Monday, 06 October 2014 16:03

Why does a value proposition matter?

Written by

Stay Creative

A value proposition is a statement, made by your organization, of the tangible value customers get from using your product or service. It refers specifically to the value derived from your offering, not a description of the solution.

When I used to call prospects about hospitality training services, not a single one genuinely cared about it. If a prospect ended up purchasing the service, it was because they were promised better customer satisfaction, reduced overhead, and lower turnover. That was the value they cared to listen about and the only reason that they bought.

When it comes to establishing a substantive value proposition, it is imperative that the focus is placed on the value that the buyer actually cares about. A value proposition is solving a problem for someone and not a discussion of the features and functions.

Three key attributes for your value proposition:
  1. Focus on a business problem that companies, or individuals are measured on
  2. Metrics make a compelling business case, but only if they are in front of the right person. Identify the person whose incentives are tied to the metrics. Executives will care about solving business issues that create long term value for the company. If someone’s compensation is based on the performance metrics, they will often act as your internal advocate.

  3. Shows movement
  4. A company isn’t going to switch to your product or service simply because their previous solution isn’t using the latest technology, they are going to switch only when the value proposition changes. A prospect will be looking to see if your solution helps them sell more, or reduces costs. It is your job to convey that movement.

  5. Conveys urgency
  6. In most enterprises, you will find it difficult to engage at the right stakeholders unless the problem you are attempting to solve is a top priority for the organization. You will ultimately want to uncover what the competing priorities are, but make it easy for them to compare their investments. Return On Investment (ROI) is an important metric, but does not take into consideration the time value of money so it should be accompanied by metrics such as the Net Present Value (NPV) of the solution. A dollar today is worth more than a dollar tomorrow because of inflation. NPV will show a projects benefit over the designated period in today’s dollars. If your solution pays for itself quickly it is likely lower risk than other priorities. You can show this by including a figure for payback period, the amount of time required to recoup the initial investment. You should also speak of customers in the same industry who are already achieving value. A monthly cost of indecision can put that value into perspective for your prospect.

The most powerful knowledge you can have when it comes to constructing a value proposition is an understanding of the value your solution produces. Many people make the mistake of putting all their time and money into creating an elegant solution where they can’t justify or explain the value. There was a perfect example of this on last week’s episode of shark tank. The makers of a lockable charging station created a sophisticated product, yet were unable to create a compelling argument about its value. The pitch educates a user, who in this case is not the one who would be paying for it. They ultimately are competing with free charging stations that don’t lock. Identify the holes in this product by watching the clip below.

Ensure that you understand the pain points your solution solves, and speak to those points. Don’t get overly excited about the bells and whistles of your solution because power level decision makers aren’t going to care.

The value proposition needs to boil down to one thing: The measurable value that you and your offering can provide.