposition in action

Companies that demonstrate an ability to grow share in key markets organically have a powerful, clear and compelling value proposition

It can be clearly articulated in terms that their most important customers understand and respond to

It can be deconstructed into tangible building blocks which can be evaluated, measured and acted on by the company

It is supported by an operating model designed to drive investment and focus to internal capabilities that create long-term customer value

In our experience, companies that sustain profitable growth in their markets create a seamless link from a superior client value proposition to the internal capabilities that support and sustain it

Client Value Proposition Building Blocks of Value Internal Operating Models

External / Customer Focused Client / Company Interaction Internal / Operationally Focused

Operations

Offerings

Clients

We consistently see six “customer value models” that successful companies choose to differentiate themselves in the eyes of their customers.

Companies create competitive differentiation using eleven “value elements” that encompass their; offerings, customer experience & cost.

Companies deliver & sustain differentiated value leveraging an operating model designed to excel at consistently delivering the value elements.

The unique value I receive when I

select your firm over other

alternatives in the market …

The unique combination of value

adding elements a firm excels at to

create a perception of differentiation…

The capabilities & competencies

critical to consistently delivering

superior performance in key elements


DEVELOPED FOR : Introduction to Creating Differentiated Value Winning “models” that create unique customer value

Company performance is closely linked to the clarity and differentiation of a client value proposition

Each “model” implies different strengths and different clients who value those strengths – it implies a strategic choice

In dynamic industries, you’ll often see different competitors successfully operating across all six models

The more closely aligned a company is with a successful model, the higher their relative performance tends to be

Which “flavor” of customer value proposition best fits your organization? Discuss and identify where you are and how that compares to your key competitors?

We Make it Easier

Low prices across the broadest

product selection through an

extremely convenient ordering

mechanism.

“Amazon.com and your done”

McDonalds E-Bay

Our Value is Exceptional

Southwest Airlines provides its

passengers with a “fun” travel

experience combined with the

fastest door-to-door travel times and

lowest prices

FedEx

Our Product is Unique

Coca-cola is a unique product with it’s

formula a closely guarded secret. This

secret formula combined with exclusive

use of the coca-cola brand name means

that nobody can ever produce a coca-cola

product, merely imitations of it. Thus,

Coca-cola is a completely unique product.

Our Price is the Lowest

Everyday low prices.

We Own the Problem

IBM positions ourselves as trusted

experts in technology who will work

collaboratively with you. Essentially, your

problem becomes our problem, and your

success is our success. It’s this

trustworthiness which leads to the adage,

“no one ever got fired for buying IBM”.

Your Accountant

Dell Computer

Apple Computer BMW

Toyota

Note: This is a widely accepted model applicable across all industries and is not engineering services specific.

team discussion

Hyundai Cars

ADP

Our Experience is Special

To create an “experience” around

the consumption of coffee, an

experience that people would

weave into their lives

Disney World Fine Dining


DEVELOPED FOR : Introduction to Creating Differentiated Value The building blocks of differentiated client value

While companies & clients form complex relationships, most CVPs can be described using elements from these three building blocks

Too often, we see value propositions created by business leaders in a vacuum. To be meaningful, they need to be carefully framed by:

What your offering to the client (products, services, solutions);

Precisely who the target customer is (not all act alike or value the same things) and finally;

Who or what is your target customer’s next best alternative to your offering (your competitor)

A Closer Look at the Three Pillars of Customer Value

TANGIBLE OFFERINGS “Unique services, offerings or solutions of interest to target

customers because they meet a need or fulfill a desire”

ECONOMIC VALUE “The costs & benefits associated with

your offering including; cost to acquire, cost to own, impact on revenues, costs,

risks, or other tangible benefits.”

CUSTOMER EXPERIENCE “The overall experience clients expect or enjoy based on; service, trust, ease,

reputation, brand, or community.”

Try and succinctly describe your customer value proposition today. Can you do it? Is it succinct, clear and compelling? What does this tell you about your current level of maturity with respect to CVP’s?

Tangible Offerings 1. Expertise 2. Quality 3. Depth & breadth 4. Functionality

Customer Experience 5. Service 6. Partnership 7. Brand 8. Reputation

Economic Value 9. Initial price 10. Total cost to own 11. Value of time saving

Business leaders leverage eleven

elements that can be used to create

the perception of differentiated value

team discussion

Three Pillars of Customer Value


DEVELOPED FOR : Introduction to Creating Differentiated Value Value elements help leaders create competitive differentiation

Tangible Offerings Unique services, offerings or solutions of interest to target customers because they meet a need or fulfill a desire

Expertise Quality Depth/Breadth Function

The unique knowledge, experience, intellectual property and capability brought to the customer

The level & consistency of quality and / or certainty of delivery a client expects from you in a transaction

The depth products or resources available to the client and breadth or range of coverage you provide.

The performance of your offering in terms of fullness of features, function or elegance of design.

Client Experiences The overall experience clients expect or enjoy based on; service, trust, ease, reputation, brand, or community

Reputation Brand Service Partnership

Personal perception of your firm by customers; typically based on 1st or 2nd hand experiences

The public persona of your firm in the general market based on advertising, PR, communication, etc.

Perception of the level of customer service provided during transactions or interactions

Perception of the level of partnership (peer 2 peer) that exists in the overarching relationship

Economic Value The economic value (cost, benefit) associated with your offering including; cost to acquire, life-time cost to own, impacts on revenues, costs, risks, or tangible benefits.

Initial Price Total Cost Value of Time

Perception about the initial cost to acquire goods and services by the client compared to other options

The perception of the total costs & benefits derived from doing business with your firm (vs. others)

Perceptions related to the relative impact on a client’s time doing business with your firm (vs. others)

ParCon focuses on eleven elements in our strategic planning process to help leaders define their CVP

Differentiation in Action (Example: Competing on Superior Quality )

How is “quality” actually experienced

or evaluated by your key clients and

how are you really performing?

What areas do you feel your clients would identify as areas where you stand above your competitors? Identify and discuss where you are consistently able to deliver exceptional customer value.

Saying you’re unique to the market is relatively easy – creating and sustaining the differentiation is not!!

It is your choice about where to focus and how to differentiate that creates your unique CVP

Deciding on a unique and compelling combination of factors demands a deep understanding of current & future clients and competitors

team discussion

Make sure that quality is a “critical”

factor in how major clients choose a

provider or assess performance

How good must you be before clients

perceive a difference that impacts their

actions? Can you measure results?

1

2

3 Negative Differentiation

Positive Differentiation

Client Indifference Average

Current

Target


DEVELOPED FOR : Introduction to Creating Differentiated Value Different value propositions demand different operating models

Value propositions flow from and are linked to a company’s operating model that supports their execution

A critical mistake in strategy is to developing a CVP that is not well aligned with your operating model or vice versa

Companies often struggle to become exceptional in even a single operational area

It’s easy to understand the challenges of trying to support widely different value props within one company

OPERATIONAL EXCELLENCE

“best total cost”

CUSTOMER INTIMACY

“best total solution”

PRODUCT LEADERSHIP

“best product, service”

Responsive to customers

Operational competence

Product differentiation

MINIMUM LEVEL OF COMPETENCY TO

COMPETE

Threshold vs. Market Leadership in Customer Value

Treacy & Wiersema, 1995

Operating Models, Elements of Differentiation & the Capabilities that Support them

What operating model best describes the kind of company we are today? Can you identify yourself aligned with one of the three models? How does it fit with your choice of the value proposition of choice?

team discussion

Operational Focus for Your Organization

PRODUCT LEADERSHIP

EXPERTISE Talent, expertise, knowledge mgt. Service & solution delivery

QUALITY Customer care Total quality systems Delivery systems

DEPTH & BREADTH

Range of offerings available Depth of coverage or resources Geographic coverage

FUNCTION Features, functions and benefits R&D and innovation capabilities

CUSTOMER INTIMACY

REPUTATION & BRAND

Branding, marketing, public relations Client management, market intelligence Work portfolio, client satisfaction

SERVICE & PARTNERSHIP

Client service, flexibility, empowerment Customer intimacy, trusted advisors

OPERATIONAL EXCELLENCE

TOTAL COSTS (MONEY & TIME)

Low internal operating costs High customer ROI Easy customer interface

LOW PRICE Low manufacturing or production costs Highly efficient operational processes

Elements Capabilities & Competencies


DEVELOPED FOR : Introduction to Creating Differentiated Value Making it real by operationalizing your value proposition

A compelling strategy and differentiated value proposition form a critical link to sustainable success

A value proposition alone is of limited value until it is translated into internal & external actions

Understanding & consistently investing in the capabilities that drive differentiated value is how market leaders stay on top

Understanding strategic customers and competitors requires research – basing a CVP on notional insights or vague ideas can be dangerous

Working Outside: Bringing Your CVP to the Market

Understand Strategic Customers & Competitors: Identifying your strategic customers & markets as well as your major competitors is an important first step in developing a well-founded customer value proposition.

Clarify the Customer Value Proposition: Develop a succinct, supportable and powerful statement the clarifies what your firms’ differentiated value proposition is and what it means for your clients.

Communicate to the Market: Consistently communicate the distinct competitive advantages and unique value of your firm’s offering to current & potential customers in an impactful way

Clients & Markets

Working Inside: Deliver, Sustain and Enhance Value

Identify Operational Elements that Drive Value: Before you can take action to sustain or enhance the value you create, it’s critical to identify major internal activities (processes, knowledge, resources) that drive it.

Linking Value Delivery with Competencies: A sustainable value proposition ultimately flows from your unique capabilities and core competencies so insure you understand them and invest consistently over time.

Innovating and Changing the Game: Experimenting with new and innovative ways to create value for clients is one of the most powerful ways to change the competitive landscape in your favor.

Capabilities & Competencies


DEVELOPED FOR : Introduction to Creating Differentiated Value Frequently asked questions

Why should I invest time in developing or refining my customer value proposition? The answer depends on how good your existing value proposition is because you’ve got one in the eyes of your customers whether you know it or not. A good CVP provides your business with a solid foundation for creating a compelling and differentiated offering that sets you apart from competitors. In many cases, a refinement or improvement can help your business realize gains in market share for important market segments by allowing you to focus your marketing and sales efforts.

How does a customer value proposition change the results in my business? Isn’t this just a “statement”? You’re right, a customer value proposition in and of itself will not change business results until it is “operationalized”. Doing this requires that you customize your services and offerings to drive enhanced value for client. The pay-back comes in increased profit, higher customer satisfaction, faster growth and improved efficiencies due to your ability to focus on important customers and key deliverables.

Do companies have only one value proposition? It depends on the company. Many companies have limited products targeted at a single set of customers – these typically have one value proposition. Larger or more complex firms typically have more than one value proposition because they address more than one customer segment, have different competitors or offer a broader array of products and services.

What is the relationship between a value proposition and a core competency? We view these as closely linked. Competencies (and underlying capabilities) are internal elements of that drive a firm’s competitive advantage while the value proposition is an externally focused positioning based on the unique needs of an identified market segment.

Do you need to understand your core competencies to create a good value proposition? In an ideal world, a company would understand both their core competencies and their customers very well. This allows the firm to link its unique competitive advantage with the value it expects to deliver to its chosen customers. In the real world, it is more important to start with your customers and work backwards to your firm’s unique capabilities. Core competencies will emerge based on what clients reward.

How long does a value proposition last? The longevity of a value proposition depends on both your customers and industry and your firm. Significant changes in either can make a value proposition obsolete very quickly. Stability can mean that your value proposition can last many years or decades. The danger comes when you miss key changes that signal that it’s time for a major overhaul of your value proposition. Buggy whips anyone?

There are major variations in what people think a value proposition is and confusion abounds

A value proposition is not…

A clever slogan, tag line or brand

A mission statement or vision

An offering or price

A list of features or benefits

A generalized statement that could apply to any competitor

A position that doesn’t differentiate you in the eyes of important clients

An unsupportable dream lacking substance & support of the firm

A goal without a strategy to achieve

Is there value in further work focused on customer value propositions? Discuss whether further work on refining your CVP makes sense in light of what you’ve learned.

team discussion


DEVELOPED FOR : About ParCon Consulting A strategy practice tailored to today’s realities

If you felt this information was valuable or you’d like to know more about how ParCon can help, you contact us at:

ParCon Consulting, LLC

1045 Bay Pointe Crossing

Alpharetta, GA 30005

Matthew Gill, Managing Partner

770.740.9621

[email protected]

www.parconsult.com

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Customer Value Propositions and Differentiated Value

Leadership & Management

Transcript of Customer Value Propositions and Differentiated Value