Customer Value Propositions and Differentiated Value

C O N S U L T I N G
A L i m i t e d L i a b i l i t y C o m p a n y
ParCon Consulting,LLC
Creating a Differentiated Value Proposition
A ParCon Consulting Training Module with Reference Notes
Discipline: Strategic Planning
June 10, 2014
Revision (1.5 wide) – Slideshare Public Release

© Copyright ParCon Consulting, LLC 2
SECTION ONE
Introduction to Creating Differentiated Value
Clarity for a complex but important topic

© Copyright ParCon Consulting, LLC 3A ParCon Learning Module

DEVELOPED FOR:
Customer value and its role in strategy development
While people understand the meaning of a “price” for
an offering, defining “value” can prove to be a little
more challenging and subjective.
We like to think of value as simply the greatest amount
of money your targeted customers would pay for your
offering.
The strength (or differentiation) of your customer
value proposition (CVP) is a function of the value you
deliver to your customer minus the price they actually
pay – or the surplus value received (or perceived).
Creating differentiated &
sustainable client value
lies at the core of any
successful strategy
 Clients rarely buy if your cost
exceeds the perceived value
 Conversely, if perceived value
exceeds your price, clients
usually will buy & growth occurs
 It’s easy to see that companies
have two options to improve
their value proposition; increase
perceived value or lower price
 Value is the subjective wildcard
and is impacted by customer
perceptions, competitive options
and a myriad of other factors
 It should also be clear that CVP’s
require context (specific offering,
price, customer, competitor) to
make any sense
Value I
perceive from
your offering
The total
“price” I
actually pay
Customer
Value
Proposition
- =
Simplified Value Equation
Clients Want to Understand …
What are you offering
and what is the benefit
to me?1
What are my
alternatives and why is
your offering superior?2

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DEVELOPED FOR:
Value propositions form a critical link between you & your clients
Understand that “value
received” is ultimately
about client perception
 Do not make the mistake of
confusing your value proposition
with what you sell
 It is about what the client
receives and perceives
 Value propositions are not
“eternal.” Changes occur as
clients evolve, competitors act in
the market and new offerings
become available
 Market focused companies are
in constant touch with their
clients and competitors – aware
of important shifts in the market
or driving them where possible
 Your value proposition(s) is
inexorably linked to your
company thru the competencies
and capabilities you sustain
The CVP acts as a lens that captures
and focuses the unique value you
provide in a clear, concise way
customers understand & respond to.
Can differ from how
clients see us
Client
Perception
How we tend to view
what we do …
Heritage, Reputation
& Culture
Unique Expertise,
Resources & Process
Operating Units
Services and
Solutions
Your Company’s
Value Creation Tree

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DEVELOPED FOR:
What is a client value proposition?
A concise summation of the unique appeal of a product, service, or solution to a
targeted set of clients or decision makers. Ideally, it differentiates the company
from its competition by clarifying the sum total of important benefits that clients
care about and how it will deliver them. Value propositions are integral
for any market driven strategy
because they force you to focus
on existing and future clients
 The “strength” of your value
proposition(s) directly impacts
your ability to organically grow
in strategic markets
 While a Client Value Proposition
is a “statement” it has broad
implications in terms of
• client selection
• offering development
• investments in capabilities
• strategic priorities
How we identify
opportunities and
articulate our value
Our Markets
Customer needs,
challenges and pain
points
Visualizing Your Value Proposition
<< The Connection >>Our Business
Our company’s unique
capabilities &
competencies
Value propositions form a
critical link between your
clients and your capabilities
Unique Offerings “Strategic” Clients

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DEVELOPED FOR:
A compelling value proposition….
 forces clarity around the specific combination of;
needs, wants, desires and values that uniquely
characterize your highly desirable clients,
 provides the foundation for creating a compelling and
differentiated offering that sets you apart from
competitors in the eyes of your client,
 allows you to tailor your services and offerings to key
client needs; driving enhanced value creation,
increased profit, and higher client satisfaction,
 improves operational efficiencies by helping you focus
on the most important clients and the capabilities and
processes that directly create value they want,
 can help you realize rapid gains in market share for
strategic client segments by driving enhanced
messaging and focus of marketing and sales efforts,
Good strategies focus
on what your value
proposition is & what you
expect it to become
Indicators that your value
proposition might need work…
 An inability to drive organic growth
at or above market levels of
performance
 An ad hoc approach to the selection
of clients and/or projects
 The inability to articulate who your
best clients are and why
 A lack of awareness of competitors
and competitive positioning
 Lack of understanding of why & how
clients make buying decisions
 Inability to succinctly & powerfully
articulate your unique value
 The increasing commoditization of
services or offerings (“me too” tends
to degenerate into price wars)
“The aim of marketing is to
know and understand the
customer so well that the
product or service fits him or
her and sells itself.”
Peter Drucker
“The purpose of business is
to create a customer.”


DEVELOPED FOR:
The mechanisms of a value proposition in action
Companies that demonstrate
an ability to grow share in key
markets organically have a
powerful, clear and compelling
value proposition
 It can be clearly articulated in
terms that their most important
customers understand and
respond to
 It can be deconstructed into
tangible building blocks which
can be evaluated, measured
and acted on by the company
 It is supported by an operating
model designed to drive
investment and focus to
internal capabilities that create
long-term customer value
 In our experience, companies
that sustain profitable growth
in their markets create a
seamless link from a superior
client value proposition to the
internal capabilities that
support and sustain it
Client Value Proposition Building Blocks of Value Internal Operating Models
External / Customer Focused Client / Company Interaction Internal / Operationally Focused
Operations
Offerings
Clients
We consistently see six
“customer value models” that
successful companies choose
to differentiate themselves in
the eyes of their customers.
Companies create competitive
differentiation using eleven
“value elements” that
encompass their; offerings,
customer experience & cost.
Companies deliver & sustain
differentiated value leveraging
an operating model designed
to excel at consistently
delivering the value elements.
The unique value I receive when I
select your firm over other
alternatives in the market …
The unique combination of value
adding elements a firm excels at to
create a perception of differentiation…
The capabilities & competencies
critical to consistently delivering
superior performance in key elements

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DEVELOPED FOR:
Winning “models” that create unique customer value
Company performance is
closely linked to the clarity
and differentiation of a
client value proposition
 Each “model” implies different
strengths and different clients
who value those strengths –
it implies a strategic choice
 In dynamic industries, you’ll
often see different competitors
successfully operating across all
six models
 The more closely aligned a
company is with a successful
model, the higher their relative
performance tends to be
Which “flavor” of customer
value proposition best fits
your organization?
Discuss and identify where you are
and how that compares to your key
competitors?
We Make it
Easier
Low prices across the broadest
product selection through an
extremely convenient ordering
mechanism.
“Amazon.com and your done”
McDonalds E-Bay
Our Value is
Exceptional
Southwest Airlines provides its
passengers with a “fun” travel
experience combined with the
fastest door-to-door travel times and
lowest prices
FedEx
Our Product
is Unique
Coca-cola is a unique product with it’s
formula a closely guarded secret. This
secret formula combined with exclusive
use of the coca-cola brand name means
that nobody can ever produce a coca-cola
product, merely imitations of it. Thus,
Coca-cola is a completely unique product.
Our Price is
the Lowest
Everyday low prices.
We Own the
Problem
IBM positions ourselves as trusted
experts in technology who will work
collaboratively with you. Essentially, your
problem becomes our problem, and your
success is our success. It’s this
trustworthiness which leads to the adage,
“no one ever got fired for buying IBM”.
Your Accountant
Dell Computer
Apple Computer BMW
Toyota
Note: This is a widely accepted model applicable across all industries and is not engineering services specific.
team discussion
Hyundai Cars
ADP
Our Experience
is Special
To create an “experience” around
the consumption of coffee, an
experience that people would
weave into their lives
Disney World Fine Dining

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DEVELOPED FOR:
The building blocks of differentiated client value
While companies & clients
form complex relationships,
most CVPs can be described
using elements from these
three building blocks
Too often, we see value
propositions created by business
leaders in a vacuum. To be
meaningful, they need to be
carefully framed by:
 What your offering to the client
(products, services, solutions);
 Precisely who the target customer
is (not all act alike or value the
same things) and finally;
 Who or what is your target
customer’s next best alternative
to your offering (your competitor)
A Closer Look at the Three
Pillars of Customer Value
TANGIBLE OFFERINGS
“Unique services, offerings or solutions of interest to target
customers because they meet a need or fulfill a desire”
ECONOMIC VALUE
“The costs & benefits associated with
your offering including; cost to acquire,
cost to own, impact on revenues, costs,
risks, or other tangible benefits.”
CUSTOMER EXPERIENCE
“The overall experience clients expect
or enjoy based on; service, trust, ease,
reputation, brand, or community.”
Try and succinctly describe
your customer value
proposition today.
Can you do it? Is it succinct, clear
and compelling? What does this tell
you about your current level of
maturity with respect to CVP’s?
Tangible Offerings
1. Expertise
2. Quality
3. Depth & breadth
4. Functionality
Customer Experience
5. Service
6. Partnership
7. Brand
8. Reputation
Economic Value
9. Initial price
10. Total cost to own
11. Value of time saving
Business leaders leverage eleven
elements that can be used to create
the perception of differentiated value
team discussion
Three Pillars of Customer Value


DEVELOPED FOR:
Value elements help leaders create competitive differentiation
Tangible Offerings
Unique services, offerings or solutions of interest to target
customers because they meet a need or fulfill a desire
Expertise Quality Depth/Breadth Function
The unique knowledge,
experience, intellectual
property and capability
brought to the customer
The level & consistency of
quality and / or certainty of
delivery a client expects
from you in a transaction
The depth products or
resources available to the
client and breadth or range
of coverage you provide.
The performance of your
offering in terms of fullness
of features, function or
elegance of design.
Client Experiences
The overall experience clients expect or enjoy based on;
service, trust, ease, reputation, brand, or community
Reputation Brand Service Partnership
Personal perception of your
firm by customers; typically
based on 1st or 2nd hand
experiences
The public persona of your
firm in the general market
based on advertising, PR,
communication, etc.
Perception of the level of
customer service provided
during transactions or
interactions
Perception of the level of
partnership (peer 2 peer)
that exists in the
overarching relationship
Economic Value
The economic value (cost, benefit) associated with your
offering including; cost to acquire, life-time cost to own,
impacts on revenues, costs, risks, or tangible benefits.
Initial Price Total Cost Value of Time
Perception about the initial
cost to acquire goods and
services by the client
compared to other options
The perception of the total
costs & benefits derived
from doing business with
your firm (vs. others)
Perceptions related to the
relative impact on a client’s
time doing business with
your firm (vs. others)
ParCon focuses on eleven
elements in our strategic
planning process to help
leaders define their CVP
Differentiation in Action
(Example: Competing on Superior Quality )
How is “quality” actually experienced
or evaluated by your key clients and
how are you really performing?
What areas do you feel
your clients would identify
as areas where you stand
above your competitors?
Identify and discuss where you are
consistently able to deliver
exceptional customer value.
 Saying you’re unique to the
market is relatively easy –
creating and sustaining the
differentiation is not!!
 It is your choice about where to
focus and how to differentiate
that creates your unique CVP
 Deciding on a unique and
compelling combination of
factors demands a deep
understanding of current &
future clients and competitors
team discussion
Make sure that quality is a “critical”
factor in how major clients choose a
provider or assess performance
How good must you be before clients
perceive a difference that impacts their
actions? Can you measure results?
1
2
3 Negative Differentiation
Positive Differentiation
Client Indifference Average
Current
Target

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DEVELOPED FOR:
Different value propositions demand different operating models
Value propositions flow from
and are linked to a
company’s operating model
that supports their execution
 A critical mistake in strategy is
to developing a CVP that is not
well aligned with your
operating model or vice versa
 Companies often struggle to
become exceptional in even a
single operational area
 It’s easy to understand the
challenges of trying to support
widely different value props
within one company
OPERATIONAL
EXCELLENCE
“best total cost”
CUSTOMER
INTIMACY
“best total solution”
PRODUCT
LEADERSHIP
“best product, service”
Responsive to
customers
Operational
competence
Product
differentiation
MINIMUM LEVEL OF
COMPETENCY TO
COMPETE
Threshold vs. Market Leadership in Customer Value
Treacy & Wiersema, 1995
Operating Models, Elements of Differentiation
& the Capabilities that Support them
What operating model best
describes the kind of
company we are today?
Can you identify yourself aligned
with one of the three models? How
does it fit with your choice of the
value proposition of choice?
team discussion
Operational Focus for Your Organization
PRODUCT LEADERSHIP
EXPERTISE
 Talent, expertise, knowledge mgt.
 Service & solution delivery
QUALITY
 Customer care
 Total quality systems
 Delivery systems
DEPTH &
BREADTH
 Range of offerings available
 Depth of coverage or resources
 Geographic coverage
FUNCTION
 Features, functions and benefits
 R&D and innovation capabilities
CUSTOMER INTIMACY
REPUTATION &
BRAND
 Branding, marketing, public relations
 Client management, market intelligence
 Work portfolio, client satisfaction
SERVICE &
PARTNERSHIP
 Client service, flexibility, empowerment
 Customer intimacy, trusted advisors
OPERATIONAL EXCELLENCE
TOTAL COSTS
(MONEY & TIME)
 Low internal operating costs
 High customer ROI
 Easy customer interface
LOW PRICE
 Low manufacturing or production costs
 Highly efficient operational processes
Elements Capabilities & Competencies


DEVELOPED FOR:
Making it real by operationalizing your value proposition
A compelling strategy and
differentiated value
proposition form a critical
link to sustainable success
 A value proposition alone is of
limited value until it is
translated into internal &
external actions
 Understanding & consistently
investing in the capabilities that
drive differentiated value is
how market leaders stay on top
 Understanding strategic
customers and competitors
requires research – basing a
CVP on notional insights or
vague ideas can be dangerous
Working Outside:
Bringing Your CVP to the Market
 Understand Strategic Customers & Competitors:
Identifying your strategic customers & markets as well as
your major competitors is an important first step in
developing a well-founded customer value proposition.
 Clarify the Customer Value Proposition:
Develop a succinct, supportable and powerful statement
the clarifies what your firms’ differentiated value
proposition is and what it means for your clients.
 Communicate to the Market:
Consistently communicate the distinct competitive
advantages and unique value of your firm’s offering to
current & potential customers in an impactful way
Clients & Markets
Working Inside:
Deliver, Sustain and Enhance Value
 Identify Operational Elements that Drive Value:
Before you can take action to sustain or enhance the value
you create, it’s critical to identify major internal activities
(processes, knowledge, resources) that drive it.
 Linking Value Delivery with Competencies:
A sustainable value proposition ultimately flows from your
unique capabilities and core competencies so insure you
understand them and invest consistently over time.
 Innovating and Changing the Game:
Experimenting with new and innovative ways to create
value for clients is one of the most powerful ways to change
the competitive landscape in your favor.
Capabilities & Competencies

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DEVELOPED FOR:
Frequently asked questions
 Why should I invest time in developing or refining my customer value proposition?
The answer depends on how good your existing value proposition is because you’ve got one in the eyes of your customers whether you know
it or not. A good CVP provides your business with a solid foundation for creating a compelling and differentiated offering that sets you apart
from competitors. In many cases, a refinement or improvement can help your business realize gains in market share for important market
segments by allowing you to focus your marketing and sales efforts.
 How does a customer value proposition change the results in my business? Isn’t this just a “statement”?
You’re right, a customer value proposition in and of itself will not change business results until it is “operationalized”. Doing this requires
that you customize your services and offerings to drive enhanced value for client. The pay-back comes in increased profit, higher customer
satisfaction, faster growth and improved efficiencies due to your ability to focus on important customers and key deliverables.
 Do companies have only one value proposition?
It depends on the company. Many companies have limited products targeted at a single set of customers – these typically have one value
proposition. Larger or more complex firms typically have more than one value proposition because they address more than one customer
segment, have different competitors or offer a broader array of products and services.
 What is the relationship between a value proposition and a core competency?
We view these as closely linked. Competencies (and underlying capabilities) are internal elements of that drive a firm’s competitive
advantage while the value proposition is an externally focused positioning based on the unique needs of an identified market segment.
 Do you need to understand your core competencies to create a good value proposition?
In an ideal world, a company would understand both their core competencies and their customers very well. This allows the firm to link its
unique competitive advantage with the value it expects to deliver to its chosen customers. In the real world, it is more important to start
with your customers and work backwards to your firm’s unique capabilities. Core competencies will emerge based on what clients reward.
 How long does a value proposition last?
The longevity of a value proposition depends on both your customers and industry and your firm. Significant changes in either can make a
value proposition obsolete very quickly. Stability can mean that your value proposition can last many years or decades. The danger comes
when you miss key changes that signal that it’s time for a major overhaul of your value proposition. Buggy whips anyone?
There are major variations
in what people think a
value proposition is and
confusion abounds
A value proposition is not…
 A clever slogan, tag line or brand
 A mission statement or vision
 An offering or price
 A list of features or benefits
 A generalized statement that could
apply to any competitor
 A position that doesn’t differentiate
you in the eyes of important clients
 An unsupportable dream lacking
substance & support of the firm
 A goal without a strategy to achieve
Is there value in further
work focused on customer
value propositions?
Discuss whether further work on
refining your CVP makes sense in
light of what you’ve learned.
team discussion


DEVELOPED FOR:
About ParCon Consulting
A strategy practice tailored to today’s realities
If you felt this information
was valuable or you’d like
to know more about how
ParCon can help, you
contact us at:
ParCon Consulting, LLC
1045 Bay Pointe Crossing
Alpharetta, GA 30005
Matthew Gill, Managing Partner
770.740.9621
info@parconsult.com
www.parconsult.com
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Customer Value Propositions and Differentiated Value

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