The Customer Value Proposition as a Basis for Business Strategy by Ravi Chinta * [27]

Customer Value Proposition (CVP) has become one of the most widely used terms in business in recent years. A CVP is the value perceived by customers in the product mix that your business is offering, in light of competitive options. Most businesses will conduct marketing research to identify benefits and cost savings to customers to induce purchases. Such research focuses on understanding customer needs by asking potential buyers what they want with respect to goods and services.

Product enhancement and new product introductions are often based on a process of continuously “productizing” the needs and wants explicated by customers via research studies. These are in essence market-based innovations driven by addressing the desires explicated by the customer. However, in the pre-automobile era if you asked customers about what they wanted in transportation vehicles; they would have said they would like to have faster horses. And we know how automobiles made their debut and made horses obsolete as transportation vehicles. Thus, technology-based innovations often come in and transform the mindsets of customers in how they assess perceived value. Simply stated, the primary difference between market-based innovations and technology-based innovations is that the former is driven by explicit needs and the latter is driven by both explicit and implicit needs of the customers. Thus, the customer-centric view should be expanded to include both explicit needs (expressed by the customer) and the implicit needs (elicited by a deeper and unobtrusive observations of customer behaviors).

Shadowing the customer and evaluating daily behaviors can help understand the implicit needs of consumers and businesses. For example, in a research project at Hill-Rom company, a hospital beds manufacturer based in Batesville, Indiana, hospital nurses were observed as to how they spend their 8-hour work shifts. And, that analysis led to electronically adding vital signs data entries at the bedside instead of taking notes and then typing in the data at the nursing stations. Addressing the implicit needs of customers also gives businesses a pioneering advantage because these initiatives are more difficult to imitate than product modifications based solely on explicit needs.

I contend that customer value propositions that are properly constructed and delivered make a significant contribution to business strategy and overall performance. To ensure market leadership, I recommend that a firm continuously adds new features to their product/service offerings based on newly uncovered implicit needs of customers. Apple’s market dominance is easy to understand when viewed in this way. That is what sustainable competitive advantage is all about. Thus, customer value propositions must be viewed as a dynamic concept that enables a firm to self-cannibalize its own product lines and keep up its lead in the market. It should be noted that customer intimacy is a prerequisite to product excellence, and it is the responsibility of senior management not just marketing management, to ensure that their customer value propositions reflect both the explicit and implicit needs of the customer. 

* Ravi Chinta, Ph.D., is a Professor of Management at Nova Southeastern University. He can be reached at: rchinta@nova.edu

See "The Value of a Value Proposition" (Post 11) for additional insights on the CVP.

The Value of a Value Proposition [23]

One of the most critical challenges for organizations is to differentiate themselves from competitors. It is easy to be like everyone else but great companies have their own identities and carefully conceived value propositions. Realize that different isn’t always better, but better is always different!

Think about the following 5 questions (and answers)

1. What is a customer value proposition (CVP)? How does it differ from a mission and vision, slogan, or positioning?

A value proposition is a brief but powerful statement of overall business strategy, such as Lexus’ ‘passionate pursuit of perfection.’ It is the company’s promise to the customer. It should be clear, concise, comprehensive and company-specific. A well-designed CVP is a strategic business tool that considers customer needs and wants, offerings, pricing, promotion, channels, and  a competitive advantage via people, processes and technology. Mission statements explain what the business is doing today while vision statements are forward-thinking. Slogans are creative advertising phrases that capture attention. Positioning may be product- or image-based and relate to designing and delivering value to target markets.

2. How about some great examples of customer value propositions?

• Amazon.com and you're done
• Citrix Systems - work anywhere and on any device
• FedEx - when it absolutely, positively has to get there overnight
• Gillette - the best a man can get
• Intel inside
• Office Depot - taking care of business
• Target - expect more, pay less
•  Uber - the smartest way to get around
•  Visa - it’s everywhere you want to be. 

3. How should managers build a customer value proposition?

Customer value consists of four core components: service, quality, image and price. These elements provide the basis of an organization’s value proposition. The S-Q-I-P diamond can be used to create value for customers, establish a solid business philosophy for the organization, guide strategic decisions and, ultimately, affect business performance. The vertical axis on the diamond — service and quality — represents the backbone of the firm’s offerings, while the horizontal axis — image and price — provide signaling/communicating cues to the target market. The key is to select one or two dimensions to dominate and stay competitive in the other areas. Examples include ‘where shopping is a pleasure’ for Publix’s service; ‘solutions for a small planet’ for IBM’s quality; ‘what can brown can do for you’ for UPS’ image; and ‘always low prices’ for Walmart’s pricing.

4. How does a customer value proposition relate to competitive strategy?

According to Treacy & Wiersema’s influential book, ‘The Discipline of Market Leaders,’ companies can excel by practicing one of three business strategies: best product like Nike’s product leadership, best deal like Target’s operational excellence, or best friend like Nordstrom’s customer intimacy. Innovation, process efficiency, low cost and relationship building are key in implementing value-based strategies.

5. How can organizations improve customer value propositions?

Current CVPs can be enhanced via innovation and adding value. Think about offering legendary customer service like Ritz-Carlton, cutting-edge products like Apple, unique customer experiences like the Virgin Group or pricing innovations like eBay. There are many ways to add value, such as adding benefits, branding, breaking ‘accepted’ industry rules, customization, dominant merchandise
assortments, frequency marketing programs, hassle reduction, internet options, segmented marketing, solving problems, supply chain management or technological superiority.

This blog post is the 11th in a series extracted from Superior Customer Value – Finding and Keeping Customers in the Now Economy, 4th Ed. (2019, Routledge Publishing/ Taylor & Francis). For further information, contact Art Weinstein at artweinstein9@gmail.com , 954-309-0901, www.artweinstein.com .