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How Companies Get Value Propositions Wrong

Posted by PriceBeam on September 18, 2017

value proposition

When selling your product or service to customers, they will pay a price that equals the value they perceive from it. Perceive is a key word here, because it rarely reflects the intrinsic value of your product or service, and thus it is crucial that you can clearly communicate what value they should perceive. Don’t rely on your customers to find out themselves!
What companies usually get wrong here is that they focus too much on how they internally think about their own differentiation from competitors. They ask questions such as why are we better than our competitors, but this question will rarely provide a punching value proposition for increasing value perception and willingness to pay.

For example, a car tire manufacturer may differentiate itself from its competitors through the materials that they use; these companies often get their value proposition wrong. A quick look at Continental’s website will show you these 3 features (which form a value proposition):

  • High tilting stability
  • Large load capacity
  • Less rolling resistanc
Except from the last point, I personally don’t have any idea about how these features will benefit me as a car owner. However, for the purpose of this article I looked into it, and it turns out that;
  • High tilting stability makes me more safe while driving
  • Large load capacity reduces the risk of a blowout
  • Less rolling resistance makes my car more fuel efficient

Increased safety, smaller risk of blowouts and higher fuel efficiency are things that the average joe understands and values. While there certainly is a place for listing the above features, e.g. the specification section, they don’t tell me how I benefit from buying Continental tires. Those are the features that the product development team decided to improve in order to provide a better version than a previous one or that of a competitor, but the features don’t mean anything to many customers, and consequently they won’t pay more for it, even though they may be very valuable.

Another example, which you may be able to relate to if you’re not a very tech-savvy person, is that electronics sales person who starts rambling about random specifications you never heard of, when you really just wanted to know if you should get the Samsung or the Sony TV set. You nod along, pretending you understand what he’s talking about, but eventually decides not to buy either of the sets, because you don’t have a clue as to which one YOU would find the most valuable. Consequently, you go to the competitor who clearly and concisely explains how each TV set is going to make your experience better.

On the contrary, you have the firms that are incredibly good at highlighting value-adding features in their marketing. Toothpaste manufacturers sell you whiter teeth, better protection, and not “highest level of fluoride on the market” – sure, they may mention it, but it’s certainly not the key takeaway.


Getting it Right

One problem that these companies, or company representatives face is that they don’t understand what drives customer value. Marketing and salespeople spend so much time with their product that they become obsessed with features and product development, and forget how this translates into value for their customers.

Secondly, it can sometimes be really hard to identify what drives value for your customers, and thus how an effective value proposition would look like. Here, more advanced methodologies within the domain of willingness to pay research can be used to identify what attributes really helps to create a favourable value perception, which customers will pay for.

Written by PriceBeam

PriceBeam posts regular guides, articles and news related to pricing and strategy. Go have a look!

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Readers of this blog will find a wealth of articles about price optimization, price research and willingness-to-pay analysis. PriceBeam's offers scientific as well as fast and cost-effective price research.

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