Mindset Customer Value proposition. Competitive advantage. Pricing. One summer’s day not so long ago, I visited a Harvey Norman store to look at and hopefully buy a new fridge. It took me only a handful of minutes to identify the fridge I wanted to purchase. It was not on special, but it had the […]
- Value proposition.
- Competitive advantage.
One summer’s day not so long ago, I visited a Harvey Norman store to look at and hopefully buy a new fridge. It took me only a handful of minutes to identify the fridge I wanted to purchase. It was not on special, but it had the features and characteristics I wanted at what I thought to be a good price. Despite this, I purchased the fridge from another retailer.
I went to another retailer for two reasons. Firstly, the Harvey Norman sales representative insisted that I provide my mobile phone number, which I refused to supply; nobody at Harvey Norman could tell me the time of day that the delivery truck would arrive the next day. At the other retailer, my phone number was not requested, and a delivery time was provided.
Harvey Norman may not consider me their target market, but if they did, they did not understand what I value. Further, they did not understand that I was prepared to pay more (and did) for what I valued. I valued (and still do) not being told by a retailer – the conditions of a purchase and being told the time of delivery, so I did not have to wait around all day.
Nothing will drive margins and the lifetime value of a customer more than value. Winners understand the importance of value and the fact that the customer – not businesses – defines value. The business that adds the most value will win against the business offering the lowest price.
WHAT IS VALUE?
Value has been defined simply as follows:
- The benefits gained less the cost and pain of gaining them.
I would argue that this is as good a definition of value as any. It highlights that:
- Consumers are buying benefits.
- Value is not all about price.
- Value can be increased by lowering the price or increasing the benefits.
When consumers are out shopping, they are not out to spend as little money as possible. They are instead out to purchase benefits for as little as possible. While necessary, the benefits come first, and price is a secondary consideration. While many businesses focus on increasing value by lowering prices, smart, sustainable businesses first consider increasing the benefits – especially where this can be achieved with little or no additional cost – thus protecting margins.
I would also argue that there are two avenues to creating value:
- The offering.
- The communication.
The offering being purchased can often be upgraded to add value, making the product more attractive to the target market. The messaging used to package and communicate the benefits of the product can also enhance value by enhancing the perception of the product without changing the product per se.
Research also demonstrated that the ‘product’ consumers are purchasing, more often than not, includes:
- The good or service being purchased.
- The customer experience.
While most marketers recognise the importance of the good or service, some fail to recognise the value sought in, and the customer experience can deliver that. Highlighting the importance of the customer experience research suggests that:
- 84% of businessesthat work to improve their customer experience report increased revenue.
- Businesses that lead in customer experience outperform laggards by nearly 80%.
That said, and as will be discussed in this missive, all value is a perception. Value is in the eye of the beholder. The value offered by a product can vary:
- By market.
- Over time.
- By circumstance.
Value is not absolute. It is a perception. What is more, it is an individual perception.
If you have not had a drink in two days, you might pay a lot for a cold bottle of water. If you live on a freshwater lake, a bottle of water may offer no value at all. If you are about to get engaged, a diamond might have a great deal of value to you. If, like me, you don’t see any point in engagement; then a diamond has little, if any, value – even at a very low price. The differing interpretations of what a listed stock is worth over time also highlight that value is open to interpretation.
In colloquial terms, value is about ‘bang for the buck,’ with the theory being that value is enhanced when the benefits most relevant to you are enhanced.
Most importantly – value is what the customer is buying.
WHY IS VALUE IMPORTANT?
It is ultimately what consumers are buying.
It can be the principal point of differentiation between products.
It drives customer lifetime value and especially margins. Among the many reasons why value is essential to marketers are the following:
- Every purchase we make involves buying benefits that deliver value to us. The founder of Revlon Cosmetics, Charles Revson, once said, ‘ in the factory, we make cosmetics, and in the store, we sell hope.’ In this analogy, the value is in the hope.
Two very similar products can be readily differentiated by the value they offer the purchaser. The value in a Dell computer lies almost entirely in its functionality. The value in an Apple computer results from its ease of use and the greater prestige it bestows on the purchaser. The value offered by a Zegna suit is very different to, but arguably no more or less than, the value provided by a Target suit.
Adding value will build loyalty and therefore repeat purchases and referrals. Equally, customers will pay more for increased value. They will pay more for more benefits directly relevant to their needs and expectations. This can help increase margins. Moreover, there are often ways of adding value with little or no additional cost – especially if you focus on the customer experience.
A primary role of any marketing strategy must be to maximise the value the target audience perceives in a business or brand. Once the perception of value is maximised, so can sales.
HOW DOES A BUSINESS ADDRESS VALUE?
Maximising value in a business or brand involves three stages:
The starting point is that maximising value involves identifying the benefits that will meet customer needs and exceed their expectations. This requires understanding the customer well enough to precisely determine their needs and expectations. This is the research phase.
Value can and should be built into both the product and the customer experience. This is the value of the offering. Once the value has been identified, it needs to be incorporated into the product to ensure it can consistently deliver the value sought by consumers.
This stage is all about perception. The market needs to understand the value offered. The product and its value must then be packaged (branded), combining the value inherent in the product and customer experience with the value added by the branding process.
Following is a discussion of strategies for leveraging value to drive enquiries and every customer’s lifetime value.
A value mindset involves recognising the primary importance of value and the benefits of consistently devoting resources to adding value. It even involves recognising that:
- Adding value is more important than innovation.
The sole purpose of innovation should be to add value (by increasing the benefits or lowering costs). Indeed, innovation is, or at the very least should be, all about adding value. Many innovations do not, however, add value – and certainly, it is possible and common to innovate without adding value.
Businesses with a value mindset prioritise value over innovation.
A value mindset involves recognising that consumers buy benefits ahead of price. Price is important to most people, but value is almost always more important, and while budgets will influence purchases, they will always influence it less than value delivering benefits. Further, increasing margins almost always involves increasing the benefits on offer. Even highly price-sensitive markets will tend not to buy products that don’t meet their needs and expectations.
Businesses with a value mindset prioritise value over price.
A value mindset involves understanding that the consumer defines value and that the consumer’s perceptions change over time. What constitutes value today may not constitute value tomorrow. And regardless of when value is quantified, the only quantification that matters is what the target market members perceive.
Businesses with a value mindset allow the customer to define value and what adds value.
A value mindset can and should also involve a value or ‘giving’ approach to communication and marketing more broadly. Content marketing, where the content provided informs and educates the consumer, can add value to both the consumer and the marketing. Advertising adds no such value.
Businesses with a value mindset prioritise content marketing over advertising.
More than anything, the value mindset involves always seeking ways to add more value.
It is the consumer and the consumer alone that defines value. For many businesspeople, this is a very difficult concept. Business leaders have often told me that their product offers exceptional value – a contention supported by detailed technical or manufactured features – but without any objective data showing that the benefits they offer meet the needs or expectations of their target market. The fact is – a product can be of exceptional quality and even of exceptional value to some people without being of exceptional value to the target market.
De Beers diamonds are, as I understand them, of exceptional quality, and some people see enormous value in them. But they have no value to me, so I am unlikely to buy one, regardless of the price. When I am hungry, the offer of an apple has great value, but when I am not, it has none. Meat has real value to some people – but absolutely no value to this vegetarian.
Choosing the right target market is critical. Clearly, it is prudent to market any product to a market that sees value in it. But no matter the market, the consumer defines the value on offer. One of the best approaches to enshrining this view in the strategic planning process involves creating a ‘customer avatar’ that:
- Profiles the customer – to facilitate targeting.
- Profiles their needs and wants – to identify value.
Ideally, the customer avatar created will be monitored over time and updated as the customer’s profile or their needs and wants change. Good marketers I have worked with go to the lengths of naming their avatar or avatars, giving them a personality and placing their image p]front and centre for all personnel to see and understand. Once the customer avatar is established, along with the monitoring and update process, it becomes easier to:
- Identify problems that can be solved to add value.
- Identify opportunities that can be leveraged to add value.
Value is almost always tied to the capacity of a product or brand to solve a problem or leverage an opportunity. The problem to be solved must be important to the consumer. The opportunity must be attractive to the consumer.
Suppose it’s the customer who defines value. In that case, maximising value (and therefore sales and lifetime value) must involve understanding the customer well enough to determine the most cost-effective pathway to meeting their needs and exceeding their expectations. Maintaining an up-to-date customer avatar can be very helpful in this regard.
Online communities represent one of the more powerful tools for creating the optimum customer avatar.
STRATEGIC COMPETITIVE ADVANTAGE
A strategic competitive advantage incorporates these factors that enable a business to add more value to a product. A strategic competitive advantage, while not necessarily adding any value to the consumer, puts the business in a position where it can deliver more value by:
- Reducing the cost of production and marketing.
- Increasing the benefits built into the product.
When launched, Hyundai and Kia had a strategic competitive advantage in terms of the lower costs, which meant they could enhance value by offering the same for less. While they market differently in 2023, these are two of many businesses that have used the low labour cost to add value by lowering costs. On the other hand, UBER created its strategic competitive advantage – operating outside the restrictive and monopolistic environment in which taxis operate. Rather than being cheaper (which they were not always sure to be and tend not to be now), UBER added value by adding to their service benefits that are unavailable with taxis.
A strategic competitive advantage can, among other things, be linked to:
- A unique location.
- Unique resources.
- Supply chain control.
- Unique relationships.
Being first to market can be a competitive advantage, as can a superior understanding of or relationship with that market. A strategic competitive advantage can also be built around being the first to identify and fully address an opportunity or gap in the market. A competitive advantage creates within a business the capability to deliver superior value either through lower prices or greater, more relevant benefits.
Not every business has a competitive advantage, but it is smart practice for every business to search for and or develop one continually. A competitive advantage can enhance the capacity of a business to maximise the value delivered to members of the target market. In the last missive in this series, I highlighted the potential for ‘integrity’ to be a competitive advantage. Research shows that integrity is in demand among most markets and rare among businesses.
The optimum value proposition: a value proposition is a succinct summary of the value a business or brand offers to a target market:
- Reflects a clear understanding of the benefits that the target market seeks.
- It is meaningful and can be a priority for the business and its people.
- It will evolve over time to address changing needs and expectations.
- It can be readily and credibly communicated to the target market.
In developing the value proposition, it is important to consider the range of factors research has consistently demonstrated are important to consumers, including:
Equally important factors in determining value can be factors largely unrelated to the product per se, including:
- Purpose and values.
- Corporate social responsibility.
- Integrity and trust.
In addition to the good or service and the customer experience, many customers have needs in terms of values alignment and dealing with an excellent corporate citizen. Research suggests that:
- 77%of consumers buy from a brand that shares their values.
- 46%of customers will pay more for a product they can trust.
- 64%of consumers consider the stance of a brand on social issues.
Non-product or experience-related factors can significantly impact the perception of value.
It is important to understand the following:
- What these factors mean, and how do they manifest in the primary target market.
- The additional more nuanced factors are being sought by members of the target market.
It is essential, then, to identify with a high level of specificity the most important benefits and how they can be succinctly packaged and presented to the market. Every business should have a consumer-focused value proposition summarising the most relevant benefits.
Allied to the notion of a value proposition is that of ‘positioning,’ where the business or brand sits in the marketplace vis-vis the alternatives (or competition). It is important to clearly identify the benefits that can be packaged into the brand’s positioning, such that it stands apart from the competition and is seen as offering more value to the target market. Positioning requires:
- A sound understanding of market needs and expectations.
- A sound understanding of the competitive environment.
- A sound understanding of what should set the brand apart.
Once again, this involves putting the customer front and centre.
Most often, creating the optimum positioning requires communication to ensure the market understands the positioning and its relevance to their needs and expectations. The value proposition and positioning need to be reflected in all marketing and communication, including:
- The website.
- Images used.
The positioning and, indeed, the value proposition needs to be clearly and consistently evident from all of these.
The value proposition and positioning are central to marketing value.
Price is most often seen as a potential barrier to purchase, and it certainly can be just that. That said, price can also be an indicator of value – and a tool for building value into or at least creating the perception of value. While cost-plus pricing might be used to calculate the minimum sale price – value=based pricing should be used to determine the actual price.
In previous missives, I have written about the benefits of value-pricing over cost-plus-pricing. According to Investopedia, value pricing is:
- ‘a strategy of setting prices is primarily based on a consumer’s perceived product or service value. Value-based pricing is customer-focused, meaning companies base their pricing on how much the customer believes a product is worth.’
According to Investopedia, value-based pricing:
- ‘is different from cost-plus pricing, which factors the costs of productioninto the pricing calculation. Companies that offer unique or highly valuable features or services are better positioned to take advantage of the value-based pricing model than companies that chiefly sell commoditised items.’
While value-based pricing is the preferred for maximising the lifetime value of each customer, it is not the easiest approach to pricing. It requires a clear and sound understanding of how the target market defines value. Hence we are again back to the requirement for research to determine the precise needs and wants of the target market and, as such, how members define value.
While market research is an essential and powerful tool in determining the needs and wants of consumers, arguably as powerful and potentially cheaper are:
- Customer insights, as generated by a wealth of research undertaken by others.
- Establishing a brand community or, at the very least customer panel.
Both of these approaches can be very helpful in determining how the target market determines value and how much they might pay to secure this value in a competitive environment. To fully leverage the power of value, it is important to embrace value pricing, using price as a marketing tool rather than a barrier to purchase.
Effective value-based pricing also drives margins, repeat purchasing and referrals.
It has been argued, and I would agree, that strategic planning should be all about driving value and the perception of value. The more value a brand or business offers, the greater will be sales and margins. The more value a brand offers, the greater will be the lifetime value of each customer.
Developing a strategy that leverages value requires understanding what constitutes value, which in turn requires understanding the needs and expectations of the target market and a sound understanding of the competitive environment.
Businesses don’t define value – the target market does! If you look at it this way and act accordingly – value can be a marketing superpower.
- Maximise margins by maximising value – recognising that it is the consumer – not the business – that defines value and that the point of strategy is to enhance value.
- To maximise the lifetime value of each customer, understand and meet consumer needs and expectations better than your competitors – delivering superior value.
- When defining the value delivered to the target market, consider both the product or service and the customer experience – while recognising that value is all about perception.
- When defining value delivered to the target market, remember the research showing that 77%of consumers buy from a brand they believe shares their values. Values matter.
- Develop a value proposition and position your brand – but only after identifying exactly what your target market values, will pay for and will pay a premium for.
- Develop a value mindset, implementing a strategy leveraging every opportunity to add value consistently. Added value is more important than innovation.
- Develop a customer avatar incorporating a detailed customer profile and detailed statement of needs and expectations and use it to focus resources and the planning process.
- Embrace that needs and expectations (and therefore the definition of value) vary by market, over time, according to circumstances and on a range of other variables.
- Develop and entrench a strategic competitive advantage that consistently enables your brand to offer more value than your competitors.
- While perhaps using cost-plus pricing to set the minimum price, use value-based pricing to set the actual sale price – making price a marketing tool rather than a purchase barrier.
Return on investment in marketing is maximised when the customer is at the centre of the strategic planning process.
Consumer-centric marketing leverages data and consumer insights to drive enquiries, conversion rates, margins, the average transaction, and repeat business and referral rates.
Focusing on the needs, preferences, and behaviours of the target audience, I create cost-effective marketing strategies to drive qualified enquiries and maximise the lifetime value of each enquiry.
I work with clients to identify consumer needs, wants, and expectations and develop branding, marketing, communication, and culture strategies that minimise waste and maximise returns.