Value Proposition

I remember in 1984 walking into a print shop to have some brochures prepared and seeing a sign above the counter which read “Good, fast and cheap – pick any two.”  At the time the meaning behind that sentence was true:

  • Good and fast will not be cheap
  • Good and cheap will not be fast
  • Fast and cheap will not be good.

Surprising how what seem to be incidental moments just stick with us. 

 

Part of the reason why it stuck so firmly to me is I wanted to figure out a way to do all three at the same time.  I felt like the shop owner was throwing down the gauntlet and I needed to come up with a way to solve that problem.  For those of you that have read other postings to this blog know that my background includes many years of designing processes.  That challenge was in the background every time I redesigned an old process or created a new one.     

 

Apparently I was not the only person who felt this way.  Over the years the expectations of customers changed.  First companies differentiated themselves with quality.  After a while quality was assumed and price became the breaking point when making decisions.  And finally in certain industries lead times were the key.  Dell became the model for Good, Fast and Cheap.  You could get on line, customize your computer and have it delivered to your home in a matter of days.  Dell’s computers were often priced lower than its competitors and the quality was every bit as good.  Why wouldn’t people buy Dells?  Dell had solved the challenge and its sales went through the roof.  By being able to sell Good, Fast and Cheap Dell had changed the rules and customers expectations were never the same.

 

However there is another factor that customers consider before making a purchase and that factor is called Desirability.  If I could put in front of you a car or television that meets your expectations for price, quality and lead time but the vehicle is unattractive or does not have the options you are looking for are you going to buy it?  Not if you can find something comparable in price, quality and lead time that comes much closer to what you are looking for. 

 

The term Value Proposition is used when referring to the four considerations when making a purchase.  Price, quality and lead time are fairly straight forward – at least on the surface.  How much is this going to cost me, will it last and perform the way I expect it to and how long do I need to wait to have it available?  If any of the answers to those questions are outside your tolerance limit you will not make that purchase.  You will either buy a competitor’s product, buy a substitute product that meets your needs or you will put off the purchase.

 

As I mentioned earlier the Desirability factor weighs into each decision.  Desirability is very product specific.  If you are looking at a car Desirability may be defined as:  appearance, options, and gas mileage.  If you are talking about a PC your definition of Desirability may include:  size of memory, size of storage, speed of CPU, graphics capability…  There are many considerations when defining Desirability in relation to each product or service. 

 

Just one other thought on the idea of Value Proposition.  Though there are four factors when making a decision about a purchase not all of them have the same weight.  When buying a car a person just out of college may be willing to sacrifice some on quality, lead time and desirability for the sake of price.  More affluent buyers may weigh Desirability the highest and insist on leather seats, sun roof, media capabilities (iPod hook ups, GPS,) and sheer comfort. 

 

So the challenge is not just Good, Fast and Cheap any longer.  As customers we have expanded the challenge to include Desirability.  We want our purchases to also look good and have everything we want it them.  Our expectations keep changing which puts pressure on the suppliers of our products.

 

Suppliers are in a very difficult position.  If they could deliver on the Value Proposition without consideration of profit their lives would seemingly be much easier.  They could have the attitude of just getting the product out there, price it to sell and their customers will be happy.  Problem is there is the other side of the equation. 

 

For a business to be successful it must make both customers and stakeholders happy.  For a customer to be happy the business must offer a compelling Value Proposition.  A shareholder is looking for a strong return on their investment (ROI).  I will write a different posting on the idea of Return on Investment.

 

I also intend on providing a more detailed, somewhat academic, article on the idea of Value Proposition.  For the sake of brevity and to have this post be somewhat casual reading I did not drive down very far with that concept.  If you have questions about Value Proposition please feel free to ask any questions and I will respond.  

 

 

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