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What is a Customer Value Proposition?

We are all familiar with this term, however, because so few organizations actually manage to define and clearly articulate their unique (and differentiating) customer value proposition, it’s worth taking a moment to explore this important concept. In fact, your customer value proposition is more than a concept – understanding what will attract your customer to your company and what will compel them to do business with you are critical elements for the ongoing success and growth potential of your enterprise.

Let’s take a closer look.

What does your customer want from you? Is it a thing?  Is it a thing delivered in a very specific way? Is it to feel a certain way when they interact with you and/or when they use your products or services? Is it all of the above? If your goal is business success then you need to know the answer to these questions.

Once you do, you can develop your plan for giving current and future customers what they want, how they want it, in a way that makes them feel the way they want to feel.

This magic formula is your customer value proposition.

A clear and compelling customer value proposition helps you by creating a pool of loyal, repeat customers; attracting new loyal customers at a lower cost (through word of mouth and referrals by current loyal customers); and increasing the amount spent per loyal customer.  All this drives revenue growth. And, when you implement the business model that properly supports your customer value proposition in a cost-effective way, you grow your bottom line as well.

 

The First Half of Your Customer Value Proposition - Giving Them What They Want, How They Want It

What are the specific product or service features you offer? How does your product or service look, feel, and even smell? What does your product or service do? Product or service features make them stand out from the crowd and, in combination with the way you create and deliver your products or services to your customer, help attract customers to you.

When customers get what they want, how they want it, in a way that makes them feel the way they want to feel, they perceive value. When customers perceive that they are receiving value from a product or service, and the company that provides it, they are attracted to the company and what it offers.

It is important to realize, however, that different types of customers want different things from the products or services they buy and the companies they buy them from. The key is to match what YOUR customer wants with what you give them and how you deliver it.

When you do, you deliver the right value to the right customer and this is the foundation of business success.

 

The Second Half of Your Customer Value Proposition - Making Them Feel the Way They Want to Feel

Also called “the customer experience”, making customers feel the way they want to feel when they buy from you is dependent on two things: the nature and the quality of the interactions they have with you, and their perception of those interactions.  

Each interaction you have with your customers gives you the chance to either delight or disappoint them. If you’re smart, you’ll design “what” and “how” elements into every touch point or interaction they have with you. However, you must also build a certain amount of flexibility into your design so you can accommodate to unique customer points of view and successfully deliver the right feel to each individual customer.     

No matter how well you design your customer interactions, and what your objective measures of performance say about those interactions, your customer’s perception of their experience when dealing with you is the only reality that counts. Your customer’s experience of you is a combination of how the costumer consciously and subconsciously sees an interaction. Individual customers have a positive experience when (1) you deliver the experience you have promised; and (2) the experience meets the practical and emotional needs and expectations of that customer.

 

The key to designing and delivering a successful customer value proposition is starting with a clearly defined target customer. This gives you someone to get to know really well, allowing you to develop an intimate understanding of their evolving wants, needs, and expectations and what they value. With this information, you can identify and create products and services that will suit your target customer AND you can design a customer experience that will appeal to them on an emotional level.

When your customer value proposition is successful in giving your customers what they want, in the way that they want it, and in a way that feels right, you are providing your customers with an irresistible level of value.

And, for savvy companies, providing an irresistible customer value proposition is the key to acheiving breakthrough business growth.    

 

The Four Foundations that Should Frame Every Business Strategy

If you look closely at the inner workings of successful companies, you quickly come to the realization that truly solid market-leading organizations and business strategies are built on four critical foundations: a set of core values; a mission or purpose statement; a timed vision statement; and a clearly articulated customer or stakeholder value proposition.

While this list won’t represent a new insight or a “rocket-science” approach to business strategy for many of you, it still surprises me how many companies seem content to cherry pick from this list of the four essentials and how they rarely incorporate all four elements into their business strategy. By not taking steps to incorporate all four foundations in their strategic thinking process, organizations are setting themselves up to sub-optimize their business strategy and strategy execution results.

Let’s take a closer look at each of these important foundational elements and talk about how they fit into the strategy picture.

 

Core Values

Core values represent the basic, shared beliefs that govern individual and group behavior in any organization. They both define and represent the way things get done and, as a result, form the foundation for the strategic objectives in a company’s business strategy and on its strategy map. Every action an organization takes should be in absolute alignment with its stated core values. In fact, the difference between successful and unsuccessful organizations is that the successful ones actually live up to their values all the time in everything they do. It is important to note that a company’s core values ideally remain stable over time.

Because you want your employees to put your core values into action every day, you need to keep your list of core values to a short, focused one – three to five core value maximum is usually a good number. In addition, it’s not just good enough to simply identify your organization’s core values. You should also write a clear behavioural definition for each value – that is, what it is and what it looks like in action. This is often a missing piece in company core values statements. By defining your core values in actionable terms, you make it much easier for your employees to make decisions and behave in ways that are in complete alignment with the company’s core values.

Successful organizations take their use of core values even further and build the expectation that employees will act in alignment with core values into the performance management process. They go so far as to include an assessment of employees’ performance against core values behaviour standards as part of performance review discussions. Taking this approach (1) communicates the importance of a company’s core values; (2) supports the requirement to align individual actions with core values at all times; and (3) evaluates and rewards behaviour and performance that is aligned with values and helps move the organization forward.

Imperative: It’s not good enough to go through the motions of creating a list of organizational core values. To achieve real business success, it is critical to take the time to identify and define core values and then ensure that they are put into action by all employees at all levels of your organization every day.

 

Mission

An organization’s mission defines why it exists, describes what business it is in and the contribution it makes, and states the value it adds to either society or the corporation it operates within. A good mission statement communicates the purpose of an organization and, importantly, it aligns with the organization’s core values. Mission statements endure over time and do not change unless a change in organizational direction results in a change in the nature of your organization’s purpose.

A winning mission statement is short, inspirational, and lofty – companies should always be striving to deliver on and achieve their purpose however they never actually get there. A typical mission statement says a lot and provides direction in broad terms but still leaves room for creative thinking about how to take action and actually achieve the mission or purpose.

Here are some sample mission statements that I particularly like:

3M - To solve unsolved problems innovatively.

Merck - To preserve and improve human life.

St. Mary’s Duluth Clinic Health System - Bringing the soul and science of healing to the people we serve.

Mary Kay Cosmetics - To give unlimited opportunity to women.

Many people believe that mission statements only apply for public sector and non-profit organizations largely because their ultimate purpose is to do good for society. The thinking is that, in the private sector, the ultimate goal is to make money/a profit – full stop. And while the making money bit is true, smart for-profit organizations realize that making money isn’t a purpose that truly inspires customers and employees. Most progressive thinking companies believe that if they focus on achieving an inspirational purpose that adds real value, the money, and if they plan right, the profits will follow.

Imperative: As you can see from the mission statements provided above, even private sector organizations today take the time to define an ultimate purpose for their company. By ensuring that its core values and mission are aligned, a company is setting the stage for the development of a more coherent business strategy.

 

Vision

An organization’s vision is built on its core values and is an extension of its mission. A vision should include a clear timeframe (often a three to five year horizon) and acts as a signpost on the journey to achieving the mission. It paints a clear and measurable picture of what a company wants to achieve by a defined point in the future. As a result, a vision provides an organization with a tangible way of assessing its strategic progress over a specific time period.

A vision stretches the organization’s capabilities and image of itself and it clarifies the direction of the organization. In addition, a clear vision helps all of a company’s stakeholders understand why and how they can support the organization as it strives to achieve these specific goals and objectives. Because they are time-limited, vision statements change after the vision period has been completed.

Imperative: Because an organization never achieves its mission, a time-limited vision offers the ability to assess progress on the mission journey against some clear measures of performance. The thinking goes that if the progress measures included within the vision have been set in the context of the mission (and, by extension, the values), achievement of the vision implies forward progress in the achievement of an organization’s mission.

 

Customer Value Proposition

An organization’s customer value proposition (CVP) is the combination of benefits it is going to provide to its customer. In other words, it is the big promise it makes to its customer that differentiates it from its competitors in the market place.

The key to success with customer value propositions is to leverage your understanding of your target customer AND the value propositions of your competitors to differentiate your company in the eyes of your target customer.

There are three classic customer value propositions that vary slightly based on the business sector but generally revolve around the same three ideas of value creation:

Operational excellence (leading to lowest price/cost for our products and services)

Product or Service leadership (by continuously updating products and services to keep them on the cutting edge)

Customer/Stakeholder intimacy (customizing our products and services to meet each customer’s/stakeholder’s unique needs)

Successful organizations (1) can clearly state their CVP and (2) every employee in the organization knows what it is. In addition, a company’s CVP, mission, vision, and core values must all be in alignment if it hopes to define and execute a successful business strategy.

Imperative: A company’s customer value proposition is the fourth fundamental for strategy success. Unfortunately, making the effort to define a clear and differentiating CVP is the most frequently skipped element in the strategy creation process, regardless of sector. I think this is largely due to the fact that developing a CVP requires multiple steps, a complex thought process, and the willingness to make a bet on a focused customer strategy – all of which can be daunting in a competitive marketplace. Even when companies do define a CVP, they rarely take the step of creating a customized CVP statement that is clearly communicated and understood across their organization. While better than not defining a CVP at all, failing to follow through in this way can also result in the sub-optimization of strategy development and execution success.

 

Once they have been defined, the four foundational elements of core values, mission, vision, and customer value proposition should be arranged on the strategy map in this way.

With the four foundations in place, they can be leveraged to define the value creating business strategy an organization is going to execute to satisfy its target customer or stakeholder and achieve its mission/purpose and identify the strategic objectives that populate the strategy map. Practically, strategic objectives are identified by keeping the four foundations top of mind as these questions are answered in the following order (in the case of a for-profit company):

Financial: How must we perform financially and what returns must we deliver to our shareholders?

Customer: What must we do for our customers and what benefits/big promise must we deliver so that they reward us with their business and loyalty?

Internal Process: What processes must we excel at to give our customers what they what, need, and expect from us?

Organizational Capabilities: What skills, capabilities, people, culture, technology, tools, and infrastructure must we have access to/in place to execute our processes and deliver our customer promise/value proposition?

    

There are four foundations that are essential for building a sound and solid business strategy: core values, mission, vision, and customer value proposition. By keeping these four elements in mind while answering the critical questions outlined above, companies are virtually guaranteed of creating a business strategy that is aligned with their core values, is geared to delivering their differentiating big customer promise, and gets the company moving on a path to mission and vision achievement.

 

Though simple enough in concept, in my experience, companies frequently fail to follow through on defining the four foundations. As a result, organizations that actually make the effort to complete this work find that they are able to lead and win in their selected markets more easily than they might have imagined.

 

Why Focusing on Your Target Customer and Defining Your Value Proposition Isn’t Enough for Business Success

Have you identified your company’s target customer yet?

Based on all I’ve been reading lately, your organization is behind the eight ball in this economy if you haven’t. In all honesty, there is nothing special about the current business environment that makes identifying your target customer more critical today than at any other time. It actually turns out that the power in the marketplace has been shifting for some time to the customer and, incidentally, their service expectations have been rising. Essentially, knowing who your target customer is has been a requirement for some time but it feels like it has turned into a business imperative in a tough, and suddenly tight, economy and marketplace.

Identifying your target customer gives your company someone (or a group of someones) to focus on. It gives you someone to get to know really well, allowing you to develop an intimate understanding of their evolving wants, needs, and expectations. With this information, you can identify and create products and services that will suit your target customer AND you can design a customer experience that will appeal to them on an emotional level. In other words, knowing who your target customer is allows you to gain a comprehensive understanding of what they value.

At a basic level, customer value can be looked at as a simple plus-minus equation. On the plus side are all the benefits your product or service and customer experience provide to your customer. On the minus side are the costs to the customer that are associated with using your products or services and interfacing with your company. Costs include money, time spent/wasted, and other intangible, non-monetary costs. Benefits include the product and service features that your customer is looking for as well as other benefits you deliver that exceed your customers’ basic service expectations. When the benefits offered by your product, service, and customer experience outweigh the costs in the eyes of your customer, you meet or exceed customer expectations and add value. When, however, costs outweigh the benefits, you fall short of customer expectations and your company destroys value for your customer. Customers are usually attracted to companies and products/services that provide value and are generally repelled by companies and products/services that destroy value – no real surprise here.         

However, here’s something that’s important to remember: Value is defined by your customer. That is, perceived benefits and costs are in the eyes of the customer – not yours.

Not surprisingly, different target customers buy based on different perspectives of the cost-benefit tradeoff. For example, some are looking for great products that offer high levels of quality for a low price while others want to receive a consistent product and/or service experience at a predictable (often low) price. Some customers are willing to pay a premium price just to look cool or have a first run or limited edition product or experience while others want to buy from a company that really understands them and can fulfill a variety of needs by offering a one stop shop model. Identifying your target customer and really understanding them positions you and your company to hone in on their perspective on value. And, with this understanding, you can craft your customer value proposition – the combination of benefits you are going to provide to your customer.

As you likely know, there are three classic customer value propositions. While there have recently been suggestions that there are additional value propositions (including market or niche creators/new market leadership such as seen with Cirque du Soleil), let’s stick with the big three: Operational Excellent; Product Leadership; and Customer Intimacy.

 

Operational Excellence: Companies adopting this value proposition focus on delivering exceptional levels of quality, price, and ease of purchase and they put together an offering that represents an attractive combination of these three elements. They have a reputation for executing reliably and with consistency, usually providing their customers with low prices and expedient, dependable service.

 

Product Leadership:  Companies pursuing this value proposition excel at creating new products that are on the leading edge and are highly desirable. Often, successful companies in this category seem to create and market products that the customer wants before they know they want it (often said about Apple’s products). The focus is on product innovations (not incremental improvements) that explode existing paradigms and boundaries and these companies consistently provide their customers with the newest and most innovative products and/or services, often at a premium price.     

 

Customer Intimacy: Companies with this value proposition build close bonds with individual customers within the customer group. Customer-intimate companies leverage their knowledge of what their individual customers’ needs and pain points are to create customized solutions, often at very reasonable prices. The hallmark of these companies is giving the customer more than they expect and going above and beyond to provide customers with a total solution. As a result of their focus on the individual customer and their relationship with them, these companies enjoy high levels of customer loyalty.  

 

It is important to note that while successful companies will choose one of the big three as their primary customer value proposition, they do not exclude the other two in their operations. They will, however, perform at threshold levels only on these subordinate value propositions because they realize that some of the elements in the individual value propositions are in direct conflict with each other. Determining their leading customer value proposition allows for easier prioritization of work efforts and more focused decision-making – translating into a real ability to deliver on the primary drivers of customer value.    

The key to success with customer value propositions is to leverage your understanding of your target customer AND the value propositions of your competitors to differentiate your company in the eyes of your target customer. To do this you can either choose to adopt a different customer value proposition from your competitors OR excel on different attributes within a shared value proposition – these are the two primary ways to differentiate your company in a competitive marketplace.   

 

While knowing your target customer and adopting a compelling customer value proposition are critical for business success, these two things alone are not enough. In fact, it turns out that, besides identifying a target customer to satisfy, excelling on a specific dimension of value and delivering a compelling value proposition, and performing at threshold levels on other customer-defined standards of value, to achieve sustained business success, you must deliver and improve the value you provide year after year on an ongoing basis. The only way to do this, and successfully deliver on your promised value to your customer, is to build and implement an operating model that is fully aligned with your customer value proposition.

Interestingly, the elements of a company’s operating model have a lot in common with many of the balanced scorecard’s perspectives. These elements include the organization structure and peoples’ skills and capabilities, the company’s culture, the nature of strategic information technologies, the types of management systems employed, and the range of business processes implemented. The elements of the operating model have synergies with the learning and growth/organizational capabilities and internal processes perspectives on the balanced scorecard (hold this thought).

The key to success when implementing a specific customer value proposition is to ensure that it is supported by the appropriate operating model. So, what is the right operating model for a given value proposition?

 

Operational Excellence: This value proposition features highly centralized functions with the most skilled resources residing at the core of the organization and a command and control approach to management. The organization is very disciplined and process focused with conformity with defined cost and quality specifications being highly valued. Information technology features integrated, transactional systems that support business processes that are focused on delivering products on a predictable service cycle using standardized assets. The operating model in operationally excellent organizations is built on conformity to standards and specifications rather than flexibility and is designed to deliver predictable levels of performance and profitability.

 

Product Leadership: This value proposition features a more fluid organizational structure where ad hoc teams are formed and then re-formed and high skill levels reside throughout the organization. Management is comfortable with risk and it rewards the innovation capacity of individuals within teams. Experimentation and out of the box thinking are musts and the culture is built around going for broke and playing to win. Information technologies are focused on enabling communication, co-creation, and knowledge sharing, and key business processes include invention, research and development, commercialization, and marketing. The operating model of product leaders is dynamic and agile so that new ideas are created, tested, and commercialized and profit is realized as quickly as possible.

 

Customer Intimacy: This value proposition features client-focused teams with high skill levels residing as close to the customer as possible. Management is focused on deepening the relationship with the customer and expanding wallet-share. Customization to customer specifications is the force driving company-client interactions and employees are experts at learning about the needs of their clients. Information technologies are focused on the customer and feature the ability to integrate relevant internal and external information in one knowledge hub. Key business processes are flexible and responsive and are focused in the areas of customer acquisition and relationship development, and custom solution generation. The operating model of customer-intimate organizations is client-specific and customer-focused, is geared to supporting maximum solution customization, and is focused on the lifetime value and profitability of each client relationship.

 

With the obvious synergies between the elements of a company’s operating model and the classic balanced scorecard perspectives, it is easy to see how the strategy map (which leverages the balanced scorecard perspectives) becomes the best tool for formulating, displaying, and communicating the operating model associated with a company’s primary customer value proposition. When you think of it in this way, strategy map use becomes as critical to success as defining your target customer and your primary customer value proposition.

Popular thinking about the foundations for business success is currently focused on the need to define a company’s ideal customer and the customer value proposition. However, actually delivering on that customer value proposition isn’t as easy as making a public statement of your current value proposition. Success requires an aligned operating model that is specifically designed to deliver the differentiating elements of your primary customer value proposition.

A best practice approach for success includes (1) clearly identifying your target customer; (2) identifying your primary customer value proposition and determining which specific attributes to excel on to achieve differentiation in the market place; and (3) creating a strategy map that clearly defines and lays out the operating model required to deliver that specific customer value proposition.

With all three components in place, and a approach dedicated to keeping them relevant to customer and market needs in an evolving environment, your company will be well positioned for business success over the long term.

 

Why does your customer buy from you? Why do your employees think your customer buys from you? Are the answers the same? Is your current operating model helping you exceed customer expectations?

To avoid business failure, you must be confident that your company can deliver. Interested in testing your company’s current capabilities quickly and accurately?

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