A company exists in order to improve the well-being of its stakeholders. Achieving this task is based on the ability of a company to connect with its customers. How a company connects with its customers is through a value proposition.  

The Definition of a Value Proposition

Google the phrase “definition of value proposition” and here are three definitions that appear on page 1:

• An innovation, service, or feature intended to make a company or product attractive to customers.
• A statement that a company uses to summarize why a consumer should buy a product or use a service.
• A statement that clearly identifies what benefits a customer will receive by purchasing a product or service from a vendor.

Words that stand out to me are

• Attractive
• Benefits
• Summarize

Attractive stands out to me because it implies favorability from customers. Benefits stand out to me because they imply improvement of well-being. Summarize stands out to me because it implies simplicity of effort.

There is however one word I would like to emphasize, statement. Statement implies an expression, in this case an expression made by a company. An expression resonates with me due to my definition of a budget which is

THE EXPRESSION OF THOUGHTS THROUGH NUMBERS

The Importance of a Value Proposition

We see the importance of a value proposition daily. What we choose to drink, when we choose to shop, where we choose to eat are choices influenced by a value proposition. Our choices reflect an anticipated level of satisfaction we hope to receive. 

Let’s turn our attention to those we hope will give us the level of satisfaction we anticipate.  

Restaurants can offer more than food. Restaurants can offer comfort in the form of a clean facility, courtesy in the form of a polite bartender, and imagination in the form of unique entrees. Characteristics like comfort, courtesy, and imagination give us the level of satisfaction we anticipate however what does that mean for the restaurant?

For the restaurant it means a value proposition. As described earlier a value proposition provides the restaurant with the ability to provide benefits for its customers. The ability to provide benefits for its customers validates a value proposition in the form of a financial number, revenue.

Revenue validates a value proposition for a restaurant because it earns a reward for its effort and the keyword in this sentence is “effort.” Effort comes from the relationships a restaurant has with its employees and suppliers; these relationships require a restaurant to reward these entities in the form of payments. Payments need to come from receipts because failing to do so will result in the failure of a restaurant.

Your reasons for going to restaurants lead to their recognition of revenue. Their recognition of revenue helps them pay employees, suppliers, etc. The ability to earn revenue and make payments are affected by value propositions.

The Power of a Value Proposition

Let’s look at the power of a value proposition through the following video:

Apple Think Different

The power of the value proposition from this video is not in its communication to Apple customers but in its communication to Apple employees. This is a reminder to Apple employees of what they were, different. Being different requires a stroll down memory lane.

Over twenty years ago Apple was a struggling company. Its struggle was so much that many thought it would cease to exist. As what may have been at that time a last-ditch attempt to survive Apple acquired a company called NeXT. NeXT had two resources considered critical for Apple’s survival. One resource was NeXT’s operating system and the other resource was NeXT’s founder Steve Jobs.

Let’s not forget that Steve Jobs founded another company years earlier, Apple.

Not long after the acquisition of NeXT Apple acquired a new CEO, Steve Jobs. It is Steve Jobs who serves as the voice in the Apple video. His voice is an example of turnaround leadership.

One of the first tasks in the Apple transformation was the elimination of products like cameras and printers. These and other products were seen by Steve Jobs as a contradiction to the “Think Different” mantra. Thinking different in Apple was not to have products that would compare the company to others like Canon and HP, thinking different in Apple was to have products that stood out from others. Products like the iMac, iPod, iPhone, and iPad represent examples of how Apple thought differently. By thinking different Apple became one of the greatest turnarounds in corporate history.

Setting the Stage

A strategic advisor taught me about “the red stuff” and “the blue stuff.” The “red stuff” represents products and services while the “blue stuff” represents characteristics of products or services. It is the characteristics of products or services, “the blue stuff,” that set the stage for the next step in our journey.

The strategic advisor also taught me about how to learn about a company’s “blue stuff.”  In order to understand “the blue stuff” a question had to be asked. The question is

What reasons do people have for buying what we sell?

The answer is the characteristics of what is being sold that result in cash receipts from sales.

Cash receipts from sales represent rewards from the effort entities like restaurants and Apple employ. The effort employed must be linked to the reasons people have for buying what entities like these and others sell. The linkage is established from the answer to this question

How do we satisfy the reasons people have for buying what we sell?

The answer to this question will be in the next article titled “Organizing a Budget around a Value Proposition.”

Conclusion

A value proposition helps companies earn revenue. Earning revenue, a reward, comes from effort through the work of employees and vendors. The effectiveness of this relationship can be improved when thoughts are expressed in numbers, i.e. with a budget.