Five Rs of Value Proposition

May 2, 2018

I have always daydreamed about the importance of the Oracle of Delphi, where ancient Greeks asked Pythia about the gods’ commandments related to their issues. Today, if it were not a ruin, it would still be possible in my fantasy to propose existential dilemmas, always considering the inscription at the entrance of the temple: “Man, know thyself and thou shalt know the gods and the universe.”

In the absence of mythological gods, we can still investigate the meaning of the term “value” based on a few 20th Century renowned thinkers. According to Philip Kotler, “value is primarily the putting together of the right combination of quality, service and price for the target market.” Nothing more, nothing less. It is worth highlighting the emphasis on the right combination of quality, service and price for the target market. There is no perceived value in quality or services that go beyond clients’ needs, however painful this realization may be to many managers.

Peter Drucker firmly states who ultimately decides what value is: “What the business thinks it produces is not of first importance. What the customer thinks he is buying, what he considers value, is decisive. And what the customer buys and considers value is never a product. It is always utility, that is, what a product does for him.” I favor this assertion because it clearly shows the difference between the product technical features and the customer expected benefit. Though this is very intuitive, it is far from being a general rule in companies.

Steve Jobs was acclaimed as one of the greatest geniuses of the 20th Century and beginning of the 21st Century. He turned Apple into the most valuable company on the planet, with iconic products such as the iPhone, iPod, iPad and MacBook. His vision on the process of value creation is therefore interesting: “You’ve got to start with customer experience and work back toward the technology—not the other way around.” Jack Welch, one of the most respected business leaders of the 20th Century, claims a company’s obsession for quality and cost is imperative: “If you can’t sell a top quality product at the world’s lowest price, you are going to be out of the game.” Many years later, C. Kim and R. Mauborgne used this mantra to build their own theory about blue oceans.

Michael Porter, arguably the most influential thinker in the second half of the 20th Century, warned about the risk of not focusing on value: “It is incredibly arrogant for a company to believe that it can deliver the same sort of product/service that its rivals do and actually do better for very long. It is extremely dangerous to bet on the incompetence of your competitors.”

It is that simple. But it is not easy.

The organization needs to ask itself a very simple question: why would people consume its products and services in preference to so many other alternatives?

The answer is: it depends on its value proposition.

A value proposition is simply the value promised to a customer after acquiring a product or service. When well drafted, it explains clearly its relevance from the client’s perspective, identifies specific and measurable benefits and praises its differences when compared to similar others in the market.

It is worth pointing out that a value proposition is never related to technical features and it is not just a creative tag line. It is the basis for the entire relationship between an organization and its clients, and it defines: target segments; specific, significant and valued benefits; measurable impact of benefits beyond price; superior benefits-price relationship when compared to the competition; and, process to effectively deliver the value promised by the company.

During my career as a management consultant, I have been engaged with several projects focused on the development of high-performance sales teams, change of business models and optimization of sales processes. By linking these sales&operations engagements to organizational cultural and strategic design, I have always approached them by applying my 5Rs drivers of value creation:

– Restore a winning attitude to the sales team;

– Renew the value proposition;

– Refresh processes and competences;

– Recreate continuously new competitive advantages;

– Rethink actions that create real value to the customer.

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Daniel Motta is the Founder and CEO of BMI Blue Management Institute, a leading niche consulting firm. He is a global thought leader focused on culture, strategy and leadership. He has a PhD in Economics, MSc in Financial Economics and BA in Economics. He is also an OPMer from Harvard Business School. He is the Managing Director of USA-based VC company White Fox Capital and the Senior Tupinambá Maverick of bossa&etc. He was a co-founder of Brazilian Society of Finance. He currently serves NGO UNIBES as Strategic Planning Principal. He is the author of the best selling books Essential Leadership and book Anthesis. He also has three articles published by Harvard Business Review. He is a Board Member of MASP.