Charlie Alfred’s Weblog

Value Propositions – More than Marketing

Value Proposition.  Nearly every business has at least one; many of them have several.  But why do many value propositions miss the point?

Let’s start with the Wikipedia web page for value propositions, which says:

“In the field of marketing a customer value proposition consists of the sum total of benefits which a vendor promises that a customer will receive in return for the customer’s associated payment (or other value-transfer).”

This is straightforward enough; it strives to derive its meaning directly from the phrase itself:

  • Value                                     sum total of benefits
  • Proposition                         which a vendor promise 

End of story, right?  Nope.  This is the point where Jamie and Adam of Mythbusters typically get started.

Sum Total of Benefits

The first myth to be busted is that benefits are the same as value.  In  Objective vs. Subjective (https://charliealfred.wordpress.com/objective-vs-subjective/ ), I discussed the important difference between benefits and value.

Consider the following example.  An insurance company offers a $500,000 term insurance policy for $25 per month for healthy, non-smoking males between the ages of 25 and 30.  The benefit is clear and objective.  If the policyholder dies before the end of the term (say age 65) from a cause other than suicide, the insurance company will pay the beneficiary $500,000.

Two males, age 27 consider the benefit the policy offers.  One is a married, with two children under 5, working as a resturaunt manager.  The other is single, with deceased parents, working as an automobile salesman.  As you might imagine, the first sees more value in the same life insurance benefit package than the second.  And why wouldn’t he?  He has three people depending on his income, who would be in dire straights if he were to die.  The second man has nobody depending on him, but himself.

Here we have the same objective benefit, with two different subjective perceptions of value.

The second myth to be busted is sum total of benefits.  In theory, suppliers strive to disclose all of the benefits they offer to consumers.  However, it is important to keep the old saying in mind:

“In theory, theory is the same as practice.   In practice, it is not”

By definition, a value proposition is a message which is communicated by the supplier.  However, this does not necessarily guarantee anything about its meaning or intent.

If we are to be honest, a major reason why companies formulate and express value propositions is to grow their revenues and market share.  As  anyone who has ever worked in the marketing function of a for-profit enterprise can verify, you are measured, evaluated and compensated on how well you achieve these goals.

As a result, value propositions have a tendency to:

  • Paint the image that the company wants to project
  • Create demand for the goods and services the company provides
  • Stress what the company sees are its good points
  • Gracefully sidestep what the company sees are its weak points
  • Position the company favorably with respect to its competitors
  • Create and enhance brand recognition

Taken to the extreme, this is a shallow, self-centered perspective, which cannot be a formula for long term success.  However, companies and their marketing departments understand the implications of the “double win”:  

We can do something for you that you will see as valuable and get something out of it for ourselves at the same time.

This is the essence of capitalism, and its power is grounded in value model theory.  Whenever goods and services are exchanged, there is an objective transaction (e.g. insuring a home or car against the risk of loss), and two or more subjective transactions (e.g. the insurance company, the insured, the agent receiving a commision, etc.).

As  a result, a routine business transaction is the intersection of several value models, where each of these value models influences the behavior of a party to the transaction.  When the interests (i.e. value expectations) of the parties are not identical, value can accrue fairly to all parties.

While homeowners realize that the probability of loss or damage to their homes is very small, they also realize that if their home burned to the ground, the impact would be catastrophic.  At the same time, insurance companies realize that as the population of insured homeowners increases, it will be obligated to pay damages to some.  However, by spreading the risk across a large base of homeowners, it can charge premiums that exceed its expected losses, and earn a profit.

Given this backdrop, we can look at value propositions on a sliding scale.  On the “black” end of the spectrum we have the value propositions which are completely supplier-centric.  On the “white” end of the spectrum, we have the value propositions which are totally consumer-centric.  And in the middle, we have a large spectrum of shades of grey.  In fact, it is in these many shades of grey, that virtually all real world value propositions live.

Which a Vendor Promises

As Katrin and John Windsor write in “How NOT to Write a Value Proposition”  http://youblog.typepad.com/the_youblog/2008/03/how-not-to-writ.htm

Ultimately, a Value Proposition comes down to why your audience or prospects or readers should care about what you have to offer — and this Wikipedia entry (which is the first thing that shows up when someone Googles “value proposition”) doesn’t get anywhere near that concept.  The “value” in Value Proposition needs to be what THEY (prospects, audience, readers) see as valuable, not what you want to achieve. So any statement that focuses on your agenda, or your products or services, is NOT a value proposition, no matter how loudly you proclaim it to be so — nor how resolutely a Wikipedia entry describes it. It’s not your value proposition, it’s theirs.

I agree that statements focusing on products and services are not value propositions, because they fail the “value” part of the litmus test.  However, even though a vendor statement focuses on consumer benefits and value, it can still be supplier-centric and self-serving.

I consider the buyer’s value proposition to be a set of value expectations

The reason for this is that buyer’s have a portfolio of needs that they can satisfy in many ways.  Most consumers are more in the habit of reacting to buying opportunities that fit their expectations than issuing RFP’s.

Promise, Imply, Not Promise, or Conditionally Promise

A young man may be very attracted to a woman, and may express this:

“You need someone like me, a very attentive and empathetic listener.”

This statement has several aspects of a good value proposition:

  • Focuses on the needs/wants of another,
  • Speaks to benefits that the other views as important,
  • Promises to deliver these benefits

Two things that might be implied, but not promised, by this statement are that the man:

  • cares about what he hears, and
  • is willing to act on this message, to improve the situation.

The presence of implied conditions on the proposition are also significant:

  • as long as we don’t visit your parents more than once a year, and
  • just don’t try to talk to me on Sundays during NFL football season

Advertising Messages and Value Propositions

Advertising campaigns are proxies for value propositions.  While they are not the value proposition, they do represent and important reflection of a value proposition’s intent.  As an illustration, let’s contrast two cell phone and communication network value propositions.

Apple has a well-known advertising campaign for its iPhone product, featuring the slogan, “there’s an app for that.”  This campaign touts touts the benefits of the phone’s slick graphics and touch/motion sensitive interface, as well the high-speed 3G network provided by AT&T/Cingular, its exclusive partner.

Verizon Wireless (and its device partner BlackBerry) have responded with their own campaign.  Their advertising shows side by side maps of the USA to illustrate how Verizon Wireless provides 5x more 3G network coverage than AT&T/Cingular, with the slogan: “there’s a map for that.”

mapforthat

(image from: http://www.engadget.com/2009/10/05/verizon-removes-gloves-begins-theres-a-map-for-that-anti-atand/   

The contrast of a map-full of red against very sparse blue makes it appear as if AT&T/Cingular’s network is dwarfed by Verizon’s.  However, a closer look at the AT&T map (difficult, without a DVR, when the images appear on the TV screen for about 2 seconds) shows that AT&T’s network coverage is biased heavily toward the major metropolitan areas in the Northeast, Southeast, Texas, West Coast, and Great Lakes areas.  But it’s the absence of blue in Idaho, Montana, Wyoming, and North and South Dakota which leave a distinct visual impression.

Is coverage in these areas valuable to consumers?  If I am a sophomore at Boise State, they are.  But if I am a postal worker from Sommerville, MA who has never been west of the Mississippi in his life, perhaps not so much.

Let’s extrapolate these advertising messages and take a look at what they might suggest about the respective value propositions:

Aspect

Apple / AT&T

Verizon Wireless

Promise More apps than competitors The best network coverage in the U.S.
Implied promise Apps you really need that you can’t find somewhere else The basic apps you need (voice, email, text, video, internet browsing, etc.)
Conditional Promise You are using your iPhone in a geography we serve. As long as your phone has an unobstructed path to one of our cell towers.
Not Promised How many of the 75,000 apps you will actually find useful. How well will your phone work outside the U.S.

Exercise:

A useful exercise for the motivated reader might be to apply this technique to value propositions in some other industry.  One example might be analyzing how advertising messages of automobile insurance providers reflect their value propositions (promise, implied promise, conditional promise, and not promised): 

GEICO:   http://www.youtube.com/watch?v=BqnWNMsWdqM

http://www.youtube.com/watch?v=ZQGRUqEoRgg&feature=PlayList&p=5B212F29AA60CA54&playnext=1&playnext_from=PL&index=5

  • “So easy, even a caveman could do it.
  • “This is the money you could be saving with GEICO”

Amica:   http://www.youtube.com/watch?v=EMe96QM0Y_0&NR=1

  • “There’s nothing more important than being there.”
  • “Customer satisfaction and financial stability.
  • “We’ll take the time to ask questions, explain your options, and find the policy that’s right for you.” 

Progressive:   http://www.youtube.com/watch?v=mHaWB9f5bfw

  • “Only Progressive gives you the option to name your price”
  • “We build you a policy to fit your budget.”

Service Agreements and Value Propositions

 While advertising messages (when analyzed and contrasted) provide a very good glimpse at a supplier’s value proposition, they only represent one angle, and can have some blind spots.  Let’s turn our attention back to the cell phone industry and look at service plans, another useful reflection of value propositions.

 All cellular telephone providers face a fundamental business challenge.  They have a very large fixed cost in two areas:

  • geographic coverage of their cell towers (as seen above),
  • peak-period network bandwidth (particularly at the endpoints).

 In order to cover the investment and fixed operating costs of these networks, cellular providers must depend on revenue commitments from their subscribers.  As a result, multi-year contracts and pricing plans based on monthly usage commitments (e.g. minutes of use) are commonplace.

Verizon Wireless requires its customers to select a wireless service plan, whose pricing is based on a maximum number of minutes per month.  If a customer fails to use the allowed number of minutes in a month, they forfeit them.  If they exceed the monthly limit, additional time is billed on a per minute basis which is much higher than the average per minute rate.

For example, a family plan with four phones and 700 minutes/month might be charged about $70/month.  Nominally, this works out to $.10/minute.  However, if usage during the billing period exceeds 700 minutes, the additional minutes are billed at $.40/minute – 4 times the nominal rate.  Ironically, if the family had signed up for the next larger plan (1400 minutes/month), the incremental cost is just $10/month (or $.014/minute).  Go figure!

AT&T/Cingular is well-known for an innovative pricing model: rollover minutes.  The value proposition here is that if a consumer agrees to pay for 700 minutes per month, they shouldn’t be penalized if they only use 500.  The difference should be rolled-over into the next month.

On the surface, the contrast of these two value propositions seems to be blatant waste vs. efficient conservation: 

  • “buy more minutes than you need, and throw the rest away” vs.
  • “preserve unused minutes you already paid for and use them later.”

But unlike trees, fresh air, and fossil fuels, cell phone minutes are not a depleted natural resource.  Is the AT&T/Cingular plan really that much more enlightened than the Verizon plan?

With the Verizon plan, the consumer must be careful to choose a plan that covers their maximum monthly usage.  Since the incremental per minute rates at higher commitment levels are relatively low, this is not as drconian as it seems (unless you have two or more teenagers on your plan). 

 With the AT&T/Cingular plan, the consumer still needs to forecast their usage.  But here, the forecast is about the average monthly usage.  If the consumer forecasts high, then the unused minutes will rollover indefinitely, until they are forfeited at some future date.  If the consumer forecasts low, then sooner or later, the rollover minutes will be exhausted and the consumer will pay AT&T/Cingular’s charge for excess minutes.

Does This Really Matter?

This of value propositions makes for interesting discussion at cocktail hour of an American Marketing Association conference.  But does it really mean anything to the rest of us?

I think so.

While value propositions can be carefully crafted to be focused on what’s good for the consumer, the truth is that what they say and don’t say are a reflection of their author’s intent.  Companies who are focused selfishly on their own growth, profit, and market share will inevitably write value propositions which are more about themselves than their customers.  On the other hand, companies who are focused on their customers’ needs and strive to provide products and services that create value, will write value propositions that sound that way.

But it doesn’t stop there.  The same priorities and intent which lead to customer-centered or self-centered value propositions also manifest themselves when it comes to product design and the operation of service organizations.

And careful inspection of what is promised, what is implied, what is not promised, and what is conditionally promised will tell provide a very clear indication of which your provider is.

2 Comments

  1. […] article (https://charliealfred.wordpress.com/value-propositions-more-than-marketing/) will explore the nuances of value propositions, with some modern day examples to illustrate the […]

    Pingback by Putting the Proposition back into Value Propositions « Charlie Alfred’s Weblog — October 20, 2009 @ 6:34 pm

  2. […] article (https://charliealfred.wordpress.com/value-propositions-more-than-marketing/) will explore the nuances of value propositions, with some modern day examples to illustrate the […]

    Pingback by Putting the Proposition back into Value Propositions | The Agile Radar — December 8, 2011 @ 1:13 pm


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