Customer Value Propositions in Business Markets

Customer Value Propositions in Business Markets (by James C. Anderson, James A. Narus and Wouter van Rossum, Harvard Business Review, March 2006)
Summarized By Ellen Croux and Deva Rangarajan, Vlerick Sales Center

Article At a Glance:
This article is a must read for every marketer and sales professional. It clearly highlights the importance of differentiating your offering with the competition, while focusing on those benefits relevant to the customer. The authors go on to discuss the different kinds of value propositions that have been put into practice and suggest ways of developing a relevant value proposition.

Defining the problem
Customer managers are increasingly under pressure to keep costs down and don’t have the luxury of simply believing suppliers’ assertions. Sales forces should create a justifier in line with customer needs and they should help customers understand – and make them believe in – the customer value proposition. Suppliers that are not able to offer this often revert to price concessions, which are expensive and might not even help the supplier to make the cut. A management-practice research was conducted to understand what constitutes a customer value proposition and what makes it persuasive to customers. This article describes a systematic approach for developing value propositions that are meaningful to target customers and that focus suppliers’ efforts on creating superior value.

Three kinds of Value Propositions

Substantiate Customer Value Propositions
Many suppliers offer dazzling value propositions but do not actually have the people, processes, tools and experience necessary to back up their claims. This has led many customers to dismiss value propositions as marketing puffery. Suppliers must be able to demonstrate and document customer value propositions in order to persuade customers.

A way to do this is by using a value word equation, which expresses in words and mathematical operators how to assess differences in performance between an offering and the next best alternative. The data needed for the value word equation to provide value estimates is collected from the customer’s business operations through collaboration between the supplier and customer managers or even from outside sources.

Demonstrate Customer Value in advance
In advance, prospective customers must be able to see the cost savings or added value they can expect from choosing a supplier’s offering over the next best alternative. Best-practice suppliers use value case histories or value calculators to demonstrate this. Value case histories document the cost savings or added value that reference customers have received from their use of the supplier’s offering. Value calculators, on the other hand, are customer value assessment tools that salespeople use to demonstrate the value that potential customers could receive in using the suppliers’ offerings.

Document Customer Value
Only demonstrating value to potential customers is no longer sufficient to be a best-practice player. Suppliers must also document cost savings and incremental profits in companies that have purchased their offerings. The use of value documenters makes it possible to refine customer value models and to create value case histories. It enhances the credibility of the supplier’s offering and enables customer managers to receive credit. As value provided to customers is documented, a supplier also gains knowledge, experience and confidence about how their offerings deliver superior value to customers and how this delivered value varies across kinds of customers.

Superior Business Performance
Properly constructed and delivered customer value propositions make a significant contribution to business strategy and performance. Some businesses have already made these value propositions a fundamental part of their business strategy. For example at Sonoco, a global packaging supplier, each value proposition should be distinctive, measurable and sustainable. They also track the relationship between business unit value propositions and business unit performance.

Customer value propositions can be a cornerstone for superior business performance, it is not only the responsibility of marketing, but also of senior and general management. Best-practice suppliers realize that constructing and substantiating a value proposition is not a onetime undertaking. They make sure their people know how to identify what the next value propositions ought to be. Doing customer value research pays off in finding that simple, yet powerfully captivating customer value proposition that businesses can implement to communicate the superior value they offer to target market segments and customers.

Vlerick Food for Thought for Sales Executives

  1. Always link the features of your solution to the needs of the customers. These are the relevant benefits to the customers. 
  2.  In almost all cases, the number of features of your offer will ALWAYS BE GREATER than the number of benefits.
  3. You will have as many value propositions as number of customer segments
  4. A shot video demonstrating the above points can be found here:
    https://www.youtube.com/watch?v=m6wTQPZV2VY&feature=youtu.be

 

Customer Value Propositions in Business Markets

Accreditations
& Rankings

Equis Association of MBAs AACSB Financial Times Economist Intelligence Unit