The value proposition builder

The Value Proposition BuilderDr. Celen P.Paul

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Introduction

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Define Market Value Proposition“ a start-up is an idea searching for a business model “

• Definition:

• A value proposition is a statement of the functional, emotional

and self-expressive benefits delivered by the proposed solution

that provide value to the target customer.

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• A value proposition is a clear, simple statement in 1 sentence and in

simple words :

“ WHAT do we offer to WHOM and what is his BENEFIT / VALUE “

• The key to generate profitable business

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Define Market Value Proposition“ a start-up is an idea searching for a business model “

• Key components / questions:

• What you offer and how you offer it to customers

• What type of value or benefit is associated with your offering

• How much of it the customer can expect

• How the value is generated

• Why it differs from anything else on the market

• Key components :

• Relevancy : what & who / where is the (urgent) need / pain

• Quantified value : benefit / gain / cost vrs risk /

• Unique differentiation: why would customer buy from us

• Value ?

•Why do we buy things ? Why do we buy things ? Why does he want to buy from ME / US. How to

describe the “ urgent “ NEED• List 15 to 20 business values you derive from buying or doing things. e.g. cost savings, time savings,

revenue increase, customer / employee satisfaction, emotions,…

• Then create a short list that most accurately describes the value your product offers your customers

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Difference B2C-Sales B2B-Sales

•Decision Making : Emotional Rational

•Value : Latent Overt / Objective

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Example : Google‘s Value Proposition

Bad :

• Google uses a patented page-ranking algorithm to make moneythrough ad placement

Good one :

• Google is the world‘s largest search engine that allows internet

users to find relevant information quickly and easily.

Expanded one :

• Google is the world‘s largest search engine that automatically

provides advertisers with potential customers tailored to the

ad content, increasing click-thorugh and conversion rates

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• The components of a good

•Value Proposition

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Value Proposition Builder ( Barnes,et al. 2009 )

1. Market : • who wants /needs to buy from us

• Where is the urgent NEED / low hanging

fruits

2. Value experience :

3. Offering : WHAT ??

4. Benefits : f ( NC, NP, EM )

5. Differentiation :

• Uniqueness

• Aaa

6. PoC : Proof of Concept

7. Test market concept :• Interview

• Analyse / Adapt

• Iterate

• Example : iPda - steve jobs 7x

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The Value Proposition Builder™ is a

six-step iterative process. 1. First, you need to decide who to talk to. This means analysing and identifying the MARKET segments,

or specific clients, or target individuals within those clients for whom your solution has the potential to

deliver Value, profitably.

2. Next, analyze and define the VALUE EXPERIENCE that clients get from your organisation from its

current activities. You need to define good, bad and neutral experiences, but what will really make a

difference are those experiential outcomes that have the power of “Wow!”

3. Then, (re)-define the OFFERINGS mix capable of leveraging your proven Value Experience with the

defined target Market group. Fix your first MVP !

4. When you have done this, you are in a position to assess the BENEFITS of the Offerings in the context

of the Value Experience you are able to deliver to the Market group. There is a cost component of

benefits here which includes Price and Customer Risks, enabling the calculation of Value where

Value = Benefits – Cost.

5. You are then able to go on to work out how that provides ALTERNATIVES & DIFFERENTIATION for

your organisation … Please include a competitive analysis or positioning in the VALUE Chain

6. … and back it all up with relevant, substantiated, measurable PROOF. The PoC ! ( Proof of Concept )

Crucially, each element and each step MUST be viewed through the filter of responses already generated.

Iterative Process !!

So, for example, the Value Experience for a particular situation will be related to specific Market segment(s)

or client(s) identified in a Market. Then, the Offering is analysed in terms of the identified Value Experience

related to the specific Market segment. And so on. By so doing, you are forced to focus and drill down in

ever more specific terms.

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The components of a good VP

1. Market Positioning

Composing the correct product / Market mix

( Ansoff)

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Positioning : questions to ask

• Start is a hypothesis :• What is my idea ? What is my proposal ?

• Do not suffer from the „ engeneer-syndrom „

• Questions to ask :• Who is your target customer? Who is my potential buyer ? (IDEAL CUSTOMER

PROFILE module )

• What kind of problem do you solve for them? Is this an important problem for

this customer? Is it an urgent problem? Where is “ Low Hanging Fruit” ?

• How do you plan to solve this problem for the customer? What type of benefits

will it generate.

• Position your solution : here is the process in steps

1. Find out the „ Demand type „ - it will define/ influence the business model

2. Find out in what phase of the technology transfer your market and potential

buyers are ( Chasm-principle ) or the PLC-cycle of your market

3. Summarize a viable MVP, test it and start proposing it to the early adapters

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Positioning : 1. Demand Type

• Definition of Demand. An economic principle that describes a customer's desire/NEED and

willingness to pay a price for a specific good or service. Holding all other factors constant, the

price of a good or service increases as its demand increases and vice versa.

• Why important ?

• Because yr TOTAL „GTM- / Marketing & Sales plan“ will depend on it

• It will tell you : who to contact, at what org-level, what message to deliver, how to deliver /

style and what probable stage of the buying cycle ( Buyers Journey)

• Types Of Demand• Steve Blank : ??? incomplete - confusing

• New Market / Existing Market / Redefine Existing Market ( Niche / Low-Cost entrant )

• Sirius Decisions

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MVP Whole Product

2. Technology Adoption Life Cycle

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2. Technology Adoption Life Cycle where and how to sell

Name % Type CharacterSales :

Place / Message

Innovators3

Technology

enthusiast

Central interest / Curious

Pleasure of exploring new

• Trade shows

• Great Technology

Early

adopters 12 Visionaries

Buy new concept early

Not technologists

First to get the new stuff

• Congress, Trade shows

• You can be the first

• Beat yr competition

Early

majority 35 Pragmatists

Strong sense of practicality

Need PoC(oncept)

• Meetings, Office

• ROI, efficiency, save $$

• Case studies, examples

Late

majority35 Conservatives

Wait until something has

become an established

standard

Not comfortable with technology

• Awareness Campaigns

• References

Hopefully you prepared yr exit

Laggards

15 Conservatives

Don’t want anything to do with

new technology Just do nothing

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Crossing Chasm

Why is the Chasm / Gap there ?

• These 2 groups have not the same expectancy

• Visionaires go for a personal win

• Pragmatists want a company win, a productivity

improvement : ROI

• Interviewing will give DIFFERENT answers for each group

Technology Adoption Life cycle• Develop in parallel : MVP & Whole Product

• Product for early adapters to survive and gathering

knowledge

• „Wole Product“ for achieving cash cow ( partners / allies )

Pricing / Business Models• Visionaries: value-based pricing

• Pragmatists: competition-based pricing

• Conservatives: cost-based pricing

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MVP versus „Whole product“

Minimum Viable Product ( MVP )

A Minimum Viable Product is the smallest feature set that lets you start learning about customers.

Don't confuse your MVP with a minimal product. Your MVP needs to address your top customer problems and deliver on your Unique Value

Proposition.

Objective Details Step-by-Step Process

Define the minimum

feature set needed

to solve your top 1-3

problems.

For each of the problems outlined earlier, sketch out

the top features or capabilities that will address those

problems.

• Outline a possible solution for each problem

• Don't spend too much time detailing

• These features will form the basis for your Minimum Viable

Product

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Create +Test the MVP

Describe the key aspects of your MVP for which you are currently seeking

market feedback.

Answer the following questions after testing the MVP.

• Is our understanding of the customer problem accurate and relevant?• Does the MVP solve the customer’s problem?• Does the product solve the problem better than a viable alternative currently

on the market?• Would they use the product? Can they imagine the product as part of their

everyday life?• What is their primary concern about buying and implementing the product?

• How much would they be willing to pay for the product?

• What process would the customer employ when deciding to buy such a

product?

• Who is involved in the decision-making process?

• Whose budget will the funding come from?

• Who will be the users of the product?

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2. Target Market - WHO ?

Composing the correct product / Market mix

( Ansoff)

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WHO ? : Market segmentation definitions

• Market Segmentation is the sub-dividing of customers into

homogenous sub-set of customers where any sub-set may conceivably

selected as market target to be reached with distinct Marketing Mix –

Philip Kotler

• Market segmentation is the process of dividing the whole market of

goods or services in groups of people with similar needs. By making

this division there is a high chance that each group responds in favour

to a specific market strategy. - PPC

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WHO ? = Target segmentation

• Market Segmentation:

• Dividing a market into distinct groups with distinct

needs, characteristics, or behavior who might

require separate products or marketing mixes.

• Target Market

• Consists of a set of buyers who share common

needs or characteristics that the company decides

to serve

• Evaluating Market Segments

• Segment size and growth

• Segment structural attractiveness• Level of competition

• Substitute products

• Power of buyers

• Powerful suppliers

• Company objectives and resources

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Seven Steps to Successful Segmentation for Startups

• Step 1: Determine where you really are within the startup life

cycle. Relative position in chasm / demand type

• Step 2: Create as broad idea of an addressable market and then

break it down in to all possible sub-segments. Use CSF’s and

MPRS

• Step 3: Create customers profiles for all remaining sub-

segments. Use problem/Need search process

• Step 4: Assess profiles again critical flaws criteria and eliminate

those that fail

• Step 5: Assess remaining profiles against selection variables

continuously until top segment remains. Define Beachhead…

• Step 6: Test target segment against SWOT and performance

goals

• Step 7: If no segment apparent, repeat process

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Ideal Customer ??

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3. Value

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Value and Value Perception

„ Give a man a fish and you feed him for a day.

Teach a man to fish and you feed him for a lifetime „

- old Chinese proverb

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Value Proposition

Difference B2C-Sales B2B-Sales

• Decision Making Emotional Rational

• Value Latent Overt

Key components :

A value proposition is a clear

statement

• Relevancy : what & who

• Quantified value

• Unique differentiation

= ONE sentence

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Uniqueness

This requires to differentiate the offer against competition.

How to become the preferred choice of the target market ?

1. Evaluate the following :• Match competitor in all but one.

• In at least one element of value you need to excel.

• Value proposition for company and for product separate

2. Uniqueness Scale :• Rate the quality and uniqueness

• Use a 1-5 scale to rate

• Outcome must be better than 3

3.Value Proposition Evaluation Matrix • Total must be more then 2

Score Value Market

size

Compete Barrier of

Entry

1 limited small heavy low

2 substantial medium limited extensive

3 strong medium heavy low

4 unique large low extensive

5 unique large exclusive extensive

Desire / NEED

Rank 0 1 2

Exclusivity

0 0 0 0

1 0 1 2

2 0 2 4

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Perceived Value

• Perceived Value = ( Impact – Cost ) / RISK

o Impact = The emotional & analytical end-state vision of the buyer

Real benefits vrs Perceived ones

o Cost = the cost of everything that must be purchased, allocated or incurred to realize that

goal

Including the change/pain and adaptation of all internal processes

o Risk = discounted by various factors that could derail benefit realization or

create buyer uncertainty

● Valuable conversations are timely, relevant and in context

o Timely = Phasing. Where in their problem solving processare they ?

Where on a maturity chart are they ?

o Relevant = what are the customer's problems ? How do they solve them ?

o In context = who is involved in solving problem ?

Why do they care ?

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Value Perception matrix (Forrester )

1. Keep it simple -

2. Buyer requires different configurations or

solutions /large portfolio

3. Buyer has problem that needs sophisticated

knowledge transfer to solve

4. complex

1

3

2

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2 4

3

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Porter Value Chain

Internal Value Chain useful to:

• layout cost building

• Vulnarability against competition

• Position in external value chain

External Value Chain useful to:• Understand back- & forward

integration• Understand competition, players• Contribute 5-forces analysis

Important notice !As a start-up you should not be too worried about competition, but beaware of external value chain.

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Porter 5 - Forces

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Example : internal value chain

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Example : external value chain

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4. Result

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Once you’ve clarified your value proposition,

you can use it in your:

• Voicemails

• Email messages

• Conversations

• Presentations

• Proposals

In short, in every customer interaction.

The key word is

OUTCOMES!

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The best ones include

these 3 components:

So what makes

a value proposition

powerful & effective?

• Business driver

• Movement

• Metrics

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Tips

• A business driver is related to an important objective that your prospects are

measured on. The best business drivers are very specific. Being specific makes

you stand out from your competitors. Here are some examples…

• Profitability Cost of goods sold Productivity Revenue Costs

• Speed to market Customer satisfaction Quality Returns Reviews

• New clients Market Share Competitive advantage Turnaround time

• Because people only change if a new option is better than the status quo and

can positively impact their key business drivers.

• “Movement” words like these belong in value propositions:

Eliminate Speed Up Raise Minimize Decrease Cut Shrink Increase

Maximize

• Metrics : Strong Value Propositions Have Metrics Too

Dollars/Euros Time frames Percentages

To your prospects,

19.7% is much more

believable than 20%.

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5. Validate with Test & Interviews

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Prepare to talk to customers

• What are the key political, regulatory, economic, environmental,

social, cultural and technological trends that affect the space

you are in?

• What are the key issues facing customers in this space?

• Who are the key stakeholders?

• Who are the analyst firms, analysts, journalists, bloggers and

conference presenters that talk about relevant issues and

technology?

• What are the main conferences and events?

• What are the main media outlets that keep people informed

about the industry and its technology?

• Prepare your list of questions and issues to address in your

customer meeting / talk / interview

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Understand Customer Problem and Need

• What problem causes the pain or frustration? Sketch a scenario in which the customer attempts a task and feels pain as a result.

• How does the customer try to cope with the problem now? • What is causing the problem? What is interfering with a speedy solution? What

goes wrong and why?• How much money is the customer losing, either in additional costs or lost

revenue? Quantify the pain.• Who is the individual who feels the pain first and how does it “waterfall” up or

down?• Who else feels the pain? The customer’s customers? Suppliers? Partners?

Investors?

Think

Plan

ExecuteAnalyse

Adapt

Phase 1

Test customers /

prospect‘s perception

• of the problem and

• his urgency / need to

solve it

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Initial Approach : Search not executea structured process for testing business model hypothesis

Think

Plan

ExecuteAnalyse

Adapt

Think

Plan

ExecuteAnalyse

Adapt

Understand CustomerProblem and Need

Develop Validate

Develop SustainableBusiness Model

AdaptiveLearning

When not enough paying customers

GTM

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Evaluate market feedback

• Is the market problem urgent? Will customers care if

the problem is not solved? Do they have another

way to solve this problem?

• Is the market problem pervasive? Determine if the

identified market problem applies to a significant

percentage of your desired target market.

• Will your buyers pay to have this problem solved?

• On the basis of the answers to the above questions,

which direction should you take?

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Update your problem statement

Write a brief description of the specific problem your

target customers face, as well as the impact of the

problem and its pervasiveness. Include the following

information:

• The objective of their work: What are they trying to

achieve?

• How they perform their work

• The problem they face

• How the problem impacts their objective

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Describe your product vision

Write a statement that describes your product vision,

which identifies one or more of the following:

• Your target customers and their problem

• The product solution you are making

• How the user goes about their job and will use the

product solution

• Customer outcomes and benefits

• Three- and five-year scenarios for your product and

company

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5. Use Workbook if necessary

Small Business & Entrepreneurship

The value proposition builder