22 May 2014

Customer value proposition

Even in established industries market dynamics and conditions vary constantly. Products become commoditized at faster rates with a strong pressure on prices and cost savings. Customer needs become a moving target. A natural answer to companies is to develop further a concept of additional value in order to secure a preferred supplier status.

A common mistake is to establish as a starting point a listing of all the benefits and services the company internally assumes is offered to the market. This exercise is helpful when we try to answer the question "Why should our customer buy from us?" But the core question to answer is "Why should our customer choose our offering instead the one of our competitors?"(1)

We now start working in a way to elaborate a compelling value proposition. Customer value proposition has become one of the most widely used terms in business in recent years. Many companies have taken a variety of methodologies in order to answer to the question above.

Inevitably, the first step is to know the market, and mainly, have a deep knowledge of customers, their business, their challenges, constrains, opportunities and what is needed to succeed in their own markets. We also need to know our competitors' offering, strengths and weaknesses. With these elements in mind, and when launching an idea/product, we can define "How do these value elements compare with those of the next best alternative?"

It is always tempting to think of a new breakthrough technology but there are also simple examples of how to add value. For example, one customer in one particular region was experiencing problems of competitiveness in its local market. When we had been evaluating possibilities related to how to supply to that market, we had identified a new option that was really new to our way of working, but could bring additional value to both parties. With all data in place, we were able to quantify this benefit which impacts in additional EBIT impact to our business at the same time providing savings to customer!

Value can be presented in terms of what customer considers important (i.e.: not being vertically integrated can be a disadvantage, but in customers' eyes, this brings an important value where supplier does not compete with customer in their market place).

Some other elements, typically performance, could be shown and demonstrated by measuring and documenting results in real terms.

Finally, attack is the best defense. It is Sales Manager's duty to be proactive and propose a solution to customer's needs without waiting to reach a defense mode facing potential loss of the share of the wallet.

Customer value proposition starts getting traction in our organizations. Good examples and implementations show us that profitable growth and customer satisfaction and benefit are compatible and possible.

Sources:

(1) HBR Onpoint 3544 -March 2006

(2) “Is It Real? Can We Win? Is It Worth It? Managing Risk and Reward in an Innovation Portfolio,” George Day, Harvard Business Review, December, 2007.

Alejandra Norén
Sales director, Base Oils

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