There are numerous publications on the topic of business models. At this point, we would like to go into the core of a business model in more depth: the Value Proposition Model. We experience countless workshops in which terms rain down that usually no one understands, things are stuck on walls, there are photos for LinkedIn, and afterwards everyone falls into each other’s arms over a beer. But only 5% of all organisations have a quantified value proposition — that is, one supported by comprehensive data. Nothing against creative workshops and the exchange of ideas, but it is important to use more customer insights for creating and, above all, reviewing it. Since most companies have no, or only few, customer insights, many value propositions are not underpinned with relevant customer data. We don’t want to play down creativity and luck as important success factors, but data in the form of customer insights is also necessary to secure the success of new business models.
Definition of value proposition
A value proposition describes the benefit that customers receive through the relationship with the organisation.
Introducing the Value Proposition Model
When developing a value proposition, one question in particular is exciting to answer: ‘What is the customer willing to pay for the new benefit?’ In recent years, many companies have brought digital value-added services to market without customers being willing to pay for them. Insurers, banks, electricity providers, etc. offer new portals, apps and services that satisfy a customer need. But apparently the customer’s need is not so great that they are willing to pay for it. So the costs for the organisations rise, usually while revenue and profit in the core offering decline, and customers are practically flooded with free value-added services. When we talk to those responsible, it is argued that these new services help them differentiate. But usually the effect of the new services on the company’s financial performance cannot be confirmed. The companies offer more and more in the hope that something will help customers stay loyal. Our Value Proposition Model addresses this point and is intended to help optimise both the value for the customers and the value for the company.
As a first step, it is important to determine the different customer activities during the Customer Purchase Process. For a simple start, the entire customer base can be assumed. In a later phase, analysis on the basis of different segments is more expedient. It should be ensured that the chosen segmentation can also be used in everyday business. Personas in particular enjoy great popularity in analysis. The challenge for most companies is to identify these in everyday business at all. So it is important not to ‘overthink’ the analysis.
In a second step, in the context of the Customer Purchase Process analysis, each activity is examined for whether there are potentials and/or problems from the customer’s perspective. At this point, we experience a central problem of customer centricity. This analysis is still conducted too strongly from the thought: ‘We in the organisation must do, or provide, something for the customer.’ This is one possibility of value creation. But it is also important to consider how the customer can be integrated into value creation in the sense of co-creation.
In the third step of our Value Proposition Model, the respective results of the previous analysis are distributed across the different value levels of a company. Some points concern the business model, others the brand, still others refer to the offering, etc.
In our view, the central weakness of existing Value Proposition models is on the last stage. A system is lacking for classifying the identified ‘ideas’ according to their value contribution. In workshops, there is always talk of customer enthusiasm, customer loyalty, great experiences, etc. All well and good, but also very abstract and hardly tangible regarding the business effects for the company. We therefore propose transferring the identified ideas into our system. Here, two dimensions need to be observed.
In the first dimension, it is to be distinguished whether the ideas are to be classified as hygiene, differentiation or willingness to pay. Hygiene ideas in particular are to be viewed critically. Although an organisation could use these potentials or solve the problem, the customer is neither willing to pay for it nor does it help with differentiation. We experience too many ideas that present themselves to the customer as hygiene: a current example is the chatbot. Many companies have implemented it but no customer uses it. So only ideas should be pursued further that can be used for differentiation and/or willingness to pay.
In the second dimension, it is to be determined whether it is a blue or red idea. Blue means the idea is completely new for the customers. Red ideas are relatively close to existing value promises. From this arises the danger that these can easily be copied, or that the customer does not assess the added value so highly. The concept of expectation inflation is often neglected when developing new value propositions. Customers assess innovations as standard services in ever shorter periods. As a result, this dimension is intended to help set the ambition level for the company clearly during elaboration. ‘Do we want something radically new or something similar to the existing value promise?’
Conclusion on the Value Proposition Model
Our Value Proposition Model takes up the basic system of existing approaches. But it does not focus only on business models, but on the different levels of customer management. In our view, the last stage is neglected in practice. The ideas are often only assessed with points or put into a ranking. Completely absurd is the use of the Kano model from the 1970s for structuring ideas — since this model assumes that customers are to be delighted. We are not fundamentally against enthusiasm, but we also know that, in our cultural sphere, enthusiasm is very difficult to achieve. Fundamentally, the value contribution for the company falls considerably short in existing approaches. But customer centricity always means balancing the value for the customer with the value for the company. So this model delivers a unique system for considerably reducing the risk in developing a new value proposition.
