The original value proposition

The term 'value proposition' gets used a lot these days, but marketing and business development expert Bob Davis takes us through the term's origins and explains the power behind the original value proposition.

For years I have heard the term ‘value proposition’ used in various meetings.  Today, the term usually refers to a 90-second description of a company’s unique offerings and discriminators.

Some employees are able to articulate their company’s value proposition; many cannot.

The term value proposition and its meaning were created by Robert Kaplan and David Norton in their book, The Balanced Scorecard, 1996. Kaplan and Norton present the meaning of value proposition as an algorithm:

Value Proposition = Product/Service Attributes (functionality and quality and price and time) + Image + Relationship.

This definition is both simple and complex.

While the concept of value proposition applies to start-up companies, it applies equally well to established companies that wish to expand into new markets or market segments, perhaps even more.

Value proposition has attributes that should be understood by all employees. Functionality refers to the unique capabilities offered by your product or service that are not “me too” in nature.

While quality speaks for itself, how do you effectively convey the attribute of quality to customers?

Price as an attribute should be clear although few companies are able to define the value created by their product or services for customers.

Time as in market timing is a nuanced and heavily weighted factor.

Consider the hamburger stand marketing story. If you had opened a hamburger stand, offering a great hamburger of course, in 1960 chances are that you would be quite wealthy today. If you had opened the same hamburger stand in 1985, you may not be rich today but you would certainly make a living.

If you open the same hamburger stand in 2010, chances are that you would be losing money today.  Why?

In 1960 the market was new, there were no entrenched competitors, there were no insurmountable barriers to market entry, and simply put, your company was offering something new that caught customers’ attention. By 1985, market dynamics had changed quite a bit; think McDonald’s, Wendy’s, Burger King, and numerous generic competitors.

Fast forward to 2010. Has your market or agency become easier to penetrate? Market timing drives how much it will cost for you to penetrate a new market segment or agency and secure market share. It will be interesting to watch companies of all sizes jump into the ‘cloud market’, which has existed for over a decade.

How much time and money will you spend to establish a market presence, take market share from entrenched competitors, and get a new customer’s attention?

Do you believe customers will beat a path to your door?

They have heard it all before.  Maybe not, but how will you convince them otherwise while you are juggling tightening cash flows?

Image includes reputation which is what brand and public relations are about.  Brand management does its best work many months before your new widget is seen by the public. The value proposition algorithm further suggests that you can have a great product or service, quality, price and market timing but lose because of a lack of brand or a damaged reputation.

If there is no relationship, as perceived by potential customers, not the company’s CRM system, then the sales cycle will be long to put it mildly.

Value proposition is an important rubric that can guide how a company, new and old, approaches market expansion.

Take time to consider this practical framework as you allocate resources for your marketing budget.