Do you under-value your Value Proposition?
Originally Published: NZBusiness Magazine, September 27, 2018
Paul Allen borrows from the masters of takeaway food to highlight the costs of under-valuing your Value Proposition.
A value proposition is generally considered to be the means by which a business explains to customers why they should buy their product or service. The statement should compel a customer to agree that one product or service will add more value or better solve a problem than alternative offerings. Companies may use multiple value propositions to target different customers across a range of segments.
Fast food restaurants place a big emphasis on their value propositions. I remain an avid fan of the fish burger that has been served at the “golden arches” for many years – so let’s consider how the masters of takeaway food value their value propositions.
Rather than limit the customer experience to a pre-designated set of menu options, the customer at a McDonald’s store has a plethora of choices available to them. Each comes with a price that is clearly displayed and rarely challenged. Negotiation with serving staff either at the counter or drive-through is non-existent because, like the airlines, everything is fully automated.
The menu options are plentiful. If it’s a genuine low-cost meal that you’re after, a limited range of set “loose change” items are available, and you can cobble together your own meal combo for as little as $6.
Dial it up and request a large-size “meal deal” and you can have the signature burger, fries and large fizzy drink all for under $12. If something more gourmet is desired, then you have the option of designing your own tailored burger, chips and drink package for anything up to $23.
Those are three very distinct examples of value propositions, and, as we all know, there are many more that lie within each store.
At the very least, it’s a “good, better and best” model. At its most constructive, you generally don’t leave an outlet without being offered an up-sell purchase to heighten your dining experience, thereby increasing the per customer average spend. Choice is always up to the customer, but the more you tailor your order, the more net margin you will be contributing to the restaurant.
The B2B Supplier Challenge
B2B suppliers traditionally struggle to separate the value of what is and what isn’t included in their offer to their customers. In the process of negotiating, there are often many “menu” variables put on the table.
How often, however, does the customer-specific “menu” get accurately reflected in the contract? How often, subsequently, do the negotiated variables and the contract terms get clearly passed on to all who participate in the delivery of the overall service to the customer? Who knows, beyond those who sat at the negotiating table, if a customer, despite their size, has opted to purchase the bargain-priced supply offering?
In fast-food terms, suppliers struggle to maintain “meal deals” that have been priced to optimise value. Nor do they “up-sell” very well.
You see, unlike the fast-food staff who ask, “Do you want fries with that?” and charge the customer for any “extras,” supplier staff often aren’t even aware that their business is offering a selection of “good, better and best” service packages. Cross-functional responsibilities are often blurred and interest in detail can be low.
Functional staff just tend to get on with the job at hand and “do whatever it takes” to satisfy the customer, as they have always done. I’ve witnessed, on multiple occasions, supplier staff in logistics and operations “just make it work” with their counterparts on the customer side.
If they send out extra pallets or deliver a day early, they don’t say, “We did all this extra work, now please, customer, pay this surcharge.” They’re more likely to say to their peers and managers, “We’re just doing our job, aren’t we?”
But, if you’re not charging more for the extra value you’re providing, you’re losing both incremental revenue and the resulting net margin entitlement.
Choice Or Categorisation?
The menu is a powerful device which is readily understood. Its application by food-providing, consumer-facing businesses has become routine.
B2B suppliers clearly have yet to catch on.
Whilst relationships between customer and supplier are genuinely considered to run deeper in the B2B sectors, this shouldn’t negate the need for customer classification. The shift in thinking needs to be that customers are given the choice of matching service levels with corresponding prices.
Like airlines and fast food outlets, the right to change your preferences or tailor a single order should always be available, but it must come with a clearly understood surcharge. It’s good to give customers what they want, but on the supplier’s terms.
John Greenacre, the former general manager of Spicers Paper in New Zealand, provides an insightful reflection on this topic:
“We had intended to categorise our customers into three separate segments and provide varying levels of priority and service to each, yet deferred doing so due to concern that customers may have felt aggrieved at being ‘classified.’ In hindsight, there was probably an opportunity to ask our customers to choose a level of service that came with corresponding pricing, and no doubt there are always opportunities to apply a surcharge when a customer’s need suddenly becomes urgent. But you need to make these things clear up front.”
Consult Your Elders
Part of the problem in establishing tiered value propositions in larger-sized organisations harkens back to the topic of shared cross-functional customer responsibility.
When commencing negotiations with a customer, how often do those negotiating, most likely sales people, consult widely and deeply with their cross-functional counterparts to determine just what type of value proposition can be fashioned to best suit the customer?
Most businesses have a number of long-term employees, the “elders” if you like, who hold an exceptional amount of customer knowledge and insight. They know where the “bones are buried” and what it will take to keep a customer satisfied.
Invite their opinion. Listen to their wise words and consult with them throughout the negotiation process. Their input can produce genuine “gourmet creations” that can be priced and served accordingly.
The Value Of Respect
Suppliers accept changes from their large customers repeatedly and readily. They regularly go above and beyond what was contracted without charging for the additional value provided.
If a beverage customer calls from the factory floor and asks his counterpart at your company to deliver their packaging a little early, maybe on Saturday night instead of early Monday morning, should the supplier just comply with the request? Their order is ready, and there’s room on the truck.
Your staff, unaware of the true value of the rescheduling to your customer, agrees to do it. But in reality, your customer was about to be fined a fortune by one of their retail outlets for being out-of-stock.
You, as the supplier, get nothing for going the extra yard. You also get nothing for disruption and additional cost to your business as a result of the work changes — for example, additional transportation cost by the contractor working on a premium rate while the truck is being loaded and unloaded and travelling with extra delivery.
This shines a light on one of the biggest costs from undervaluing your value proposition—the loss of self-respect. By not paying attention to what your value proposition is and being blindly customer-centric, you allow others to treat you in a way that ultimately costs you.
The service bar gets raised, but the price doesn’t go up with it.
Time to re-value your Value Proposition?
Paul Allen is the founding Director of Margin Partners (Melbourne & Auckland)
His book “Take Back your Margin” is available at : www.freemarginbook.com.au/