Tough economic times increase
complaints by business owners that: Customers will only buy based on low price,
Quality no longer matters, and Competitors are giving their product away,
It is economic reality that weak
demand generally results in softer prices.
Though the key reason that customers no longer pay what they once did
may actually be that your customer’s perception of value has changed.
A Value Proposition is the sum of the
benefits of the actual product/service your firm provides plus the experience
your customer has with your firm, viewed from the customer’s point of view.
The Value Proposition your company
offers is the reason your customer chooses your company over competitors when
your firm solves a problem or meets a need for a particular segment of
customers in a compelling way.
During tough economic times, customers
re-evaluate their “wants” Vs. “needs” and, to save money, focus solely on
satisfying “needs”.
What is often stated as “quality” by owners
of companies that make and sell things is just a different specification or
feature set. When customers select a less
robust feature set they are minimally satisfying their “need”. Products/ Services that include features that
add cost and exceed the minimum features required to solve the customer’s problem
or meet the need will become uncompetitive.
Some competitors may be in a financial
position to enhance their Value Proposition by lowering prices to protect
market share during periods of weak demand.
Sometimes this action is taken unwisely.
However, adaptable competitors will detect a change in a customer
segment’s perceived Value Proposition and adjust their offering and business
model to sell at a lower price, in a sustainable manner.
Deep knowledge of customers and
customer segments is necessary to ensure that your firm’s Value Propositions
stay in sync with changing customer wants and needs.
Winning Value Propositions are a
result of effective listening to customers in a given customer segment so the right
blend of elements can be created and adopted to solve a customer problem or
meet a customer need better than competitor’s offering.
Value Proposition Elements (Typical)
1) Price / Terms
2) Product / Service Benefits & Solutions
3) Ease of Acquisition of Product / Service
4) Performance of Product / Service, as
represented
5) Customer Experience with resolving issues
6) Customer Perceived Risk
When customers that once paid enough for
your product /service are no longer willing to do so means something has
changed in the customer’s perception of your Value Proposition.
Your company must be culturally built
to engage with and listen to each customer, with every interaction, to detect any
pattern of change in a customer segment’s needs or problems. How to accomplish this is the subject of
another post, but key is that a process must be culturally embedded in your
company to avoid denial which delays acknowledgement of changes occurring in a
customer segment and prevents your firm from effectively adapting to the new
environment.
A Few Examples of
Changing Value Propositions in Tough Economic Times
1) Legal Support Services, the Economic Buyer
Moves Upstream to the Client
The
most common practice for handling legal support services was for the client to
let their attorney hire legal services as they wished. In these tough economic times, clients are
asking for competitive quotes and large corporate clients are circumventing
attorneys by contracting directly with legal support service providers applying
buying power to get lower prices. This
is a change that will not likely reverse as the economy improves. This change is disruptive for legal support service
firms. Suddenly the repeatable sales models,
which have been built over decades, no longer are effective as the economic
decision maker for legal support service has changed to someone with whom the
service provider likely has no relationship.
Further, the power exerted by the economic buyer has permanently lowered
prices, while simultaneously commoditizing the legal support service industry.
2) Specification / Feature Set changes to “Good Enough”
Customers
will often change their specification on a product to “good enough” in tough
times to save money. For example, there are
varying grades of in-shell peanuts that are offered by grocery retailers at
different price levels to consumers.
There is a meaningful difference in price and some brands choose to
differentiate by offering a premium grade that is a little larger and has a
more pleasing visual appearance. In
tough economic times, in order to save money, many consumers will shift to a
lower grade generic peanut that is “good enough”.
The
recently announced iPad Mini tablet computer will likely be a “good enough”
trade-off for many consumers wishing to save money vs buying the full size
iPad.
Product
offerings with “extra features” that add cost and exceed the customer needs
will get replaced by “good enough” products.
3) Switch to “The Whole Product” to Reduce Risk
Risk reduction
can take on increased importance in tough economic times. Customers may assign a higher value to “reduced
risk” and will favor the product/service perceived as the safest. This relates most often to products that require
additional activities such as design, customization, and installation. Instead of dealing directly with the various individual
entities for each aspect of a job, a customer will prefer to deal with a single,
qualified, proven company. For example,
a new hospital under-construction must make a selection for its counter and
wall surfaces. Key elements of this
product choice are the performance of the surface while in use over its
economic life, how close the real styling is relative to the “as designed”
style, fabrication of proper shapes with accuracy and durability, and on-time
installation. At risk is the economic
value of the hospital space as it is revenue producing. If hospital space is unavailable because of
construction delay or need to take patient rooms out of service for surface
repair, there is a high economic cost to the downtime.
In this
scenario, customer’s will most likely select a product that offers the most
proven reliability available from a single company combined with its proven
“authorized” partners capable of completing “the whole job”, thereby creating
price reduction pressure on “non-Whole Product” Value Propositions.
