Part of every company’s marketing literature and proposal for service involves a value proposition, the statement describing why a potential customer should shell out the big bucks for the service or product being sold. That value proposition must convince the prospective client that whatever the company is selling will solve a problem or improve a circumstance better than any competitor’s product or service.
Contributing editor for Inc.com Geoffrey James identifies four types of value propositions:
- This reduces whatever you’re selling to a commodity. The advantage of the cost-based value proposition the customer understands without effort. This is the value proposition responsible for Walmart’s success.
- Often used by name brand designers, this value proposition latches onto a desired feature and touts it as superior to that offered by other rivals. Remember the Ford Windstar? Ford Motor Company marketed this minivan as superior in safety to its rivals.
- This value proposition relies upon the consumer’s desire to save time and effort. A reduction in hassle correlates to a increase in value and, therefore, price. Amazon currently markets its Alexa device as the ultimate in convenience: speak and ye shall receive.
- Team participation. James considers this “the holy grail of value propositions” which elevates the company from vendor to teammate. It operates on the general principle that the company/consultant/freelancer can do the job better than the client and is used by savvy entrepreneurs to become indispensable to their clients.
Anchoring your business into the low-bid provider category may yield a steady supply of customers, but it prevents you from growing without penalizing the people who work for you or downgrading the quality of services and products offered to your clientele. Low-bid providers often find themselves working at a loss: they cannot cover their expenses even though they’re busy. They over-promise and under-deliver, because they cannot complete the work to the required standards within the required deadlines. They forget the true holy grail of business: fast + cheap ≠ good.
In a market that favors consumers, vendors find themselves tempted to lower their prices to capture business and perhaps regain lost market share. In such markets, it behooves businesses to resist temptation and remember their own value propositions. WordStream highlights “7 of the Best Value Proposition Examples We’ve Ever Seen” to show how successful companies position themselves for market dominance. In short, they don’t turn themselves into low-priced commodities. How else do you think Apple’s iPhone maintains dominance in the brutally competitive cell phone industry?
Patrick Campbell states pricing strategy in simple terms: “[I]f your price aligns with customer value the only reason someone would churn is if they’re going out of business or broke.” The key to aligning price with value is to develop an ideal client persona so that you market to the right type of client. Walmart markets to the price-conscious; Nordstrom markets to the brand-conscious. A mismatch between pricing and market leads to a low-bid mindset. For example, attempting to sell filet mignon to people who can hardly afford a can of tuna misaligns price and value. Reducing the price of your filet mignon to the price of a can of tuna adjusts customer expectations downward so that raising the price later becomes nearly impossible.
Sometimes, clients simply discredit the time, effort, education, and skill that go into a quality product or service. Freelancers experience this often. Think of it this way, do you want to work with a client who doesn’t value your contribution? Devaluing your work to align with a client’s lack of appreciation doesn’t make good business sense. If you can’t convince that client that you’re worth what you charge, then it’s time to part ways.
The Heggen Group assists in analyzing data to help companies define their value propositions and then price their products and services accordingly. Contact CEO Jayne Heggen for a consultation.
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