Lecture Five: Outline

1. Lecture Five: Outline • The Value Proposition • Components of the Value Proposition • The Gap between Customer Expectations and Perceptions • Closing the ‘Value Delivery Gap’ • The Value Chain

2. The Value Proposition • Bovet and Martha (2000) show that: “the value proposition is the utility-creating product and/or service that a company offers to customers”.

3. The Value Proposition (cont’d) • Best (1997) offers this definition: “the value proposition includes all the key elements of the situation and the benefits the target customer is looking for in this purchase”.

4. The Value Proposition (cont’d) • Sheehy, Bracey and Frazier (1996) assert that: “the bundle of value that an organisation delivers to its customers is called ‘the value proposition’. More than just the product itself, it includes price, service, selection, and intangibles such as image and brand equity. The value proposition, in short, is not just what the customer is buying but what he or she thinks they are buying.

5. The Value Proposition (cont’d) • Webster (1994) suggests that the value proposition identifies both the offer to the company and the roles and tasks of stakeholders.

6. The Value Proposition (cont’d) • It becomes the selling proposition to potential customers, the reason they should do business with company, rather than its competitors.

7. The Value Proposition (cont’d) • It communicates to the whole organisation a sense of specific purpose and direction, coordinating their efforts toward the overarching common purpose of creating a satisfied customer.

8. Components of the Value Proposition

9. Components of the Value Proposition (cont’d) • Co-development is when customers participate in the Research &Development (R & D) efforts of the company in order to help the company produce products and services which more closely resemble that customer’s needs.

10. Components of the Value Proposition (cont’d) • Co-production is when the customer assembles part of the product themselves in exchange for a lower price or some other incentive.

11. Components of the Value Proposition (cont’d) • Reseller services are those additional, intangible, value-adding activities that resellers undertake

12. Components of the Value Proposition (cont’d) • Customer servicing include all of those additional things that other value chain members provide for the end-user

13. Components of the Value Proposition (cont’d) • Relative competitive positioning is how competing value propositions are viewed in the minds of customers.

14. Components of the Value Proposition (cont’d) • Barney (1997) suggests a company’ s competitive strategy consists of its business methods to attract customers and fulfil their expectations while withstanding competitive pressures, and strengthening its market position.

15. Components of the Value Proposition (cont’d) • Low cost leadership strategy a low cost leader’s basis for competitive advantage is lower overall costs than competitors.

16. Components of the Value Proposition (cont’d) • Differentiation positioning strategy. The essence of a differentiation strategy is to be unique in ways that are valuable to customers in a sustainable way.

17. Components of the Value Proposition (cont’d) • Focus positioning strategy is where the company chooses to focus on a market niche. This involves creating the necessary value structure to service a small group of customer exceedingly well.

18. Components of the Value Proposition (cont’d) • With each strategy, a different set of distinctive capabilities, competitive necessities and competitive advantages are necessary.

19. Components of the Value Proposition (cont’d) • Distinctive capabilities are those capabilities that your company can perform better than competitors and are not easily clonable

20. Components of the Value Proposition (cont’d) • Competitive necessities are those things that a company must do adequately in order to survive in the market

21. Components of the Value Proposition (cont’d) • Competitive advantage exists when a company can do something better than competitors in key success area.

22. The Gap between CustomerExpectations and Perceptions

23. The Gap between CustomerExpectations and Perceptions (cont’d) • Walters (2002) draws some conclusions based on the gap between customer expectations and customer perceptions.

24. The Gap between CustomerExpectations and Perceptions (cont’d) • Perceptions greater than or equal to Expectations = Competitive Advantage

25. The Gap between CustomerExpectations and Perceptions (cont’d) • Perceptions < Expectations = Competitive Disadvantage

26. The Gap between CustomerExpectations and Perceptions (cont’d) • Perceptions > Expectations = Sustainable Competitive Advantage

27. Closing the ‘Value Delivery Gap’

28. Closing the ‘Value Delivery Gap’ (cont’d)

29. Closing the ‘Value Delivery Gap’ (cont’d)

30. Closing the ‘Value Delivery Gap’ (cont’d) Source: Walters (2002)

31. The Value Chain Source: Walters (2002)

32. Discussion Questions • Describe the value proposition in terms of the internal and external processes that are undertaken in the value chain for a product you are familiar with. How has this value proposition changed over the past 10 years? • How is the value proposition affected by the value delivery gap? How do internal and external value chain roles influence the value deliver gap?

33. Discussion Questions (cont’d) • For both the organisational and the customer sides of the value proposition identify the inputs to the value proposition for a product you are familiar with.