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Learning Goal: Determine the value proposition for your startup.
Learning Goal: Determine the value proposition for your startup.
Defined: It seeks to solve customer problems and satisfy customer needs with value propositions.
Introduction
Introduction
The Value Proposition is the reason why customers turn to one company over another. It solves a customer problem or satisfies a customer need. Each Value Proposition consists of a selected bundle of products and/or services that caters to the requirements of a specific Customer Segment. In this sense, the Value Proposition is an aggregation, or bundle, of benefits that a company offers customers.
What value do we deliver to the customer?
Which one of our customer's pains are we helping to solve?
Which customer gains are we satisfying?
What bundles of products and services are we offering to each Customer Segment?
You may have a lot of answer the the questions above. Rank them and you’ll probably want to remove all but your perceived top-3 .
What things do you do that actually cause a customer to pick you over a competitor or alternative?
For example, at Leonid, the enterprise software, they thought the largest customers did business with them because of the cost savings offered and their knowledge about best practices. It turned out that was mostly wrong- reducing customers time and risk to get new services to market was the most important. It’s not that the other things weren’t important, but they weren’t the key Value Proposition. That made a difference on how Leonid sold the product and how we focused on operationalizing it for customers.
Product/Market Fit
Product/Market Fit
If you're familiar with the Lean Startup you know that the Business Model Canvas is the tool to frame all the hypotheses of your startup. Of all the 9 boxes of the canvas, the two most important parts of the business model are the relationship between the Value Proposition (what you’re building) and the Customer Segment. These two components of the business model are so important we give them their own name, "Product/Market Fit."
The Value Proposition Canvas functions like a plug-in to the Business Model Canvas and zooms into the value proposition and customer segment to describe the interactions between customers and product more explicitly and in more detail. This keeps things simple by giving you the big picture at the business model level and the detailed picture at the "product/market fit" level.
Achieving Product/Market Fit
Achieving Product/Market Fit
The goal of the Value Proposition Canvas is to assist you in designing great Value Propositions that match your Customer's needs and jobs-to-be-done and helps them solve their problems.
Customer Jobs
First let us look at customers more closely by sketching out a customer profile. I want you to look at three things. Start by describing what the customers you are targeting are trying to get done. It could be the tasks they are trying to perform and complete, the problems they are trying to solve, or the needs they are trying to satisfy.
What functional jobs is your customer trying get done? (e.g. perform or complete a specific task, solve a specific problem, ...)
What social jobs is your customer trying to get done? (e.g. trying to look good, gain power or status, ...)
What emotional jobs is your customer trying get done? (e.g. esthetics, feel good, security, ...)
What basic needs is your customer trying to satisfy? (e.g. communication, ...)
Customer Pains
Now describe negative emotions, undesired costs and situations, and risks that your customer experiences or could experience before, during, and after getting the job done.
What does your customer find too costly? (e.g. takes a lot of time, costs too much money, requires substantial efforts, ...)
What makes your customer feel bad?(e.g. frustrations, annoyances, things that give them a headache, ...)
How are current solutions underperforming for your customer? (e.g. lack of features, performance, malfunctioning, ...)
What are the main difficulties your customer encounters? (e.g. understanding how things work, difficulties getting things done, resistance, ...)
What negative social consequences does your customer encounter or fear? (e.g. loss of face, power, trust, or status, ...)
What risks does your customer fear? (e.g. financial, social, technical risks, or what could go awfully wrong, ...)
What’s keeping your customer awake at night? (e.g. big issues, concerns, worries, ...)
What common mistakes does your customer make? (e.g. usage mistakes, ...)
What barriers are keeping your customer from adopting solutions? (e.g. upfront investment costs, learning curve, resistance to change, ...)
Customer Gains
Now describe the benefits your customer expects, desires or would be surprised by. This includes functional utility, social gains, positive emotions, and cost savings.
Which savings would make your customer happy? (e.g. in terms of time, money and effort, ...)
What outcomes does your customer expect and what would go beyond his/her expectations? (e.g. quality level, more of something, less of something, ...)
How do current solutions delight your customer? (e.g. specific features, performance, quality, ...)
What would make your customer’s job or life easier? (e.g. flatter learning curve, more services, lower cost of ownership, ...)
What positive social consequences does your customer desire? (e.g. makes them look good, increase in power, status, ...)
What are customers looking for? (e.g. good design, guarantees, specific or more features, ...)
What do customers dream about? (e.g. big achievements, big reliefs, ...)
How does your customer measure success and failure? (e.g. performance, cost, ...)
What would increase the likelihood of adopting a solution? (e.g. lower cost, less investments, lower risk, better quality, performance, design, ...)
Products & Services
Now that you sketched out a profile of your Customer, let's tackle the Value Proposition. Again, I want you to look at three things. First, list all the products and services your value proposition is built around.
which products and services you offer that help your customer get either a functional, social, or emotional job done, or help him/her satisfy basic needs?
Products and services may either by tangible (e.g. manufactured goods, face-to-face customer service), digital/virtual (e.g. downloads, online recommendations), intangible (e.g. copyrights, quality assurance), or financial (e.g. investment funds, financing services).
Pain Relievers
Now lets outline how your products and services create value. First, describe how your products and services alleviate customer pains. How do they eliminate or reduce negative emotions, undesired costs and situations, and risks your customer experiences or could experience before, during, and after getting the job done?
Ask yourself if they...
... produce savings? (e.g. in terms of time, money, or efforts, ...)
... make your customers feel better? (e.g. kills frustrations, annoyances, things that give them a headache, ...)
... fix underperforming solutions? (e.g. new features, better performance, better quality, ...)
... put an end to difficulties and challenges your customers encounter? (e.g. make things easier, helping them get done, eliminate resistance, ...)
... wipe out negative social consequences your customers encounter or fear? (e.g. loss of face, power, trust, or status, ...)
... eliminate risks your customers fear? (e.g. financial, social, technical risks, or what could go awfully wrong, ...)
... help your customers better sleep at night? (e.g. by helping with big issues, diminishing concerns, or eliminating worries, ...)
... limit or eradicate common mistakes customers make? (e.g. usage mistakes, ...)
... get rid of barriers that are keeping your customer from adopting solutions? (e.g. lower or no upfront investment costs, flatter learning curve, less resistance to change, ...)
Gain Creators
Finally, describe how your products and services create customer gains. How do they create benefits your customer expects, desires or would be surprised by, including functional utility, social gains, positive emotions, and cost savings?
Ask yourself if they...
...create savings that make your customer happy? (e.g. in terms of time, money and effort, ...)
... produce outcomes your customer expects or that go beyond their expectations? (e.g. better quality level, more of something, less of something, ...)
... copy or outperform current solutions that delight your customer? (e.g. regarding specific features, performance, quality, ...)
... make your customer’s job or life easier? (e.g. flatter learning curve, usability, accessibility, more services, lower cost of ownership, ...)
... create positive social consequences that your customer desires? (e.g. makes them look good, produces an increase in power, status, ...)
... do something customers are looking for? (e.g. good design, guarantees, specific or more features, ...)
... fulfill something customers are dreaming about? (e.g. help big achievements, produce big reliefs, ...)
... produce positive outcomes matching your customers success and failure criteria? (e.g. better performance, lower cost, ...)
... help make adoption easier? (e.g. lower cost, less investments, lower risk, better quality, performance, design, ...)
Creating Value Terminology
Creating Value Terminology
1. Newness
Satisfy an entirely new set of needs that customers previously didn't perceive because their was no similar offering. This is often, but not always, technology related.
Examples: Apple has invented a number of new markets as a company but none is greater than iTunes. When iTunes originally launched, Apple created the opportunity for listeners to own digital copies of their music, with the right to purchase individual tracks.
2. Performance
Improving product or service performance has traditionally been a common way to create value. Improved performance does have its limits. Typically, customers will not change from one product/service unless the improved performance is substantial. Performance must dramatically improve the users capabilities or people will not switch from one product to the next.
Example: The PC sector of computers (non-apple) has traditionally relied on this factor by brining more powerful machines to market. In recent years, fast PCs, more disk storage space, and better graphics have failed to produce corresponding growth in customer demand.
3. Customization
Tailoring products and services to the specific needs of individual customers or Customer Segments creates value. In recent years, the concepts of mass customization and customer co-creation have gained importance. This approach allows for customized products and services, while still taking advantage of economies of scale.
Example: Big Shot Bikes allows users to create a custom designed fixed gear bicycle online and ships it directly to the end user when it is completed.
4. "Getting the Job Done"
Value can be created simply by helping a customer get certain jobs done.
Example: Rolls-Royce understands this very well: its airline customers rely entirely on Rolls-Royce to manufacture and service their jet engines. This arrangement allows customers to focus on running their airlines. In return, the airlines pay Rolls-Royce a fee for every hour an engine runs.
5. Design
Design is an important but difficult element to measure. A product may stand out because of superior design. In the fashion and consumer electronics industries, design can be a particularly important part of the Value Proposition.
Example: Apple embodies the importance of the aesthetic. While their trendiness is wearing off many would argue that it has lasted in large part due to the beauty of its design. While their products are seamless and easy to use, they are unmatched in their design.
6. Brand/Status
Customers may find value in the simple act of using and displaying a specific brand. Wearing a Rolex watch signifies wealth in the same way that wearing Nike signifies a youths athletic ability. On the other end of the spectrum, skateboarders may wear the latest “underground” brands to show that they are “in”.
Example: For the average high school kid, Lulu represents a big status symbol. People are willing to pay more to show off a special little logo.
7. Price
Offering similar value at a lower price is a common way to satisfy the needs of price sensitive Customer Segments. But low-price Value Propositions have important implications for the rest of a business model. No frills airlines, such as Southwest, easyJet, and Ryanair have designed entire business models specifically to enable low cost air travel. Another example of a price-based Value Proposition can be seen in the Nano, a new car designed and manufactured by the Indian conglomerate Tata. Its surprisingly low price makes the automobile affordable to a whole new segment of the Indian population. Increasingly, free offers are starting to permeate various industries. Free offers range from free newspapers to free e-mail, free mobile phone service, and more.
Example: Southwest airlines provides a low-cost, but surprisingly enjoyable experience for customers. Southwest does not sell through 3rd parties because this takes money from their bottom line which would ultimately raise fares. Southwest has expanded much slower than other airlines with the goal of only adding destinations that can meet a high capacity of flights.
8. Cost Reduction
Helping customers reduce costs is an important way to create value.
Example: Salesforce.com sells a hosted Customer Relationship Management (CRM) application. This relieves buyers from the expense and trouble of having to buy, install, and manage CRM software themselves.
9. Risk Reduction
Customers value reducing the risks they incur when purchasing products or services. For a used car buyer, a one-year service guarantee reduces the risk of post-purchase breakdown and repairs. A service-level guarantee partially reduces the risk undertaken by a purchaser of outsourced IT services.
Example: The used car market is full of questions marks and at worse, lemons (cars that are really bad). To reduce this fear and need to haggle of price, some Toyota dealerships are offering lifetime guarantees on all used cars that meet certain maintenance requirements.
10. Accessibility
Making products and services available to customers who previuosly lacked access to them is another way to create value. This can result from business model innovation, new technologies, or a combination of both.
Example: NetJets popularized the concept of fractional private jet ownership. Using an innovative business model, NetJets offers individuals and corporations access to private jets, a service previously unaffordable to most customers.
11. Convenience/Usability
Making things more convenient or easier to use can create substantial value.
Example: With iPod and iTunes, Apple offered customers unprecedented convenience searching, buying, downloading, and listening to digital music. It now dominates the market.
12. Mission
Selling the mission as a part of the purchased value is nothing new. While I remain firmly convinced that people will not purchase a product solely on the mission, data does point to it swaying younger shopper towards particular products.
Example: Patagonia has built their entire business model (they are a for benefit corporation legally in CA) on integrating great outdoor products with sustainability and environmentally friendly production.
Lesson Information
Lesson Information
Presentation
Presentation
ValueProposition.pdfVocabulary
Additional Reading
Student Activity
ITSOG is a big deal at WCA. Unfortunately, it operates under the same strategy of most non-profits. ITSOG relies on the donations without providing anything more than intrinsic value to the giver. This model is under fire and is beginning to show cracks in the structure for long-term success.
Your assignment is to work with a person you have not worked with at any point. You have to develop a for-good company. What is a for-good company? It is a company that seeks to combine profit and good.
Here is what you have to do:
Pick an industry/product that could easily be sold and offer more value than the product itself
Warby Parker for Eye Glasses
Smile Squared for Tooth Brushes
Toms For Shoes
Patagonia for Sustainability
Tesla for Sustainability
Determine who the Customer Segment
Develop a product the Creates Gain and Relieves Pains for the Customer
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