Why should a customer buy your product instead of somebody elses?
I usually write exclusively about market research, with an emphasis on why entrepreneurs need do it and how they can get started. However, because it is so easy to get caught up in the process but lose sight of the goal, I thought I would spend some time discussing one of the "products" of market research—€”the value proposition.
The value proposition is a simple distillation of how your product solves a problem that is significant for your customer in a way that is differentiated from (and superior to) alternatives. Your value proposition sets forth the compelling reason why a customer would buy your product rather than sticking with established practices or adopting your competitors' products. When crafting your value proposition it is important to bear in mind that "value" is defined by the customer, not by you.
Your value proposition should be easy to understand—€”if it takes 20 minutes to explain, you haven't done your homework. In fact, it should be readily apparent to anyone. The value proposition is one of the first things that potential strategic partners, investors or other funders will look for when assessing your business case. More important, if potential customers don't immediately understand it, you have a problem. Think of your value proposition not as a slogan, but as your corporate DNA.
Market research can help you learn what you need in order to craft and refine your value proposition. Perhaps most importantly, your research effort will provide insight into the significance of the problem you are solving. For instance, a strong secondary research effort followed with multiple customer and expert interviews can give you an intimate, visceral understanding of the problems your customers face, the level of "pain" they experience, and the complexity of the environments in which they operate.
Often a key link between customer needs and your value proposition will be a translation of your product's technical features into customer benefits. The benefits should address major pain points. Making a simple chart that correlates features with benefits is a useful exercise because it forces you to focus less on what has most likely consumed you up to this point (the technology itself) and more on what it is that customers are willing to pay for. [Hint: not all features translate into benefits.] If you can quantify these benefits, so much the better. For an industrial product this could mean calculating things like the average reduction in waste or increase in worker productivity that your solution enables.
When constructing a features and benefits table it is also critical to distinguish between major and minor benefits and to focus on the former. If you find yourself in laundry list territory, go back and prioritize. One question to ask yourself: is this a benefit they are able and willing to pay for? In other words: what is the compelling reason to buy? This will help keep your value proposition focused on what is really significant.
To understand what the truly unique aspects of your solution you must assess its alternatives. This implies you have spent some time evaluating substitute products, competitive solutions, as well as the customers' option of doing nothing. Differentiation does not always have to come in the form of product performance; it can also encompass factors like ancillary services, innovativeness, or even the quality of strategic partners.
The value proposition isn't something that you would emblazon on a T-shirt, but it does form the backbone both of your overall market strategy and also of your marketing, positioning and communications efforts. For instance, the value proposition can provide the building blocks for a 30-second "elevator pitch" that clearly and succinctly outlines what you do, why your solution is better than alternatives, and why anyone should care. It is also intimately tied into your marketplace positioning and, by extension, the consistent message you will send in all of your sales and marketing communications.
In his book Crossing the Chasm, Geoffrey Moore, a leading expert in technology marketing, provides a template that can help companies develop positioning statements. Because positioning and the value proposition are so closely related this can be a useful tool. Here is a rendition of Moore's outline:
For (target customers)
Who (are dissatisfied with current options, or have the following problem)
Our product is a (describe the product or solution)
That provides (the key problem-solving capability)
Unlike (the alternatives or competition),
Our product (describe the key points of competitive differentiation)
If you find that certain sections are difficult to complete, or if you find you are relying on intuition or unsubstantiated belief to fill it in, this may indicate that you need to do more research.
Grace Brill is Director of Market Research at Technology Ventures Corporation.