Customer Value propositions (1) MBA: Lecture 4 Marketing Management

Customer Value propositions (1)
MBA: Lecture 4
Marketing Management
Value Proposition
Strategy is based on a differentiated customer
value proposition. Satisfying customers is the
source of sustainable value creation. Strategy
requires a clear articulation of targeted customer
segments and the value proposition required to
please them. Clarity of this value proposition is
the single most important dimension of strategy.
(Strategy Maps, Robert S. Kaplan and David
P. Norton, HBS Press, 2004)
What is a Value Proposition
A clear, compelling and credible expression of
the experience that a customer will receive
from a supplier’s measurably value-creating
offering. (Barnes, Blake and Pinder, 2009, p.22).
What is a Value Proposition?
• Therefore a value proposition is:
– about customers but for your organization;
– not addressed to customers but must drive these
communications;
– articulates the essence of a business, defining
exactly what the organization fully intends to
make happen in the customer’s life
Customer Value Proposition
Inputs
Customer
experience
Output and
outcomes
Offerings
New and retained
customers
Benefits
Profitable growth
Cost and Risk
Enhanced offerings
Price
Corporate through
to sales messaging
Alternatives
Source: Barnes, Blake and Pinder, (2009)
Value proposition in different Markets
• Value propositions for business-to-business (B2B)
situations can be different as ‘customers in
business markets predominantly focus on
functionality or performance, whereas customers
in consumer markets predominantly focus on
aesthetics and taste’ (Treacy and Wiersema,
1995).
• For a B2B enterprise, selling without value
propositions must lead, sooner or later, to value
dissipation and commoditization on the basis of
that lowest common denominator, price.
Case Study: 2008/2009 financial crisis
• Financial services organizations caused pain
for their customers to such an extent that it
recoiled back on them, putting the entire
financial system in jeopardy.
A very, very, very bad value
proposition
Benefit: A Home
Sacrifices/costs:
An expensive Mortgage,
The risk that loan may increasingly
exceeded the assets value,
Worry, inability to pay,
The risk (reality) that wholesale
failure of these deals, could ultimately
threaten global financial stability
Source: Barnes, Blake and Pinder, (2009, p.26)
Value proposition concept (1)
• The articulation of the measurable value of
the experience that an organization or
individual will get from an Offering,
• Where:
Value = Benefits minus Cost
Source: Barnes, Blake and Pinder, (2009, p.28)
Customer Value Propositions (2)
Source: Kerper (n.d., p.4)
Customer Value Propositions (3)
Customer Value Propositions (4)
Source: Kerper (n.d., p.5)
Customer Value Propositions (5)
Source: Kerper (n.d., p.6)
Customer Value Proposition (6)
Product
Describe your
product/service
concept and how it
solves the customer
problem
Price
Describe your
price/performance
position on
customer value map
Customer Value
propositions
Describe your
perceived
cost/performance
(benefits) over
competitions
Placement/Target
market
Describe the target
customer group and
estimate the market
unit volume
Promotion
Describe your plan
for communicating
the value
proposition for this
idea to customer
Customer Value Proposition (7)
Value Proposition: Example of IBM
Source: Kerper (n.d., p.15)
Elements of Value Proposition
• Capability – what you can do for a customer.
• Impact – how that will help the customer to
succeed.
• Cost – what the customer must pay for the
privilege.
Source: Barnes, Blake and Pinder, (2009, p.28)
Amazon value proposition (1)
• Amazon’s value proposition is based on low cost prices for a high
selection of books ordered through an anytime, anywhere
extremely convenient mechanism.
• To achieve this, they designed a unique organizational system
relying on an entirely automated order management system, tightly
linked to their suppliers and payment networks, allowing them to
minimize human intervention, therefore reducing costs.
• Special deals with their partners (suppliers) allow them to maintain
very little physical inventory.
• They also use unique roles to create a sense of community among
book readers, who collaborate to serve as reviewers or
salespersons (through the Associates program).
• Technology is used both in the back-office as well as in the
interaction with the customer (World- Wide-Web for product
information and ordering, electronic mail for customer service).
Source: Kambil et al (1996, p.29)
Ikeas Value Proposition (2)
• IKEA’s value proposition emphasizes high-quality furniture
at rock-bottom prices.
• In order to achieve that feat, the company has created a
process to look for very low-cost suppliers in remote areas
of the world (usually developing countries).
• IKEA then sends in training and quality-control teams to
insure that the quality of the production will satisfy its
standards.
• The production of its different suppliers is then coordinated
through a global logistics system and a network of
warehouses, which insures that the different components
of a piece of furniture reach the warehouse in time for
assembly and the shops in time to restock shelves
Source: Kambil et al (1996, p.30)
Dell’s value proposition (3)
• Dell’s value proposition relies on state-of-the
art technology, delivered at low price through
a convenient ordering process, and offering
top-notch remote support.
• In order to deliver such a value proposition
with profit, Dell designed a unique value
architecture based on direct marketing,
extensive use of call centers and magazine
advertising.
Source: Kambil et al (1996, p.30)
Value Proposition Builder
1. Markets
The specific group of
customers you are
targeting
6. Proof
2. Value experience
Substantiated credibility
and believability of your
offerings
How you are different
from and better than
alternatives
5. Alternatives and
Differentiations
Value
propositions
3. Offerings
How you are different
from and better than
alternatives
The product/service mix
that you are selling
4. Benefits
How your offering
delivers clear customer
value
Source: Barnes, Blake and Pinder, (2009,)
Business to Business: Value
Proposition (1)
• Anderson et al (1996)- comes out with three
value propositions
– all benefits,
– favorable points of difference,
– and resonating focus.
Business to Business: Value
Proposition (2)- All Benefits
• List all the benefits they believe that their offering
might deliver to target customers.
• This approach requires the least knowledge about
customers and competitors and, thus, the least amount
of work to construct
• Limitation: Managers may claim advantages for
features that actually provide no benefit to target
customers.
– Another pitfall is that all benefits value proposition is that
many, even most, of the benefits may be points of parity
with those of the next best alternative, diluting the effect
of the few genuine points of difference.
Business to Business: Value Proposition
(3)-Favorable points of differences
• Explicitly recognizes that the customer has an
alternative.
• Knowing that an element of an offering is a point
of difference relative to the next best alternative
does not, however, convey the value of this
difference to target customers.
• Without a detailed understanding of the
customer’s requirements and preferences, and
what it is worth to fulfill them, suppliers may
stress points of difference that deliver relatively
little value to the target customer.
Business to Business: Value
Proposition (3)- Resonating focus
• This approach acknowledges that the
managers who make purchase decisions have
major, ever-increasing levels of responsibility
and often are pressed for time
• Suppliers can provide such a customer value
proposition by making their offerings superior
on the few elements that matter most to
target customers
Which Alternative conveys values to
customer?
Source: Anderson et al (2006, p.93)
Alternative methods to identify value
proposition
• Payne (n.d). –three elements of value
propositions
• Kambil et al (1996)-Dimensions of value
proposition
Three key elements of value
proposition (Payne, n.d)
• Analysing Market based value
• Assessing the opportunities in each segment
to deliver superior value
• Explicitly choosing the value proposition
Analysing markets based on value
Source: Payne (n.d, p.4)
Assessing opportunities in each
segment to deliver superior value
• All markets are made up of market segments,
or groups of customers with the same or
similar needs.
• Even where the offer made to customers is
technically identical to competitors offers,
efforts to differentiate the total or package
offer in terms of customer segment as well as
market segment can reap significant rewards.
Explicitly choosing the value
proposition
• Having identified the target market segments,
the next priority is to create a value
proposition of winning relevance.
• The characteristics of the segments that form
some markets may vary so radically that
different value propositions will be required
for different segments
A checklist to review your value
proposition
Source: Payne (n.d, p.4)
Dimensions of Value Proposition
(Kambil et al, 1996)
Source: Kambil et al (1996, p.13)
Product Performance
Source: Kambil et al (1996, p.12)
Product Cost
Source: Kambil et al (1996, p.15)
Customer Role
• the buyer role defines how a customer determines needs,
assesses suppliers, orders, and pays for and takes delivery
of a product or service
• the user role describes how the end user derives the
expected performance from a product or service to satisfy a
specific set of needs
• the co-creator role refers to how customers cooperate with
their suppliers to produce the expected value, often passing
it to another customer
• the transferer role defines how customers dispose of a
product. For example, a physical product can be discarded,
recycled, or resold, while information know-how can be
stored, transferred to others, or resold.
Source: Kambil et al (1996, p.16)
Customer Role: Examples
Dell
• Dell Computer understood before everyone else
that computers were quickly becoming
commodities and should therefore be treated as
such.
• By focusing on streamlining the acquisition
process for its customers through standardized
components, direct sales, phone-based ordering
and support, the company has redefined the
standard within its industry. (Buyer role)
Customer Role: Examples (2)
Airbus
• When Airbus, the European airspace consortium,
launched the A320 family of aircraft, it created a family
of airplanes (A319, A320 and A32I) sharing most
characteristics, and differing only in size.
• By using the same inside equipment, pilot instruments,
maintenance procedures, etc., Airbus makes it easier
for companies to schedule the use of these airplanes.
• Substituting a larger airplane on a temporarily crowded
route doesn't require a change in pilots, flight crew,
food carts or any other equipment.
• Airbus customers can therefore generate much more
value out of the use of their aircraft.(User role)
Customer Role: Examples (3)
IKEA
• IKEA, the Swedish furniture giant, is well known
for partnering with its customers to co-create
value.
• if customers play the role IKEA assigns to them
(drive out of town, shop alone, transport their
furniture home and assemble it), then IKEA will
provide them with one-stop shopping for quality
furniture at excellent prices, while making their
shopping experience fun and rewarding. (cocreator role)
Customer Role: Examples (4)
McDonald
• McDonald's has established a system where
everyone buses their own tray before leaving.
In the these cases, the supplier focuses on
adding the maximum value in its core
specialty and "outsources“ the rest of the
work to the customer or a complementor. (Cocreator role)
Customer Role: Examples (5)
Leasing Companies
• Leasing companies have understood that
customers were sometimes not interested in
dealing with their cars after a few years. Rather
than having to bother with reselling them and
buying a new one, it is easier to outsource these
chores to a leasing company.
• The leasing company acquires the car, provides
basic maintenance and simplifies its transfer
(disposal) after its useful life. (Transferer role)
Progressive Insurance Value
Proposition (1)
Source: Kambil et al (1996, p.21)
Amazon’s Value Propositions (2)
Source: Kambil et al (1996, p.21)
EVALUATING Value Propositions (1)
Evaluating value proposition (2)
Lawton (n.d)
Evaluating Value proposition (3):
Ryanair's value proposition
Lawton (n.d)
Evaluating Value proposition (4):
Ryanair's value proposition Statement
Lawton (n.d)
Evaluating Value proposition (5):
Emirates value proposition
Lawton (n.d)
Evaluating Value proposition (6):
Emirates value proposition Statement
Lawton (n.d)
Any Questions?