I kicked off each of my three new semester courses this past week. As I indicated in a recent column, these courses focus on the topic of Operations and Supply Chain Management (OCSM). OCSM is the part of a company that is responsible for the production and delivery of the goods and services sold to customers. Those goods and services clearly determine how a firm competes in its markets. Therefore, I spend the beginning of my courses discussing the competitiveness and strategies of companies and the intersection of OCMS with how a firm markets its goods and/or services. How a firm competes, in essence, its strategy, is captured in what is called its value proposition. A firm’s value proposition encompasses what its product (i.e., good or service) does better than those products offered by its competitors. Typically, a firm’s marketing and advertising will communicate what its value proposition is. So, I start my OCSM courses by discussing value propositions because it is the OCSM part of the company that is responsible for delivering the value proposition the firm’s marketers make to its customers. For a company, it is critically important to periodically examine its value proposition to ensure it is still valid in a changing marketplace. So, in today’s column, I will provide you guidance on how to assess your firm’s value proposition.
First and foremost, as we discuss value propositions, we must understand that the value of the product lies in the eyes of the customer. Ultimately, the customer decides what is most important to him/her and he/she determines if a product provides those attributes deemed most valuable. Therefore, companies attempt to market their products to groups of customers who value similar attributes. These groups are called “target markets.” So, the first thing you need to do as a company assessing its value proposition is to reevaluate your target market.
Ask yourself the following questions:
- Who is our target market? Are we targeting a certain demographic (e.g., age, gender, income level, etc.)?
- What does that target market value? Is it: Low cost? Performance quality? Consistent quality? Speed? Customization? Customer service?
- Has what the target market values changed since I last evaluated my value proposition? If so, why?
- Is there another or new target market that might value what I can provide?
Once you have done a comprehensive assessment of existing and potential customers in your marketplace, you must then assess the competitors in your marketplace. Remember, when you make a value proposition, you are telling your customer you are the best at certain attributes. You need to determine if that is true by evaluating the competitors in your market by asking the following questions:
- Who are your current competitors and what value do they provide to customers?
- Have those current competitors improved in attributes in which you have previously held an advantage? Are you still better than them in those attributes?
- Are there any new competitors in the marketplace and are they threats to my current value proposition?
- Are there potential new entrants to your market who might threaten your value proposition?
As you evaluate your customers and competitors, you must also realize that you cannot forget about a self-evaluation of your firm. You must determine things about your company’s ability to provide value by asking the following questions:
- Do we still have the same or better capabilities to provide the attributes promised in our value proposition?
- Have we continued to build on our core/distinctive competencies and leveraged them to provide our customers with what they value better than our competitors do?
- Have any changes in our firm (e.g., personnel, equipment, culture) impacted our ability to deliver on our value proposition?
Finally, there are elements of our “environment” that can change that might impact what our customers value and/or the ability of us or our competitors to provide value. Examples of these elements include:
- Economic Conditions. For example, if the economy goes into recession and/or unemployment rises, our customers may value low prices more than other attributes we may offer.
- Governmental/Regulatory Conditions. For instance, emission standards have changed the value proposition of electric and hybrid vehicles versus traditional combustion engine vehicles.
- Socio-Cultural Factors. How society changes and what is culturally popular has a significant impact on what people value.
- Technological Change. As technology changes, the ability to offer certain product or service attributes can change substantially. For instance, the ability to shop online has changed the value proposition for retailers.
As you can see, your marketplace is ripe for change. Whether it is your customers, your competitors, your company, or the environment in your marketplace, changes in them can significantly impact your value proposition. I strongly recommend that business leaders and owners regularly evaluate these elements of their marketplaces to ensure they have an effective value proposition upon which they can deliver.
