The Constant Observer

In the previous article in this series, I wrote about innovation, generic benefits, and the nature of technology with respect to innovation.

Today I am going to try and stretch that concept a little bit more by bringing in another added dimension – that of the Value Proposition.

A Value Proposition is based on the “fundamental equation of business”

 i.e. Value = Benefits – Price.

In a sense a value proposition summarizes why a consumer should buy a product. So the “value proposition” becomes extremely important especially where the commercialization of new products is involved. This is because there is a risk involved with trying them (not all products are manufactured by Toyota or Sony or Reliance etc. and thus they do not have marketing economies of scale and an assured quality level with respect to the customers mind).

Since the Value Proposition is a summary of why a consumer should buy a product, it has an internal feature that can help the business as well. It thus becomes an automatic revealer of Segmenting, Targeting, and Positioning for a company. So in a sense it is a clear precise statement of the customer targets for the product as well as a specification of the key benefits that will ultimately define whether the consumer will buy a product or not.

Consider the Value Proposition of a company I have written about many times over – Mobile Worx. It offers free VAS for mobiles over the Internet by showing people who want to download content – some advertisements. Now the consumer depending on who he is will view the benefits and the price he must pay. Remember, the services of Mobile Worx are not free because there is a time cost and a “mind cost” involved and also “there is not such thing as a free lunch” as economists would say! So looking at the cost benefit one can clearly outline the prospective user of Mobile Worx’s so called free value added services (VAS) – the user obviously will not be a top notch executive or CEO who does not have any spare time on his hands – that kind of a person will pay a price for the value added services he/ she wants to consume. The user probably will be a middle or a lower mid level employee who uses public transport or a cab, maybe even a chauffer driven car in some cases – and someone who has free time on his/ her hands. Whose per minute value is not as high as he/ she might like it to be. So obviously that kind of a person would find some sort of a ‘Value’ in the proposition that Mobile Worx looks to offer – and im sure they know that as well!

Another thing that firms must keep in mind with respect to Value Proposition is that they must learn to distinguish between “features” and “benefits”. I spoke at length about this in the 1^st post on this series as well.

The application of “features” and “benefits” with respect to Value Proposition is that features are something that the firm produces, benefits are something that consumers buy!   

So the end result (for a consumer) of doing business with a firm is that a benefit obtained.

Many firms make features and sell features. The consumers look for benefits – and there is no middle ground and thus fewer purchases. Thus firms must look to integrate features and benefits and maximize marketing potential especially for new technologies. The relationship between features and benefits is key.

Consider Google Docs. Agreed it is a Google product and hence MUST be good but look at how they have integrated features and benefits. They have enough features that will benefit the average user such as font tools, size tools, basic spreadsheet and graph tools. They have at the same time ensured that there is no feature overload – which would lead to the service being slow (and pointless) because then the opportunity cost of buying a pirated version of MS Office becomes lower. So there are no fancy features for high end users and thus Google is quite clearly targeting the average user as of now.

Again I want to take the opportunity to remind you that it would be great if we can make this series conversation like – do keep asking me questions and challenge what I write so that the series can be more engaging and mutually beneficial.    

Till then Enjoy The Constant Observer!