Business Modelling: Value Propositon vs. Value Perception
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
Unfortunately, it is not the first reason. The second reason is probably true in most cases. You got a problem in your business model. Your value architecture and revenue model does not fulfill what you describe in your value proposition. You got a mismatch between your value proposition and your customers’ value perception. You just do not deliver the value you propose.
So instead of just increasing marketing spending you should carefully analyze where you have a mismatch, were you have the perception gap and then close it.
Another Business Model Bites the Dust
During a recent GDI seminar on social media a Swiss manager complained about bad comments on the web about his firm. He asked how his firm could avoid being so exposed to criticism. A manager of amazon just answered: “If the complain is justified just make your product better.”
I can second the guy from Amazon. If you have a perception gap close it with a better business model but not just with one-way push communication. Build your whole business model around the value proposition where all components support your value proposition.
The value proposition is not a marketing term but your mission. It guides the experience you create for your customers. In German we use the word “durchgängig” to describe a perfect customer experience that is supported by all components of a business model. To create such a “durchgängiges” or consistent customer experience all components of the business model have to support the value proposition without any disharmony.The business model has to work like a Swiss clock. This is the art of business modelling! It is not a one time management activity but a continuous process to achieve perfection.
If you do not do it, your business model will be another business model that bites the dust like Blogbuster, Karstadt, like Dell or other bad business models. Better be prepared and close the perception gap!
Leaders often see the world through rose colored glasses that prevent the kind of harsh self-assessment recommended when perception does not match proposition. One of the elements of the business model therefore that becomes important is how you measure success. You must assess if your desired value promise is being realized and having the impact on market share, etc. you hope it will have. Do you see many companies aligning their measures with their business model?
@Kay You mention an interesting and important point. As the old proverb goes: You get what you measure.
A typical paradox is the banking industry. Trust is the most important asset of traditional banking but bankers are measured for short term profits. And that is one of the reasons for the huge perception gap in the financial industry.
The art of management is to fine tune the whole business model and the incentive systems to support the value proposition.
Very much aligned with this is the differentiation between (subjective) use value (objective) exchange value. See also http://fieltnotes.blogspot.com/2010/06/on-value-in-business-model-definitions.html.
This gap between customer and provide is in fact one the main topics in service quality literature, where they use a gaps model (Zeithaml, Parasuraman & Berry), which differentiates between expected service, perceived service and delivered service.
Hi Erwin, thanks for pointing out the differences between subjective and objective value and the literature on service quality.
I just closed a customer project where this gap between their value proposition and the value perception was key. We did a snapshot of how the company representatives “sold” the company to prospects vs. the formulated value proposition. We did not a comparison between customers and the value proposition but even an internal comparison was interesting since it the showed the difference between the strategy and the daily argumentation of the customer facing employees. And as quite often, the intended and well formulated value proposition aka strategy was not as good as the emergent argumentation of the employees. The employees focused on two to three important points and on the points customer valued.
Looking forward to further comments of you. Thanks in advance. Patrick
Hi Patrick, I did some further research into the value proposition, see also http://fieltnotes.blogspot.com/2010/09/understanding-and-defining-value.html
Defining, testing and improving on the value proposition seems to me one of the essential elements in business model management and where a link is made between strategic, marketing and operations management (what do we want to offer, what do our customer expect, and what can we offer).
This is true, there is a very difference between proposition and perception. In any business there will always be different opinions and points of view, that will guide to changes. But this is the beauty of working with people, isn’t it?