Tough economy provides stress test for value propositions
It’s difficult to find bright spots in the current economic environment, as many of the macro indicators continue to meander below mediocre levels, and none have shown any persistent trend toward either recovery or further economic doom. To further complicate the scenario, this is an election year, which traditionally means both the government and the private sector will play “wait and see” in regards to fiscal policy and investment. Given the economic circumstances and uncertainty, now is the perfect time for small business owners to closely examine their company’s value proposition.
For some small business owners the concept and implementation of value proposition in their business comes naturally, for others it’s learned; either in school, from business consultants or peers or from other consulting organizations. In short simple terms, a value proposition is a promise of a unique, compelling benefit to your customers above and beyond your product or service pricing. I include the words unique and compelling because you want to be different from your competition in some measurable or tangible way, which in the end, better supports your overall business strategy.
Whether you have no idea what your value proposition is–or if you can recite it like the pledge of allegiance–now is the time to ask a trusted customer, “Why do you do business with my company?” The advantage of asking right now is that the marketplace has already performed widespread belt tightening and cost cutting. The business that is being done today has been fully vetted, in some case multiple times, especially at the small and micro business level where inefficiencies have to be kept extremely low. The answer you’ll get from your customers today could be the most valuable information you’ll ever get about your business, and don’t be surprised if it shocks you a bit.
It is not uncommon for the marketplace to become misaligned with your company’s intended value proposition, and yet still maintain or even grow their business with your company. An example would be that your business adds a product line or rolls out a new service offering, and as part of that expansion your company’s marketing and sales efforts grow. The resulting bump in sales and revenue may actually have nothing to do with the new product line or service, and everything to do with better customer service and account management. Sure your bookkeeping will tell you how well the new line or service sold, but not why? By definition, none of your value proposition can be found in your bookkeeping.
Much of the reason that businesses and even end consumers choose to continue a relationship in the marketplace is trust. As we all know, trust isn’t given freely, it’s earned in difficult to quantify ways, such as responsiveness, attention to detail, forethought and consistency. You may believe that these things are a bunch of fluffy business consulting terms, but not if you consider even the simplest of business to consumer transactions. Consider McDonald’s French Fries. Sure, their taste is a matter of opinion. But who would argue that their value proposition isn’t actually consistency and responsiveness by the staff when a customer is dissatisfied? Few people would say that the best burger or fries they’ve ever had were from McDonald’s, fewer would say they are the cheapest. How then, has McDonald’s managed to achieve “Billions Served?” By simply understanding their own value proposition, which clearly isn’t the quality or price.
I was at a business conference last year, and one of the speakers gave a compelling presentation about how much time and money businesses waste working with their employees on “areas in need of improvement.” His argument was that everyone loses when focus is put on substandard performance; particularly when you consider the required effort to help an employee reach average or even acceptable level of aptitude in any particular area. The fact is, the whole exercise generally plays out to be misguided investment. He aptly suggested that the best thing Michael Jordan’s minor league baseball coaches could have done for him was not teach him how to hit a professional curve ball, but rather, to take the bat from his hands and hand him a basketball. This is the same exact logic you should apply to your evaluation of your current, actual, value proposition to the market.
Through the course of speaking with your customers, and asking “Why do you do business with my company?” you’re going to hear a range of responses. Beware of any customers who focus solely on price and quality. Price and quality are the most easily attacked parts of a business strategy, especially when economic times are tough. If you happen to have the lowest price, fantastic, but you’d better have something above price if you want to have a customer for the long haul. Conversely, if you have value above price then you should not be the cheapest. If you have the highest quality, that quality level must be an absolute, business critical requirement of your customer regardless of market conditions. Make a note of every customer that clings to price and quality and move on, we’ll come back to them.
Outside of price and quality, your customers’ responses are basically going to tell you what your actual value proposition is in their terms. These are exactly the benefits and values which are keeping your business going, and they are market tested to the extreme. They can be different from product to product or service to service and even customer to customer, but in the end they are all one very important thing; perceived as valuable to your customer above your actual pricing. Depending on your business model, you may indeed have to manage and maintain disparate value propositions, or you may have the ability to focus on one specific area for your entire business (see McDonald’s consistency.) Regardless, with the knowledge of why your customers chose to continue to do business with you, you can now more easily market and brand your products, tailor and price your services, and make the tough decisions around staffing your business. Just ask yourself, “Does this decision support or enhance those value propositions which my customers have already acknowledged?” Maybes are ok, and yeses are even better.
For those price and quality focused customers, review the nature of your business with those customers and find out why they aren’t appreciating the same values as your other customers. You’ll frequently find that your engagement with them is different or their business needs are significantly different than your other customers. In some cases you can make adjustments which can then present your other values to these customers, and in other cases you simply can’t.
If you can’t, you’ll need to either create a new compelling value proposition, or simply consider their business with you “at risk.”
The bottom line is if you want to survive this economic downturn and be poised for growth as conditions become more economically favorable, there is no better time than right now to call your customers and discuss your value proposition. While you’re at it, ask them about their value proposition to their marketplace. Now you’re adding value.