Author: Ian Meharg | Reading Time: 7-8 minutes
There has been a lot of discussion on LinkedIn around this topic lately, so it seems timely to revisit a few fundamentals I’ve observed that are often missing. Everyone in business realises that having a clear, succinct and compelling Value Proposition (VP) is essential in helping you engage with your customers and win orders ahead of your competition. But what, exactly is a VP and more importantly, how do you create a really great one?
Firstly, the clue is in the name – only two words. “Value” and Proposition”. So, if what you think is a VP contains neither value nor a proposition, then you’re already falling off the wave. Let’s deconstruct this first to help us move forward.
Value rather like beauty, it is in the eye of the beholder. Value must be described in the customer’s terms of reference, not yours. So how do customers measure value? If we define value as “results over time” then if your offering doesn’t give the customer better business results over the time it is used, then it is not creating value for him. Customers, like your own business, care about, and measure, things like revenue, operating costs, market share, growth rates, churn rates, cost of acquiring customers, time to market and so on.
If you are not positively impacting any of those typical measures then you are unlikely to create value. Find the one(s) you can impact, improve and quantify the realistic improvement you can deliver in what time frame and at what cost, identify who cares about enough to do something about it now and communicate it in their language.
It is also not enough to be a one-hit-wonder. Customers look for investments that will endure in their business. Additions they can expand, scale and rely on to deliver value time and time again. You wouldn’t, for example, buy a new 3D printer, use it once and then claim you had derived value from it.
Lastly, how your customer recognises the value they will get from you is a vital factor in how you engage. You have to properly understand how your target audience perceives the value you bring and engage accordingly – both in your value proposition and who it is aimed at.
Here’s an example of a standard VP – “Using our product our customers saved on average 25% annually in customer onboarding costs and employee retention has increased by 15%.”
Not bad. It is quantified and specific to certain aspects of their target customers cost base. Now a customer can plug in their own numbers (and from your discovery you can also figure them out close enough) to quantify the value to their business.
If they currently spend £1 million pounds annually on recruitment then they know they can save £250k annually using your solution PLUS retain staff 15% longer. That means a further reduction in recruitment costs allocated to replacing those leavers.
However, if your solution is going to cost them £100k annually then that is actually a 150% return on their investment of £100k. So now your VP can actually say “Our customers realise a 150% return on investment (ROI) …” Sounds a lot more attractive than a 25% annual saving don’t you think? So by putting it in the customers terms you can actually make your VP more compelling too.
I found this really easy to use, simple ROI calculator that you can use to help calculate ROI over multiple years too. You might even want to create your own version of an ROI calculator in a spreadsheet tool. Give it to your sales team and possibly even put it up on your website for customers to use themselves. If you can produce an ROI report from it then you can ask visitors for their email address and send the report to them. This builds your customer base and intelligence on who is interested enough to do the calculation.
Your VP needs to ask for a response or stimulate them to think about it positively. To get a response you do actually need to propose something – not leave it for the buyer to work out what you are trying to say. By quantifying the value, putting it in the customer’s context and targeting it to the relevant people you can then add the proposition. The “ask” does not have to be explicit as in “discount for orders by end of the month” but it does need to get the customer thinking about how they could use it, so they do something to move forward with it.
Urgency in the customers mind is often difficult to create. When you have a compelling ROI story you can break the value down into smaller timeframes or connect it to an event. In our example if the customer did most of their hiring say in Spring then you can create a compelling event to make them act now rather than later in order to get the major benefit in this financial cycle. If you get the right person at the right time, your value will be compelling enough for them to engage with you.
Bear in mind that your message is likely to get at most about 30 seconds of scrutiny (even less if it goes to a senior exec) so the value and the ask have to be crystal clear otherwise your approach will fail. I’m all for brevity but not at the expense of clarity. Don’t be afraid to be direct – busy executives appreciate it so they can make a quick decision. A CIO of a global airline I worked with was very clear, “If I cannot be certain to get 1.5 times the investment from an internal IT project inside 2 years then it is a no go”. I worked so hard to make our solution stack up to this measure just to be given serious consideration.
3. Numbers and metrics
Ultimately everything in business is measured in numbers so you need to quantify it. If you don’t know how much your product or service impacts any of the key business measures that are important to your customer, then what makes you think they will work it out themselves from your VP? You want your customer to invest in your product and company for the long term, right?
As customers do more and more research before they buy, they will know a lot about you and your offering. To make an impact you have to do more than tote features and function at them because they know all that already – and that comes through metrics they can relate to, which are credible and which you can actually deliver.
4. Apply 2 key tests
You may believe you have written the greatest VP ever, but before you press “send” you should put it through two important quality gates first.
Number 1 is, does it pass the “So What” test. Is it likely to provoke the so what response in the recipient’s mind and just be deleted or ignored. If so why? Because it has no quantified value, no timeline and no customer context. It’s just another thing.
Number 2 is the “Why me, why me now?” test. Let’s say your message passes the first test and the prospect reads a little further. He will be asking himself, why are you contacting me, and why NOW? If it is not clear that he is the appropriate person (you’ve either targeted the wrong person or your message isn’t clear) he might pass it on to someone else, but he probably won’t. If he is the right person but the timing is wrong (he might like your ideas but you could be too early/too late) then you are still likely to be ignored or at best deflected.
It is very difficult to mark your own homework so test it out on a colleague – ideally someone in the same business function you are aiming for in your prospect’s company. I once took a short message I had crafted intending to approach CFO’s in large companies. Naturally, I thought it was brilliant. But I decided to test it out on our own CFO. The feedback I received was fantastic – not complimentary, but very valuable. My revised attempt did, in the end, pass both tests.
If you don’t understand your customer’s context, then your Value Proposition is at high risk of being irrelevant. Different people in the same organisation can perceive value to them very differently. You may find that you need to tune your VP for different audiences or even different markets. How does ‘another person’ see the value compared to the person you are presently dealing with?
An example is the natural tension that exists between Sales and Finance. Your VP to a sales director will typically be measured as an increase in revenue and sales in some way but that won’t necessarily stick with a CFO. A CFO will want to know how it is going to save them money in the long run. So if you can frame your VP in terms of increased revenue whilst also containing or reducing costs then you will now have 2 very influential people on your side. Ignore the CFO role in any significant buying decision at your peril.
All of these factors can, and should, influence your VP. The 5 essentials are summarised as follows. Value needs to
- be defined in your customer terms
- include a proposition that stimulates action now
- be measurable in hard numbers using metrics relevant to your customer
- pass 2 key tests – the “so what” and “why me, why me now?”
- be contextualised to the person within the customer business
Your VP can be a very hard thing to get right but it is worth it so push your brain and workshop this with your team to get a result. Even engage with a friendly customer to give you honest feedback on what resonates with them. You have to be very focused on how your customer will respond, not what your product does. What is it for? How will it create a better business outcome for your customer? How will they measure that benefit over time? And how do they perceive the value in what you offer? And not in general terms but specific to their business.
Numbers, numbers, numbers. It’s all about the numbers. Ask any CEO. If you don’t have them, don’t make them up. Go find them. And then apply them intelligently.