Many product managers talk about features. There are also many brilliant people in start-ups with great concepts and ideas but they are not getting many investors. I always ask them one question: What is your value proposition? Anyone who cannot answer this question clearly will most likely fail. The Customer Value Proposition (CVP) is critical. It is simply “Why should I buy this from you?”
If we were to state Value in a formula:
Value = (Total benefits from a product or service) / (Cost of the product or service)
The higher the ratio of total benefits gained versus cost, the higher the value.
Solving a present problem(s)
Solving a possible future problem(s)
Doing things Better
Doing things Faster
Doing things Cheaper - Saves money
Makes things Safer - reduces liability
Makes things more efficient - frees up resources for other tasks
Cost to learn/train
Cost to set-up, e.g. site preparation, facilities costs
Cost to switch to new product/service, e.g. are existing data or procedures compatible, will end-users accept it?
Ownership costs, e.g. maintenance, insurance
Clear and Unique
A customer value proposition (CVP) should be clear, concise and compelling. A good CVP also differentiates you from the competition. It is a clearly defined statement that convinces customers that one particular product or service will add more value or better solve a problem than the competition or substitutes. Commoditization happens when you do not have a compelling, unique CVP – and you may end up differentiating only on lower price.
It’s Not About Features!
It is not about features; customers do not buy based on features. Always ask the "where's the beef?" questions: “So what?” and “Who cares?” when thinking about features and benefits. Not all customers will respond to the same Customer Value Proposition. I may highlight the benefit of data protection when talking about the feature of automatic data backup in an area where power is intermittent, e.g. a “developing” country while someone in an industrial area may not care as much. A car salesman in Saudi Arabia wouldn’t necessarily tout high mileage. Thus, it is important to segment your customers and create an appropriate CVP for each of them. This also touches on what we call “hot buttons” – what the customer cares about. How do you learn what the customer “hot buttons” are? You listen to customers, watch them (as discussed in an earlier blog entry), and learn from your Sales, Service, industry experts, media, etc. What you may perceive as your benefits versus what your customers think may surprise you and help refine your CVP.