MBA-Marketing Management Lecture-4Value Proposition

8/10/2019 MBA-Marketing Management Lecture-4Value Proposition

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Customer Value propositions (1)

MBA: Lecture 4

Marketing Management


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What is a Value Proposition?

Therefore a value proposition is:

about customers but for your organization;

not addressed to customers but must drive these

communications;

articulates the essence of a business, defining

exactly what the organization fully intends to

make happen in the customers life


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Customer Value Proposition

Inputs

Customer

experience

Offerings

Benefits

Cost and Risk

Price

Alternatives

Output and

outcomes

New and retainedcustomers

Profitable growth

Enhanced offerings

Corporate through

to sales messaging

Source: Barnes, Blake and Pinder, (2009)


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Value proposition in different Markets

Value propositions for business-to-business (B2B)situations can be different as customers inbusiness markets predominantly focus onfunctionality or performance, whereas customers

in consumer markets predominantly focus onaesthetics and taste (Treacy and Wiersema,1995).

For a B2B enterprise, selling without value

propositions must lead, sooner or later, to valuedissipation and commoditization on the basis ofthat lowest common denominator, price.


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Case Study: 2008/2009 financial crisis

Financial services organizations caused pain

for their customers to such an extent that it

recoiled back on them, putting the entire

financial system in jeopardy.


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A very, very, very bad value

proposition

Benefit: A Home

Sacrifices/costs:An expensive Mortgage,

The risk that loan may increasingly

exceeded the assets value,Worry, inability to pay,

The risk (reality) that wholesale

failure of these deals, could ultimately

threaten global financial stability

Source: Barnes, Blake and Pinder, (2009, p.26)


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Value proposition concept (1)

The articulation of the measurable value of

the experience that an organization or

individual will get from an Offering,

Where:

Value = Benefits minus Cost



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Customer Value Propositions (2)

Source: Kerper (n.d., p.4)


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Customer Value Proposition (6)

Product

Describe your

product/service

concept and how it

solves the customer

problem

Placement/Target

market

Describe the target

customer group and

estimate the market

unit volume

Price

Describe your

price/performance

position on

customer value map

Promotion

Describe your plan

for communicating

the value

proposition for this

idea to customer

Customer Value

propositions

Describe your

perceived

cost/performance

(benefits) over

competitions


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Customer Value Proposition (7)


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Value Proposition: Example of IBM



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Elements of Value Proposition

Capabilitywhat you can do for a customer.

Impacthow that will help the customer to

succeed.

Costwhat the customer must pay for the

privilege.



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Amazon value proposition (1)

Amazons value proposition is based on low cost prices for a highselection of books ordered through an anytime, anywhereextremely convenient mechanism.

To achieve this, they designed a unique organizational systemrelying on an entirely automated order management system, tightly

linked to their suppliers and payment networks, allowing them tominimize human intervention, therefore reducing costs.

Special deals with their partners (suppliers) allow them to maintainvery little physical inventory.

They also use unique roles to create a sense of community amongbook readers, who collaborate to serve as reviewers or

salespersons (through the Associates program). Technology is used both in the back-office as well as in the

interaction with the customer (World- Wide-Web for productinformation and ordering, electronic mail for customer service).

Source: Kambil et al (1996, p.29)


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Ikeas Value Proposition (2)

IKEAs value proposition emphasizes high-quality furnitureat rock-bottom prices.

In order to achieve that feat, the company has created aprocess to look for very low-cost suppliers in remote areasof the world (usually developing countries).

IKEA then sends in training and quality-control teams toinsure that the quality of the production will satisfy itsstandards.

The production of its different suppliers is then coordinated

through a global logistics system and a network ofwarehouses, which insures that the different componentsof a piece of furniture reach the warehouse in time forassembly and the shops in time to restock shelves



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Dells value proposition (3)

Dells value proposition relies on state-of-theart technology, delivered at low price througha convenient ordering process, and offering

top-notch remote support. In order to deliver such a value proposition

with profit, Dell designed a unique valuearchitecture based on direct marketing,extensive use of call centers and magazineadvertising.



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Value Proposition Builder

5. Alternatives and

Differentiations

How you are different

from and better than

alternatives

6. Proof

Substantiated credibility

and believability of yourofferings

2. Value experience

How you are different

from and better thanalternatives

3. Offerings

The product/service mix

that you are selling

4. Benefits

How your offering

delivers clear customer

value

1. Markets

The specific group of

customers you are

targeting

Value

propositions

Source: Barnes, Blake and Pinder, (2009,)


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Business to Business: Value

Proposition (1)

Anderson et al (1996)- comes out with three

value propositions

all benefits,

favorable points of difference,

and resonating focus.


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Business to Business: Value

Proposition (2)- All Benefits List all the benefits they believe that their offering

might deliver to target customers.

This approach requires the least knowledge aboutcustomers and competitors and, thus, the least amount

of work to construct Limitation: Managers may claim advantages for

features that actually provide no benefit to targetcustomers. Another pitfall is that all benefits value proposition is that

many, even most, of the benefits may be points of paritywith those of the next best alternative, diluting the effectof the few genuine points of difference.


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Business to Business: Value Proposition

(3)-Favorable points of differences

Explicitly recognizes that the customer has analternative.

Knowing that an element of an offering is a pointof difference relative to the next best alternativedoes not, however, convey the value of thisdifference to target customers.

Without a detailed understanding of thecustomers requirements and preferences, and

what it is worth to fulfill them, suppliers maystress points of difference that deliver relativelylittle value to the target customer.


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Which Alternative conveys values to

customer?

Source: Anderson et al (2006, p.93)


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Alternative methods to identify value

proposition

Payne (n.d).three elements of value

propositions

Kambil et al (1996)-Dimensions of value

proposition


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Three key elements of value

proposition (Payne, n.d)

Analysing Market based value

Assessing the opportunities in each segment

to deliver superior value

Explicitly choosing the value proposition


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Assessing opportunities in each

segment to deliver superior value

All markets are made up of market segments,

or groups of customers with the same or

similar needs.

Even where the offer made to customers is

technically identical to competitors offers,

efforts to differentiate the total or package

offer in terms of customer segment as well asmarket segment can reap significant rewards.


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Explicitly choosing the value

proposition

Having identified the target market segments,

the next priority is to create a value

proposition of winning relevance.

The characteristics of the segments that form

some markets may vary so radically that

different value propositions will be required

for different segments


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Dimensions of Value Proposition

(Kambil et al, 1996)



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Product Performance



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Product Cost



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Customer Role

the buyer role defines how a customer determines needs,assesses suppliers, orders, and pays for and takes deliveryof a product or service

the user role describes how the end user derives theexpected performance from a product or service to satisfy aspecific set of needs

the co-creator role refers to how customers cooperate withtheir suppliers to produce the expected value, often passingit to another customer

the transferer role defines how customers dispose of aproduct. For example, a physical product can be discarded,recycled, or resold, while information know-how can bestored, transferred to others, or resold.



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Customer Role: Examples

Dell

Dell Computer understood before everyone else

that computers were quickly becoming

commodities and should therefore be treated as

such. By focusing on streamlining the acquisition

process for its customers through standardized

components, direct sales, phone-based orderingand support, the company has redefined the

standard within its industry. (Buyer role)


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Customer Role: Examples (2)

Airbus WhenAirbus, the European airspace consortium,

launched the A320 family of aircraft, it created a familyof airplanes (A319, A320 and A32I) sharing mostcharacteristics, and differing only in size.

By using the same inside equipment, pilot instruments,maintenance procedures, etc., Airbus makes it easierfor companies to schedule the use of these airplanes.

Substituting a larger airplane on a temporarily crowdedroute doesn't require a change in pilots, flight crew,

food carts or any other equipment. Airbus customers can therefore generate much more

value out of the use of their aircraft.(User role)


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IKEA

IKEA, the Swedish furniture giant, is well known

for partnering with its customers to co-createvalue.

if customers play the role IKEA assigns to them(drive out of town, shop alone, transport theirfurniture home and assemble it), then IKEA willprovide them with one-stop shopping for quality

furniture at excellent prices, while making theirshopping experience fun and rewarding. (co-creator role)


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McDonald

McDonald's has established a system where

everyone buses their own tray before leaving.

In the these cases, the supplier focuses on

adding the maximum value in its corespecialty and "outsources the rest of the

work to the customer or a complementor. (Co-

creator role)


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Leasing Companies

Leasing companies have understood that

customers were sometimes not interested in

dealing with their cars after a few years. Rather

than having to bother with reselling them andbuying a new one, it is easier to outsource these

chores to a leasing company.

The leasing company acquires the car, providesbasic maintenance and simplifies its transfer

(disposal) after its useful life. (Transferer role)


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Amazons Value Propositions (2)



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EVALUATING Value Propositions (1)


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Evaluating value proposition (2)

Lawton (n.d)

l l ( )


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Evaluating Value proposition (3):

Ryanair's value proposition

Lawton (n.d)

l l ( )


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Ryanair's value proposition Statement

Lawton (n.d)

E l i V l i i (5)


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Emirates value proposition

Lawton (n.d)

E l i V l i i (6)


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Emirates value proposition Statement

Lawton (n.d)


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Any Questions?

Documents

MBA-Marketing Management Lecture-4Value Proposition