Everything You Need to Know About Value Propositions and The Future of Value Perceptions

Value shouldn’t be defined in terms of the benefits a product, service, or an organization offers, rather, it must be defined in a way that explains why the value offered is more than the value offered by a competitor. “Why should our firm purchase your offering instead of your competitor’s?” is a more pertinent question than “Why should our firm purchase your offering?”1

When making a decision, customers prefer to compare the value offered to them against a competing product. Even when there is no competing product, the customers try to compare a product/service against the closest examples to always get the best of what they invest in.

In this article about Customer Value Propositions in Business Markets2, the authors draw out a three-point approach in which different value propositions can be compared:

  1. Points of parity are elements with essentially the same performance or functionality as those of the next best alternative.
  2. Points of difference are elements that make the supplier’s offering either superior or inferior to the next best alternative.
  3. Points of contention are elements about which the supplier and its customers disagree regarding how their performance or functionality compares with those of the next best alternative. Either the supplier regards a value element as a point of difference in its favour, while the customer regards that element as a point of parity with the next best alternative, or the supplier regards a value element as a point of parity, while the customer regards it as a point of difference in favour of the next best alternative.

When it comes to value, the more is not always the better. There are factors that we may never understand fully – the snob effect, the bandwagon effect, the Veblen effect, etc. These factors do not offer a rational explanation. We may come across customers who are brand conscious, or attached to certain principles, and may decide on a product or service based on these inherent factors. For example, there are people who buy notebooks with fully recycled paper even if they cost three times the price of a normal notebook because they are environmentally conscious, and not because the recycled notebook offers them greater value. This is because the belief in one value element may supersede the benefits gained from other value elements or may even offset the negative impact of some value elements altogether.

So, What Does the Future Hold?

The way customers will perceive value in the future will drastically differ from how they do so today because of the following reasons:

  • Greater transparency will drive a shift towards ‘true’ value – Gone are the days when one had to rely on word-of-mouth and big travel guides to book hotels for a holiday. With the advent of sites such as Hotels.com, Booking.com and review platforms such as TripAdvisor, hotels cannot hide behind a veil of secrecy. Transparency is the new norm. Similar trends are happening in the B2B industry too. This will create a shift towards the perceived value being closer to true value, and hence the difference between the perceived value and obtained value will reduce significantly as industries transcend towards becoming increasingly transparent.
  • Innovation will have a greater say in defining value – The value of products and services today is dependent on the economies of scale, but the value creation in the future will depend on economies of creativity, or better known as innovation – not mass production, but mass personalization; not delivering at the lowest cost, but the ability to satisfy a need in the most optimum way. (Hughes, May 2013)
  • Value obsession will complement customer obsession – Jeff Bezos introduced the world to the term ‘customer obsession’ and went so far in making it a trend and organizations across the world have similar sounding terms in their corporate playbook. We believe that the future will not just see an obsession towards the customer, but this obsession will drive a fundamental shift in the mindset and make organizations also obsessed towards the value they deliver to the customer – either through the product they offer, or through complementary products.
  • Value networks and enterprise value chain management will supplant supply chains and revenue management (Menghini, October 2017) – Supply chains, the backbone of the global commerce, start from the supplier and end with the customer (Dr. Dan Shunk, March 2006).  This is counter-intuitive because today’s businesses follow a ‘customer-first’ approach. Value chains, or value networks because of the ecosystem businesses, will be driven more by the value delivered to the customer, and less by the product features and benefits. This would also mean that organizations will think beyond revenue as the single biggest business driver and focus on enterprise value chain management of which revenue generated by the individual components will be one of the factors.

With drastic shifts in global ecosystems, perceptions on value creation, and delivery are all bound to change. While customers fast track their perceptions on value, businesses must be in sync with these aspects to continue staying relevant and dependable.

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Sources

1Customer Value Propositions in Business Markets; James C. Anderson, James A. Narus and Wouter Van Rossum; Harvard Business Review; March 2006

2Customer Value Propositions in Business Markets