The third instalment in the ‘Ideas’ Trilogy
This is the third article in my ‘Ideas Trilogy’. In the first article, (Business plans – the bedrock of effective strategy execution) I explored why some ideas seem to be more successful than others, and the importance of wrapping good ideas in a narrative in the form of a business plan. In the second article, (Disrup@tion – the most misunderstood and misused concept in strategy), I unpacked whether real disruptive ideas are harder than they look, or whether ‘disruption’ is just one of the most misused and misunderstood phrases in strategy? In this third instalment, I delve into how successful ideas are anchored in compelling customer value propositions, or put simply, the ability of a product or service to ‘do the job’ of filling a customer need better than alternatives.
The customer value proposition template
A clearly defined and articulated customer value proposition is at the heart of how good ideas are transformed into successful ones. While it is imperative to start with a clear and concise definition of a customer value proposition, this is just the launch point in a multi-phase process of evaluation, development and execution. A desired outcome of this multi-phased process is a clear and compelling value proposition that identifies target customers who are dissatisfied with the current state, and who are open to new products or services that solve their needs, unlike any other alternative available. This is the basic format or template for a compelling customer value proposition.
Value propositions are immersed in an intimate understanding of customer needs
While not always a natural starting point, experience dictates that the most compelling value propositions emanate from an intimate understanding of customer needs. While customer needs will vary, a useful way to characterise or group them is thinking about the four U’s.
- Unworkable – these are value propositions that address existing processes or solutions that are either broken, unworkable, or highly inefficient in their execution. While target customers’ needs are easier to define, the challenge is determining why the proposed new products or services will ‘do the job’ better for the customer than alternatives – including the current state.
- Unavoidable – these are value propositions targeted at customer needs that can’t be avoided, such as, needs closer to the bottom tier of Maslow’s hierarchy of needs, or needs associated with regulation. The benefit of unavoidable or ‘can’t do without’ needs is that they must be solved (i.e. non-discretionary), and therefore, likely to be well identifiable by the target customers.
- Urgent – the easiest value propositions to execute are associated with customer needs that are blatant and critical in nature. In effect, they are like ‘pain killers’ to a customer need rather than a ‘vitamin’, where customers’ choices may be more discretionary in nature. Blatant and critical needs are compared to customer needs that are more latent and aspirational. While latent and aspirational needs can be the feeding ground of disruptive innovations, the execution and adoption pathway can be more problematic.
- Underserved – value propositions rarely come onto a blank canvas with customers having to decide or trade-off between the existing approach and a new approach to solving their needs. In many ways it is akin to a zero-sum game where one approach wins at the expense of the other. So rather than taking on the competition head on, seeking customer solutions for currently unmet or underserved needs can overcome constraints of the zero sum.
Better, faster, cheaper is a common, but least compelling, solution vector
Following clear articulation of customer needs, the value proposition progresses to addressing how these needs can be addressed in a distinctive way. There are a range of generic solution vectors that a value proposition may progress along with the most common, but potentially least compelling, being the faster, better, cheaper pathway. While this solution vector is not without merit, the challenge for an emerging company is that they are likely to have the least resources at their disposal relative to incumbent competitors. So while the incumbent may be slow to the game, they can generally catch up with the faster, better and cheaper solution and potentially outrun the new entrant if the emerging value proposition has merit. In essence, the defensibility may be low.
The three D’s providing a pathway to more distinctive and defendable customer solutions
It is helpful to think about alternative solution vectors in your value proposition that may be more distinctive and defendable. A useful framework is the three D’s:
- Discontinuous – this is seeking solutions that are very much unlike the current state and have taken a new approach to meeting the customers’ needs than the established competitive norms;
- Defensible – are solutions often supported by technology that can be anchored in privileged know how or in publicly defended patent protections; and
- Disruptive – solutions can be the most defendable if the change is anchored in a new business model that is monetising the value proposition in a different way to incumbents and where the incumbent’s choice to follow has real costs to their existing business model or customer interface.
Finding solutions where the benefit is orders of magnitude higher than the adoption costs
The best problems to solve or needs to meet are those with high or dire consequences for your target customer – such as losing their job if the problem remains unsolved. The likelihood is higher for finding natural champions who consider favourably the cost versus benefit equation for implementing your solution to solving their problem/meeting their need. In all cases there is a cost of adoption of a new product or service for a customer, and it is helpful if the customer benefit is orders of magnitude higher than the customer’s adoption cost to facilitate the change (i.e. your solution) being adopted.
The ingredients of a compelling value proposition
The most compelling value propositions tend to address one or more of the customers’ four U’s with a solution that is satisfying one or more of the three D’s and in a market of scale (as the effort of disrupting a small market can be as great as that of disrupting a large market). Given the inevitable costs of change and adoption, it is even better if the value proposition is highly disruptive in its innovation but non-disruptive in its adoption.