Customer Value Proposition

Transcription

1 5 Customer Value Proposition No profit grows where no pleasure is taken; In brief, sir, study what you most affect William Shakespeare 1 Customers will choose to engage if they see merit in a business s customer value proposition. The customer value proposition needs to strike a chord in the customer that compells them to engage. In the book Seizing the White Space 2, Mark Johnston defines a CVP as: An offering that helps customers more effectively, reliably, conveniently, or affordably solve an important problem (or satisfy a job to be done) at a price 1 The Taming Of The Shrew Act 1 Scene 1 2 Mark Johnson 2010 Seizing the White Space Business Model Innovation for Growth and Renewal Harvard Business Press, Boston

2 Being decisive about the CVP sends a clear message to potential customers as to why they should buy from your firm and to employees as to what benefits and experiences they are providing. Chesbrough and Rosenbloom refer to a CVP as a: a description of the customer problem, the product that addresses the problem, and the value of the product from the customer's perspective Defining the CVP also makes a statement as to the structure, core competencies, business process and aspired culture of the business. As mentioned above, it must also include the what s in it for me message. Drill Bits and Holes A good CVP must solve an issue. Peter Drucker 3, the late management guru, used a drill bit analogy to explain a CVP. People do not want drill bits, they want the hole the drill bit makes that s the what s in it for me. In developing a CVP, it is necessary to look beyond what is being sold to understand how it is solving a problem or providing a benefit. Michael LeBouef 4 uses the following examples: Do not sell me a house. Sell me comfort, contentment, a good investment, and pride of ownership. Do not sell me a book. Sell me pleasant hours and the profits of knowledge. Do not sell me clothes. Sell me a sharp appearance, style and attractiveness. Do not sell me insurance. Sell me peace of mind and a great future for my family. Do not sell me things. Sell me ideals, feelings, self-respect, home life and happiness. In defining and communicating the customer value proposition, it is necessary to focus on a couple of issues. The customer must have a need or a problem they need to solve, whether they currently recognize it or not. If the need is latent, typical for personal risk insurance, then the proposition will often include messages to disturb the 3 Peter F Drucker (1909 to 2005) Management Professor 4 Michael LeBoeuf, American Author and Management Professor Page 2

3 customer and highlight the need. This seems obvious, but often, sales people waste time trying to sell to customers with no need, latent or otherwise. Value is simply the difference between the customer's perceived benefits and consequences of selecting your solution compared to the competitors. To win, the customer must perceive that your CVP must be superior to the alternatives being considered. This includes competitors, or the possibility of the customer doing nothing. Michael LeBoeuf 5 sums up the requirement of a CVP by saying: Customers will exchange their hard-earned money for only two things: Good feelings & Solutions to Problems Developing the CVP This stage of the FFS process requires reflection on what will be offered to which customers to satisfy identified needs. Customer Value Customer Segmentation Describing the value proposition CVP Profitability Operations How does the business make money? Costing Pricing Service offering Staffing Implementation 5 Michael LeBoeuf 2000 How to Win Customers and Keep Them for Life Berkley Page 3

4 Understanding Customer Value Defining how the firm currently or could add value to customers is the starting point in the CVP exercise. Creating a service with a close fit to customer needs eases the sales process. The aim of marketing is to know and understand the customer so well the product or service fits him and sells itself Peter Drucker 6 As has been mentioned several times before, the most important component of a CVP is the what s in it for me from the customer s perspective. Hence, it is necessary to study and analyse how your services affect your customer s pleasure the most. Trying to establish common features of delighted / very satisfied customers points the way to an existing customer value proposition. This highlights the customer problems the firm is currently good at solving. When trying to establish where value lies in servicing particular customers, identifying strengths of the business also can provide valuable pointers. Commonly listed business strengths are: We're the biggest! Best! Most experienced! We consider the big picture, providing holistic financial planning! We offer the best plans and the best price! We are good at selecting investments! We provide quality advice! We provide personalised service! We provide real value for fees charged! We provide excellent administration and service. Often one of these statements is provided by financial advisers to their customers. However, each of these responses is talking about the business, and not the customer. Simply highlighting business capabilities does not translate into customer benefits. The customer value proposition needs strike at the core of the customers problem, to resolve it and thereby provide pleasure. 6 Peter F Drucker (1909 to 2005) Management Professor Page 4

5 Paraphrasing the quotes from Johnson and Chesbrough & Rosenbloom provides more food for thought: Mark Johnston: What existing offerings help customers more effectively, reliably, conveniently, or affordably solve an important problem (or satisfy a job to be done) at a price..? Chesbrough and Rosenbloom: Describe a customer problem, the product that addresses the problem, and the value of the product from the customer's perspective In order to provide a practical example, Apollo Financial Planning will be used to highlight the process. Page 5

6 Apollo Financial Advisers Apollo is a fictitious financial advisory firm providing both risk and investment advice. Virtually all of their customers are referred through by tax accountants. No formal servicing agreements or defined service packages had been set-up. The staff all feel that there was never enough time to complete outstanding work. Existing customers : 570 Staff : 5 Expenses : $ Income : $ Apollo s existing customers agesrange asfollows: Over 65 : to 65 : 183 Below 45 : 278 Around six months ago, a temporary receptionist was employed for the day and the entire staff spent the day at a quiet retreat. The morning session was devoted to analyzing possible CVPs for customers. Page 6

7 Apollo Financial Advisers Apollo is a fictitious financial advisory firm providing both risk and investment advice. Virtually all of their customers are referred through by tax accountants. No formal servicing agreements or defined service packages had been set-up. The staff all feel that there was never enough time to complete outstanding work. Existing customers : 570 Staff : 5 Expenses : $ Income : $ Apollo s existing customers ages range as follows: Over 65 : to 65 : 183 Below 45 : 278 Around six months ago, a temporary receptionist was employed for the day and the entire staff spent the day at a quiet retreat. The morning session was devoted to analysing possible CVPs for customers. In the months leading up to the CVP session, the two advisers had probed customers during reviews with a variety of questions essentially asking: What is the most important reason you engage us to do work for you..? In addition to this, the practice manager had contacted customers with whom the practice had very good relationships to enquire what is was that customers valued about the service Apollo was providing. There were a number of similar answers provided by customers. When groupings of customers was analysed further, it became apparent that life stage had an influence on the answers. There were four clusters of customers. Customers with small children expressed comfort in that Apollo had secured financial cover for their family / helped with finance & budgeting etc. Those customers closer to retirement appreciated the work Apollo undertook in allowing to save time/ allowing them to navigate to retirement / providing overall Page 7

8 picture of financial situation. Existing retired customers enjoyed the interaction with staff members / importance of knowing that they were OK financially / comforting guidance when markets dropped. Finally, high net worth customers mentioned the overseeing role / expert knowledge / constant contact around their portfolios / allowing them to get on with their lives. When the value the firm is capable of providing is established, the next step is to indentify appropriate market segments. Customer Segmentation In the financial planning industry, there is the temptation to be all things to all people. There are advisory firms who list an open door policy as part of their value proposition. Unfortunately, customer contact tends to happen when the customer has an issue or when they want to have a portfolio review. This is a purely reactive model and essentially the customers are running the practice. The other customers who do not make contact are subsidizing those that do. With advisory firms like this, there is no core CVP around which the relationship and business processes are built 7. As Deena Katz 8 says: There is a huge range of services and products one might offer in a financial planning business. In order to be successful, you must determine at the outset the unique service you propose to provide A well-defined CVP provides the desired customer profile upon which you can build a well-constructed business strategy. There are two customer-servicing pools to consider when segmenting; existing customers (as per the Apollo example above) and future customers. If a particular target market is on the radar, then simply speaking to customers in that segment can highlight what sort of service they feel is lacking. 7 Unless the CVP is based on a low cost retainer to solve any issue 8 Deena Katz 2009 The Complete Guide to Practice Management Bloomberg Page 8

9 Using an automotive example, Mazda was seeking to introduce a new model into the saturated US market. California was selected as the test market. Market researchers questioned many folks in terms of what they wanted. This highlighted a need for a MG type roadster. In due course, the highly successful Mazda Miata rolled off the production lines. The problem to be solved was a desire to drive a small open top sports car in the sunny California climate. The Miata s success was due it being able to solve this requirement. Over sixty years ago, the David Brown Company of the UK considered entering the tractor market. Before doing so, it polled farmers to find out what tractor features that would ideally like. There was a number of calls for faster tractors to speed up moving between fields or when travelling on country roads. David Brown responded by introducing a low and high range gearbox with the speed on open roads effectively doubling. This innovation improved productivity and ensured a successful launch for the new tractor range. The imagination is the only limitation in considering potential new services In Apollo s case, energy needed to be spent on creating segments for the existing customers. Apollo s research into where they were already providing value to customers highlighted four market segments. After some debate, these customer segments were named. # Segment Description 1 Family For customers with small children 2 Baby Boomer Customers closer to retirement 3 Retirees Retired or semi-retired customers 4 Private Wealth High net worth customers Describing the Value Offering Good value propositions appeal to solving an irritant or fulfilling a dream. Sometimes this dream or irritant is latent, and a few words can strike a chord with the customer to highlight that need. To engage and hold the interest of your customer, it is necessary to convey Page 9

10 clearly your CVP. This must include what problem will be solved and how as well as what this means to the customer. This step needs to include the value points highlighted in the customer research. The following value statements were included for each of Apollo s customer segments. Family For customers with small children: You love your children. We can work for you to safeguard their future. Baby Boomer Customers closer to retirement: While you are still busy working, we will manage your path to retirement. Retirees Retired or semi-retired customers: You have worked hard for your retirement. Let us help you make it more satisfying. Private Wealth High net worth customers: Let is handle the complexity and stress of managing money so you can enjoy your wealth. Once the customer value proposition has been established, it is necessary to incorporate it into the day-to-day operation of your business. This is through developing the service offerings to match the requirements of each customer segment. Page 10