One of the beauties of the business model thinking is that we learn to see a business totally different if we really apply stringent thinking and dissect a business into its building blocks. And one of the most important concepts is that the value proposition is not the product. Why?
It’s not the product that creates value but the value proposition. The whole value architecture including the product, the revenue model and the team & values all have to deliver the value the value proposition is proposing.
Deadly business with a value proposition that customers and democracies need
A simple, a bit eccentric example illustrates this. Take manstopper ammunition that is for very good reasons banned by the Hague Convention in international warfare.
Manstopper ammunition does not sound like a lovable product and in terms of Alex canvas as a good value proposition?
Actually, manstopper ammunition is the offer and not the value proposition. A good, and even meaningful value proposition depends from your customers, the job-to-be-done and the benefit you create for your customers. Continue reading The offer is only one building block to fulfill the value proposition
Framing the business model so it can be quickly but well understood by others is core. So, how do we do it? By Paul Hobcraft
You have come to end of a fairly long week. You have finally finished your Business Model Canvas. Finally you have a working hypothesis of something that is going to challenge some of the existing business models around. You should feel pleased; it took a lot of hard work to get to that point.
Laid out on one piece of paper is something that could have real business value yet although you can see where the dots connect, you begin to wonder if others will see the same compelling value, to invest in it, to back it, to simply support it and encourage you to continue.
Completing a business model and identifying its critical parts is only that first step, the hard part is getting it off the ‘drafting board’ and making it something tangible and potentially commercially viable for those around you to engage with.
What is the next step in executing this potential game changing business model
Each new business model needs a compelling story – a narrative..
We really need to learn how to craft a story, to tell the narrative around why your business model idea stands out and is worth other people’s time and consideration. This business model narrative along with your business model you are potentially better placed to test it, to talk about it, to validate it, to make it ‘sing for others’. You are out to get engagement and contributions everywhere, from everyone, as you tell the story, describe your potential new business model you gain from their reaction and improve your understanding of the real need for your idea. Continue reading Business Model Innovation and Story Telling: How to get the story right!
Most people want to be liked or even be loved. But a good value proposition for a firm should not attract everybody but only the ones you intend. And that means that a lot of people might even hate you.
Take the latest controversy about Abercrombie & Fitch, an American retailer for casual wear. See here (forbes.com), here (Los Angeles Times) or here (Daily Mail, UK).
Abercrombie & Fitch offers no women’s XL or XXL because they don’t want big women to wear their brand. Their value proposition is clear: They want the cool kids as customers. They do not consider big women as cool.
Mike Jeffries is the man behind A&F. In an interview with Salon Magazine in 2006 he told, when asked about the emotional experience in his shops:
“It’s almost everything. That’s why we hire good-looking people in our stores. Because good-looking people attract other good-looking people, and we want to market to cool, good-looking people.”
That is the reason why they offer nothing for big ladies. That is their choice. They discriminate big ladies, but you as customers have the choice as well. You are not forced to buy at A&F. I do not buy at A&F because I do like their attitude. However, they have a value proposition that is clearly distinguished from their competitors. And that is what I like and adore. They stick to their mantra even under severe pressure from the public.
Take other firms, Apple or Zara. They also discriminate. Apple’s Operating System is a closed system and either you take or leave it. At Zara, you also have no extra large sizes.
H&M, Dove: The opposite can be right as well
Interestingly, other firms like H&M or Dove have a different approach to big or natural ladies. H&M offers a H&M+ collection for larger women. Continue reading You do not have to be loved by everybody – a great value proposition
We always hear that the customer is not buying because the price is too high. Is the price important?
Of course, most clients will say yes in any survey or in sales negotiation. Actually, there are departments at your clients that know only two words: Too expensive!! Give me rebates! That is the purchasing department and it is their job to negotiate the price of a purchase. However, is this true, that even for B2B customers only the price is important?
Observe the jobs-to-be-done of your customers. Don’t ask the customers
Let’s take an example from RWE, a huge German utility firm. Let’s take the case they need to purchase electronic testing equipment. Nothing fancy, just a plain vanilla device for 30 to 50 Euro. Traditionally, this purchase would be a C category purchase. C means not critically important to the firm and therefore the firm usually shops around among different suppliers for a good price.
So you would assume that price is the decisive criteria for a firm to purchase from you. And yes, if you survey customers what is important in their decision to purchase C goods, the price will be on top.
So, all B2B marketplaces of the late 1990s and early 2000s like Onvia had the value proposition that price of the goods are the most important criteria for the B2B market. So they offered everything economics told them what to do in a price sensitive market: Make auctions, offer pool buying for larger quantities or make requests for proposals.
Not the price of the good is important but the whole cost of purchasing
However, they had to learn the hard way (most disappeared from the market) that this is not the case. Let’s go back to the testing device of 30 to 50 Euro at RWE. Saving an extra 20% on a purchase of 50 Euro is great. But is it just 10 Euro. But the costs for the internal purchasing process can easily be 150 to 200 Euro for the traditional process according to Karl Czech from RWE purchasing. Continue reading It’s not the price, stupid. It is the value (proposition)
Architectural innovations are often what customers do not see immediately but there are core of any good strategy. While in the last years we saw a trend toward concentration on core activities like marketing and branding, some companies take the opposite route. And that is good.
I was recently in Egypt to give a workshop on business model innovation. I received an invitation from the Executive Institute, a young and upcoming executive education institute based in Cairo. I was absolutely intrigued by the participants and their entrepreneurial drive. We can all learn from them in the so-called developed countries since they are true entrepreneurs and risk-takers. Participants came from different backgrounds ranging from food and telco, real estate development to plumbing and fixings.
Concentrate on the core
The traditional view on the value chain is to concentrate on the core activities. So almost all consumer electronics, computer or mobile equipment firms have outsourced their production to specialized manufacturers, so-called contract manufacturers or electronics manufacturing services (EMS). The western firms like Apple, Dell or IBM concentrate on the design, R&D, marketing and sales of the devices and leave the manufacturing to EMSs like Flextronics(165.000 employees) or Foxconn (113.000 employees). Outsourcing manufacturing to specialized firms is the norm in their industries. Foxconn manufacturers for Apple and Intel while Microsoft is a customer of Flextronics.
This architectural or operational model looks very convincing since the story line “Concentrate on the core” sounds very plausible. By concentrating on your core capabilities, you focus on what you are strong at. In the case of Apple, that is design, usability, marketing and branding.
The perils of the “core”
However, there is a peril in this model as well, particularly when you are not as strong in core capabilities. E.g. Hong-Ta Corporation was the manufacturer of the innovative Palm Treo 650 or of the Compaq iPaq, one of the first smartphones. Today, HTC as the firm is known today is very strong in smartphones and was one of pioneers in phones with Google’s operating system Android. Interestingly, Palm and Compaq are today irrelevant in the growing markets for smartphones. And both former pioneers are now part of Hewlett Packard.
Backwards Integration: You can do the opposite as well
At the same time as the IT and electronics industries are following the mantra of “concentrating on core competencies” other firms in other industries do just the opposite. Let’s look at food companies. Continue reading Architectural Innovation: Taking control of the value chain
How do brands and business model work together? That is a key question for successful companies because if they do not align brand and business model it will backfire, probably not in the short run but surely in the long run.
Branding is a hot topic. Brands give products the magic touch. With branding regular, normal products morph into highly desired status symbols customers are willing to pay a premium for. Branding worked very well in the last years but is branding sustainable?
Brands are not sustainable if the foundation is missing
Branding is not sustaining when you have a business model that does not support your brand or vice versa, your brand promises something you cannot fulfill. If you focus too much on branding you create over the long run, a perception gap between what you promise and what you deliver. It is like the icing on the wedding cake. It looks great but very rarely does a wedding cake taste as good as it looks.
Let us look at one example.
The Ergo Insurance Case
The German insurance company Ergo Gruppe is the holding company of the well-know household brands Victoria Insurance and the famous Hamburg Mannheimer Insurance. Lately, Ergo decided to consolidate its brands under the fresh brand Ergo. Ergo tapped into people’s discomfort that insurance companies are great in sales but very bad when it comes to ease to understand the policy condition and in the case of a claim.
From this customer insight of discomfort with traditional insurance companies Ergo created the claim “Versichern bedeutet verstehen.” or in English “To insure means to understand”. Ergo used all communication channels and very well made commercials to establish the brand Ergo among German consumers. In the ads, people ask why it is so difficult to get insured, why the agents do not take them serious. Continue reading Brands are the icing on the business model
The value proposition is the defining moment of any business, not the product or the service you offer. But it is important to realize that it is not of importance what you write in or think up for your business plan but what customers perceive to be your value. And there can be a huge mismatch.
The classic business plan is a plan of promises. On paper the value proposition almost always sounds promising but in reality the customers have quite often a different perception of the firm, of its products or services. There is a mismatch between value proposition and value perception, the perception gap:
Why: Simply put!
- you do not get the message across to your customers since your distribution and marketing channels are too weak or
- you do not fulfill the value proposition you offer with your business model you actually have.
The Perception Gap
In most cases, managers will say that the first reason that they just don’t get their message over to the customer is the main cause why they cannot close the perception gap. So in their belief they spent more money on communication and sales and try to persuade potential customers that they offer the best value.
This is the typical behavior of the past Continue reading Business Modelling: Value Propositon vs. Value Perception