The Value Proposition

As an article in the Harvard Business Review pointed out, the basic value proposition can be expressed very simply:

(Value_s - Cost_s) > (Value_a - Cost_a)

where:

• Value_s = the value of your solution

• Cost_s = the cost of your solution

• Value_a = the value of the next best alternative

• Cost_a = the cost of the next best alternative

As you can see, you don't have to have the lowest price to have the greatest value. What matters is the difference between value obtained and price paid. If you can convince your buyer that your solution offers the biggest delta between value and cost, you have a very good chance of winning.

You probably remember that we said in Chapter 5 that a well-crafted statement of results or outcomes must meet three criteria: It must be measurable, it must be organizational in its impact, and it must be clearly attributable to your solution. The same qualities apply to your value proposition. In fact, we can be a bit more precise. To create a value proposition that will be truly compelling, make sure you keep the following four principles in mind:

1. The payback measurements must be client-focused.

   • Look back at your seven-question analysis of the opportunity. What are the customer's desired outcomes? Which outcome is most important? This should tell you where to focus your demonstration of value.

2. The presentation of payback will be more credible if it's quantified.

   • Numbers are more convincing than words. To be meaningful, our impact must be measurable.

3. The value proposition will be more persuasive if it's graphical.

   • Adding a graphic can increase the persuasiveness of your message by 47 percent, according to one study.

4. Your value proposition must be based on your differentiators.

   • If the value arises from the way you work or from other unique aspects of the solution available only from your firm, your competition will be unable to steal your value claim as their own.

One way to establish value or create a sense of urgency is to use benchmark data. For example, you might compare your prospect's level of performance in a critical, quantifiable area with industry standard performance and with the performance of a key regional competitor. This kind of comparison would demonstrate the gap between "what is" and "what needs to be." Another way to benchmark is to compare your own performance, capabilities, experience, or other value with those of a competitor or the industry average. If you choose to compare to a competitor, do not mention the competitor by name.

Varieties of Value: Understanding What Matters to the Client

Operational costs. Profits. Gross or net revenues. Transaction value. Salaries. Benefits. These are all types of value that are likely to be measured in financial terms.

But some clients are looking for other kinds of improvements. Don't restrict yourself to financial measures unless the client has indicated to you that nothing else matters. Here are some to think about, but this is by no means an exhaustive list, either:

• Financial: getting the lowest price, receiving the greatest total value when services and add-ons are included, achieving the lowest total cost of ownership, reducing or eliminating operating expenses, increasing revenue, improving cash flow, reducing bad debt, increasing the average dollar value of each transaction, getting a larger portion of each customer's total business, and so forth.

• Social: internal—increasing employee job satisfaction, enhancing job performance, reducing turnover among key staff members, reducing absenteeism, accelerating employee training, outsourcing to remove fixed costs from the payroll; external—increasing customer loyalty, improving brand recognition, creating a positive image in the community, addressing a societal concern, and so on.

• Quality: improving reliability, enhancing maintainability, increasing ease of use, complying with regulatory standards, conforming to a specific quality methodology, reducing defect rates, reducing customer complaints, and so forth.

• Technology/Infrastructure: achieving greater interoperability, improving system flexibility, implementing the most advanced technology, preserving the value of legacy systems, creating the most open solution, reducing downtime, adding new features or capabilities, automating a labor-intensive process, and so on.

• Risk minimization: avoiding the risk of failure, implementing the safest, most proven approach, addressing health and safety issues, avoiding liability concerns, using a conservative approach to solve a critical business need, and so on.

• Industry trends: keeping up with competition, entering new markets quickly, updating products and services to keep them competitive, changing delivery platforms, eliminating fixed costs, focusing on core business competencies, and so forth.

• Competitive advantage: achieving the best total improvement in operational and financial performance, leaping past a competitor's position, dominating a market, and so on.

Your goal is to figure out which variety of value is most important or appealing to your decision maker, then use it to frame your strategy for the entire proposal.

In framing your value position, you can take either a positive or a negative approach. Positive strategies are based on gain. Your goal is to persuade the client that what you are recommending offers him or her the greatest amount of gain of all the available options. Negative strategies are based on fear or avoidance. In that case, your goal is to alert the client to the problems (even disasters) that are possible unless certain measures are taken. Either approach works and both approaches are ethical, as long as they are based on an honest assessment of the client's situation.

Differentiate Yourself in Ways That Matter

To create a solid value strategy, base your value proposition on your own strengths or differentiators. What is it that you do that no one else in your industry does? What is there that everyone does, but you do in a way that is clearly different? Sustainable, meaningful differentiation does not usually arise from operational advantages or product features. Rather, it's more likely to come from systems, processes, or methods of working.

I was consulting with a firm that handles pharmaceutical benefits for medical insurance providers. In the executive summary of each proposal they included a couple of paragraphs describing their new data center.

"I'm not sure I see how this delivers a benefit to your clients," I said. "Are your costs cheaper because you can process claims so much faster?"

"No."

"Are you giving better customer service by getting the claims approved quicker?"

"Not really."

"Is your accuracy higher?"

"Probably not."

"Then why is this material in the proposal?"

"I guess because we spent $15 million building a new data center and the vice president of I.T. said we had to describe it."

No.

A differentiator that doesn't benefit the customer isn't worth mentioning.

I usually recommend to my clients that they try to identify their differentiators first by thinking about specific competitors. One by one, create a list of as many differentiators per competitor as you can.

The second approach to defining differentiators is to think about the cycle of activity involved in a typical customer engagement. From the early phases of the sales process all the way through postinstallation and customer support activities, perhaps even to the decommissioning and removal of your products, think about the various moments when you interact with the customer. What do you do that's different? What do you provide as a deliverable that customers don't get from anyone else? What processes or systems have you implemented that assure satisfactory outcomes?

You don't have to have a lot of differentiators. You only need a couple as long as they matter to the client. If you think about Dell, for instance, their main differentiator for years has been the ability to build to order and ship faster than their competitors. Since computers themselves have essentially become commodities, that service differentiator has been significant enough to keep Dell at the top.

If you're delivering services, either in conjunction with products or as a solution in themselves, what kinds of differentiators matter the most? Typically, decision makers will want to see something that sets you apart in one or more of four broad areas:

1. How you will do the work. Explain how you will do the project, what is different or unique about your methods, and why your way is the best way.

2. How you will manage the work. Poor project management is the leading cause of failure in technical projects, and is a major fear for many buyers, even when the product or service isn't particularly technical. Present a detailed management plan, emphasizing the value-added components of your management approach, particularly in areas of measurement, tracking, and reporting.

3. The people you will provide. Intellectual capital has to reside in somebody's intellect. Whose? Who are you providing, and what makes them particularly well suited by training or experience to do the job right?

4. Special facilities or equipment you have available. Are your gas analysis labs the best in the industry? Do you have a system developed in-house for handling Webcast auctions that is fully integrated into all back-office functions? If the project will benefit from special equipment or facilities that only you have, mention them.

Linking Your Differentiators with the Customer's Values

Suppose you've taken the time to develop a comprehensive list of differentiators. Let's assume your list of differentiators includes the following:

• Standard code base

• User-friendly tools for customizing the interface

• True Web-based architecture

• Awards for superior products

• Lease or buy options

• Fastest loading system

• Options to access application data via a cell phone or PDA

• Open architecture

• First to market

• End-to-end capabilities, including design, user training, and support

• ISO 9000 certified vendor

• Certified six-sigma quality operation

• Financial stability with more than twenty-five years of profitable operation

This is kind of a mixed bag. Some relate to your products, some to your policies for doing business, some to your corporate history, and so on. How can you select the ones most likely to create an impression of superior value in the mind of your decision maker?

Start by cross-indexing your differentiators to the various value strategies you have identified. Knowing which varieties of value your customers care about is a matter of knowing your customers, of course, but let's suppose that many of the types of value we discussed earlier are of interest to some of your decision makers. Some of them will be looking for a financial return. Others in your market are focused on quality. Others are looking for risk minimization. And so on.

Create a table in which you list all of your differentiators in the first column and all of the various value positions you need to address across the top row. It will look something like this:

	FINANCIAL	TECHNICAL	QUALITY	SOCIAL	MINIMAL RISK	INDUSTRY TRENDS	COMPETITIVE ADVANTAGE
STANDARD CODE BASE
CUSTOMIZATION TOOLS
WEB-BASED ARCHITECTURE
AWARDS FOR PRODUCTS
LEASE OR BUY OPTIONS
FASTEST LOADING TIME
PDA/CELL PHONE ACCESS
OPEN ARCHITECTURE
FIRST TO MARKET
END-TO-END PROVIDER
ISO 9000 CERTIFIED
SIX-SIGMA METHODOLOGY
FINANCIALLY STABLE

Now ask yourself: Does this specific differentiator support this particular value message? If it's an excellent way of communicating to the client that he or she gets a certain kind of value, give it five points. If it's very weak, give it just one point. Something in the middle, assign a point value based on your gut instinct. Don't spend too much time on this. Your quick initial impressions are probably a good guideline. When you've completed this process, your table will contain point values, like this:

	FINANCIAL	TECHNICAL	QUALITY	SOCIAL	MINIMAL RISK	INDUSTRY TRENDS	COMPETITIVE ADVANTAGE
STANDARD CODE BASE	4	5	4	1	4	5	3
CUSTOMIZATION TOOLS	5	4	3	3	2	3	2
WEB-BASED ARCHITECTURE	2	5	2	4	1	5	3
AWARDS FOR PRODUCTS	1	5	4	2	4	1	4
LEASE OR BUY OPTIONS	5	1	1	2	4	3	3
FASTEST LOADING TIME	3	5	4	4	1	1	3
PDA/CELL PHONE ACCESS	2	5	3	4	2	5	4
OPEN ARCHITECTURE	4	5	4	3	5	5	3
FIRST TO MARKET	4	3	5	1	3	1	2
END-TO-END PROVIDER	5	2	4	3	5	4	4
ISO 9000 CERTIFIED	2	2	5	3	4	4	3
SIX-SIGMA METHODOLOGY	2	3	5	3	4	3	3
FINANCIALLY STABLE	3	1	2	4	5	3	3

What does this chart tell you? If you add up the rows, you will see which differentiator has the highest overall value, regardless of the strategic positioning. In the case above, your strongest overall differentiators are "open architecture" and "end-to-end provider." So if you had no idea what the client's value orientation was, you might want to include those two at least because they're fairly strong in general.

Similarly, if you add up the columns, you'll get an idea which value position is best for you, given the differentiators you currently have. You'll also get an idea which kind of value position is weakest, suggesting that you may need to find some additional differentiators or you may need to focus on a different strategic value position. In the example above, your best option is to base your value proposition on your technical superiority or your impact on quality.

But the best way to use this chart is to figure out how the client wants to see value presented and then to identify which differentiators are the right ones to emphasize. If you have a client whose focus is on minimizing risk, for example, your most important differentiators are those that scored a five or four: open architecture, end-to-end provider, financial stability, standard code base, awards, and lease or buy options. Next week, when you are writing a proposal to somebody whose focus is on financial return, the differentiators you emphasize will be the customization tools, lease or buy options, end-to-end provider, standard code base, open architecture, and first to market. Some are the same, some are different, but all help support your value strategy.

The worst mistake you can make with your differentiators is to just dump all of them into every proposal. If you do that, they have no focus and make no point.