CHAPTER 7 - DEFINING AND REFINING THE VALUE PROPOSITION What is a Value Proposition (VP)? Strategic Implications of the VP Value Positioning

Guiding Principles One of the most critical challenges for service firms is to differentiate themselves from competitors Great companies have their own unique identities and carefully conceived value propositions.

The Value Proposition as a Strategic Business Tool A well designed VP includes but, goes beyond the product mix, pricing, and promotion (marketing communications) to define the organization’s competitive advantage through offerings, people, processes, and technology.

Characteristics of the Value Proposition V alue propositions should be: ClearClear ConciseConcise CredibleCredible Consistent over time

Examples of Value Propositions FedEx: When it absolutely, positively has to get there overnight IBM: Global solutions for a small planet Intel: Intel inside Lexus: Passionate pursuit of perfection Motorola University: Right knowledge, right now Nordstrom: Shopping humanized Publix Super Markets: Where shopping is a pleasure Snapple: Natural beverages, made from the best stuff on earth Visa: It is everywhere you want to be

Value Disciplines and Market Leadership (Treacy & Wiersama) Companies excel by practicing 1 of 3 strategies: Product leadership Product leadership - innovation and the best quality goods and services are offered by J & J, Nike and Nokia Operational excellence – low cost and process efficiency are delivered by Dell, Southwest Airlines and Target Stores Customer intimacy Customer intimacy - The best total solution (service/relationship building) is provided by Airborne Express, Frito-Lay and Nordstrom

4 Additional “Approaches to Market” Organizational flexibility (Nucor) Speed to market (Intel) Time managers (DuPont) Value chain player (Amazon.com) Source: Waggoner

V alue D isciplines Value Focus Image Driver Image Customer Intimacy ServiceCreate relationship Best friend Product Leadership QualityUnique attribute(s) Best product/ service Operational Excellence CostLow costBest deal

4 Sources of Value Creation in e-Business 4 Sources of Value Creation in e-Business (Amit & Zott)

Critiquing Your Value Proposition 1. Does it take the customer’s perspective? 2. Is it easy to understand? 3. Does it encapsulate the value you offer to: your people, the sales channel, the press, and your customers? 4. Is it strategically compatible with your business? 5. Is it acceptable given your organizational culture? 6. Is it honest? 7. Is it promotable? Source: Dovel (1990)

Quality Price Image Service VALUE Designing a Value Proposition – The S-Q-I-P Diamond

Applying the S-Q-I-P Approach The S-Q-I-P elements create value for customers Establishes a solid business philosophy for the organization to guide strategic decisions Value = Benefits (S+Q+I) – Costs (P + nonmonetary costs) Ultimately affects business performance

Value Innovation Value innovation can be fostered in companies by: Reducing investment in business units that are settlers (offer me-too products and services) Increasing investment in migrators (businesses with value improvements) Using corporate entreprenuership initiatives to create pioneers (businesses that represent value innovations)

Knowledge as a Source of CV Knowledge means a competitive advantage in the marketplace (APQC) 5 knowledge-based routes to designing successful value propositions: -> Knowledge as a product ->Knowledge transfer ->Customer-focused knowledge ->Personal responsibility for knowledge ->Intellectual-asset management

Developing Unique Value Propositions Change the rules of the game Change the rules of the game Break business/industry compromises Break business/industry compromises Exploit unnecessary concessions to find a competitive advantage Exploit unnecessary concessions to find a competitive advantage As markets change, VPs must change As markets change, VPs must change Drive the market through competitive, customer & corporate capability analyses to tap niches and secure new marketspace Drive the market through competitive, customer & corporate capability analyses to tap niches and secure new marketspace

1. Shop the way customers shop 2. Pay careful attention to how customers really use the product or service 3. Explore customers’ latent dissatisfactions. 4. Look for uncommon denominators 5. Pay careful attention to the anomalies. 6. Look for diseconomies in the industry’s value chain. 7. Look for analogous solutions to the industry’s compromises. (Adapted from Stalk, G. et al. (1996) How Charles Schwab Redefined the Brokerage Market *