Thursday, February 20, 2014

Marketing 101: Selecting An Overall Positioning Strategy - Value Proposition

There are buzz words and phrases in marketing & branding that seem to have an "aura" or "mystery" revolving around them.  There are also phrases and words that people who have careers in marketing don't understand at all.  One of the most used terms in existence is the Value Proposition.  Yet, so many of my colleagues don't really know what one is, or how to use it.  So let's spend some time defining it and exploring what it is and how you use it.

What Is A Value Proposition?
Simple question, right? Yet...it's a bit of a complicated answer. So if I'm going to define this as simply as possible, I'm going to say it like this: A Value Proposition is the full positioning of a brand, product or service.  If I were to expand on the definition, then I would say that a Value Proposition is the full mix of benefits that the brand, product, or service is differentiated and positioned upon.  A Value Proposition answers the question: "Why should I buy this?"



Above is a fairly standard illustration of the matrix of Value Propositions.  On the top, we have three Price categories: More, The Same, and Less.  On the side, we have three Benefits categories: More, The Same, and Less.  So when we assemble a Value Proposition, we are pairing a level of Benefit, with a level of Price.  For example, I may choose to take a More for the Same approach, meaning I'm going to offer more features and benefits than my competitors, for the same price.

The combinations in the matrix that are green represent the most favorable approaches to take with your Value Proposition.  Those in red are rarely profitable, and tend to lead to problems or a loss of focus down the road.

Let's begin exploring some of these categories of Value Proposition.

More For More
When we tout a "More For More" value proposition, we are telling the consumer that we are providing them the best possible product or service, and we are charging a higher (some would say "premium") price to cover the costs of giving you the "best".

In the real world, it is easy to see who the "More For More" players are.  One of my favorites is Apple.  They are not shy about "More For More". Apple gives you the best design, the best quality, the best experience, at a price that meets their corporate goals for gross margins and profits.  When a company truly stands behind this value proposition, giving the consumer a premium product, with premium service and an experience that is consistent over time (the Macintosh has been around for 30 years), then it can be very successful.

In order to compete in a "More For More" market segment, you are going to have to find a product or service category that is under-serviced.  If there is a void in the market segment for a premium product, and if the market segment has consumers that can afford a premium product, then you can consider moving in to that area.  However, there are cons to following a "More For More" value proposition.  When you have a premium product, there will always be imitators that will produce a similar product or service, and claim that it has the same quality for a lower price.  Amazon has been marketing it's Kindle Fire HD as a higher quality, lower priced alternative to Apple's iPad Air tablet.  "More For More" brands, products and services will always be under fire by those who use a "More For The Same" or "The Same For Less" value proposition.

More For The Same
How do you counter a "More For More" competitor?  You present a "More For The Same" value proposition.  A "More For The Same" value proposition entales offering a product, service or brand with comparable quality, at a lower price.  Depending on the costs associated with producing your product or service, you may have the same margins as a "More For More" competitor, or you have have smaller margins, which you are hoping to make up for with a higher volume of sales.

What does "More For The Same" look like in the marketplace?  The auto industry is a great example. Lexus, Infinity, Kia and Hyundai are perfect examples.  Lexus and Infinity were the first to attempt to uproot major luxury "More For More" brands such as Mercedes, BMW and Cadillac.  Offering more car, for the same (and usually lower price), these brands were able to take away more and more market share. As a result, Mercedes and BMW realized that there were more customers available at lower price points.  More recently, Hyundai and Kia have followed the same approach, introducing their Genesis and Cadenza models to the marketplace.  However, "More For The Same" can fail, if you are not backing up your value proposition with the quality and features that you claim you are providing the consumer.

The Same For Less
Probably the most powerful Value Proposition is "The Same For Less". Why?  Because we all love getting a great deal.  Great product?  Lower price?  Yes please!  Need a high quality PC for less?  Get a Dell.  Need great quality food, clothes, and electronics?  Go to Costco.  Want door busting deals on name brand electronics?  Go to Best Buy or Fry's Electronics.  Need name brand groceries for much less?  Go to Winco.  You get the idea.

Less For Much Less
If you remember my discussion of social and economic groups, then you know the reality of the consumer: few people want, need, or can even afford the very best products and services.  As a result, there will always be a market for value products.  "Less For Much Less" is summed up with a definition of "offering a brand, product, or service of less quality, for a lower price".   In most cases, the reality of a consumer's monthly budget forces a consumer to stick with "needs" over "wants" during the buyer decision process.

This means you are going to provide a lower "performing" product (less quality and features), at a much lower price.  This also means that you are usually relying on a higher volume of sales to make up for much lower margins.

More For Less
I'm going to briefly touch on one Value Propositional tactic that we see fairly often in the marketplace.  "More For Less".  That's what we all want, right?  More features, more product, more value, for a really low price.  We typically see "More For Less" when a new brand is entering a target market with established players.  Many claim to offer "More For Less" today.

At first it's easy to do.  You are ripe with new investment capital, or you are a large company that has just budgeted a large amount of money towards a new product segment. So you market your product, and sometimes sell it at a loss, offering more features, for a better price.  However, over time, it becomes very hard to maintain a "More For Less" value proposition.  Companies will typically fall into this trap: losing focus.  With each new generation of your product, you will add more features.  All of this product development, all of this marketing, costs money.  Lots of it.  And unless you have other products in your stable that are selling well and creating profits, you will have to raise the price of your product in order to cover the costs associated with bring it to market.  If you don't, you lose money.  Not only are you losing money, but your product and your brand become so "busy" and "cluttered", you begin to lose out to your competitors, who are more focused, and have a more focused product and message.  In essence, you eventually confuse your consumers, and once your prices go up, they look elsewhere during the buying decision process.  Stay away from "More For Less", unless you can keep your focus, and you can manage your bottom line.

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