Market Opportunity Chapter Six: Defining A Value Proposition

by Business Management Series on August 19, 2011 · 0 comments

in Business,Business Management Series,Management

A value proposition is simply a document or statement that clearly defines why your company is unique and how it provides value to customers.

Unlike a positioning statement, (which admittedly is similar) your value proposition provides more detail as to how you are different than other competitors and why customers should choose to work with your company.

A good place to start when staring to define your value proposition is to list your company’s products and services offering. For each product or service that you offer, ask the following questions:

How is your company better at delivering that product, service or solution than your competition?

What additional value-add does your company bring when delivering this product or solution? (Good examples might be expertise, faster install, unique solution configuration, higher degree of customer service, a higher degree of supportability, etc…)

How are your product and services solutions ten times better than those provided by your competition?

Do you have a documented solution framework for these products or services?

If so, how has your unique solution approach helped other clients?

By looking at these questions in conjunction with your documented products and services that you will offer to your customers, you should be able to document how your company is different (and better) than other competitors in the marketplace.

Okay, let’s take a break from value proposition and move into competition for a minute. Knowing your competition (as mentioned earlier) is an important element of determining your market analysis.

Let’s closely define what is and is not your direct competition

Entrepreneurs sometimes misinterpret who is considered their direct competition. In the case of Profit Corp, is Best Buy’s Geek Squad their direct competition? Is it more likely that Profit Corp’s direct competition comes from the other IT resellers in Miami that have a core focus in the SMB marketplace?    It becomes easy to consider a large company that provides similar products and services and to overlook the smaller, more direct competitors to your business.
When examining your competition and using that competition for a benchmark for your own value proposition, consider some of the following criteria:

  • True competitors offer the same products and services as your company to the same marketplace you are trying to service.
  • True competitors have a similar or comparable business model to the one you have developed for your company.

In the case of Profit Corp, Best Buy’s Geek Squad is not a good example of a competitor against whom to benchmark their value proposition. Yes, Geek Squad does provide some of the same services and products, but their business model has a defined retail focus. Their IT support services offering is very limited and mostly targeted at the home computing market. A much better comparison would be the IT solution provider down the street that develops complete IT and networking solutions targeted at the small / medium business.

One surefire way to determine if a company is a direct competitor of yours is to apply this simple test: Are you likely to ever consistently find yourself competing with a company for business, or has your company ever been evaluated against this company by your customers?

When developing your value proposition and determining how your company is different or better than this competition, it is important to make sure that you are measuring your value proposition against the right competitors.

Now for the practical application of a good value proposition: winning a price war. Interestingly enough, the best way to win a price war is to not be a part of it. The goal is to fly above the pricing question and win business simply because you are the best in your industry. Okay, I admit that “being the best” might sound a bit idealistic. Let’s break the price war down to its most basic components. When looking at a price war, it is very important to note that almost every decision maker in business has recognized that price is NOT the most important factor when selecting a technology solution provider partner or vendor.

I will say it again, price is not the most important factor when selecting a company to develop and implement an IT or telecommunications solution for their business. Factors such as the core principles of the solution provider, their expertise / experience, the ability to adequately support their business, the total cost of ownership of their recommended solution and their knowledge or ability to understand their business, all rate significantly higher than price. The simple reason that price wars exist is because a consumer can not differentiate one company from another and the only comparison left is price.

Think about your own purchasing decisions. Do you focus on who is the cheapest or do you consider other factors when looking to purchase things for your business?

Let’s look at an example of buying a car. When looking to purchase a car and deciding which car manufacturer to select, do you only look at price or do you consider other things like resale value, handling, exterior and interior design, performance and/or reputation? When you selected which manufacturer and make of car that you want and you go to the car dealership, what do you most closely examine? More often than not, the answer is price. The reason that price is a factor when purchasing from the dealership and not when selecting which type of car you will drive is differentiation. The difference between makes and models are very clear and easy to see; whereas, the difference between two car dealerships selling the exact same car is not as overt.

This is just a simple example. I am not saying that every car dealership is the same and that some have not done a good job differentiating themselves from their competition. The simple point is that when there is not a clear picture of how you are different from other companies competing for the same business; price becomes a major factor.

Now back to idea of being “best of breed” in your industry: If you can demonstrate that your company is different (better) than the competition in terms of support, expertise, experience, solution development, customer service, etc… then price will (in most cases) not be the deciding factor.

Just to clarify this point, we are not saying that price is not a factor at all, but rather that it is not the most important factor. If you are looking to provide a service or product solution to a prospective customer, you must be sensitive to both their needs and their budget. You can have the best solution in the world, but if it is not within the prospective customer’s budget, you will most likely not win the business.

By developing a strong value proposition that makes you stand out from your competition, you can work to gain more business without making pricing concessions that will hurt your business. As the great Peter Drucker once said, “Never try to buy your customers with price.”

One final comment on developing a value proposition: When writing down your value proposition to prospective clients, revisit your market viability matrix. Remember that your value proposition must include the folioing components:

  • customer payback
  • positive effect on the marketplace
  • the value added elements to your products and services

Write down or document your company’s unique value proposition.
Make sure that your value proposition is in alignment with your company’s positioning statement, your company’s meaning, and your company’s mantra.

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Looking for ways to get ahead in today’s competitive marketplace? This Business Management series provides resellers with basic strategies, skills, and tools you can use to better manage and grow your business.

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