Accurately and comprehensively understand and define your Customer relationships
Value Proposition Super Power: to begin at the beginning ...
Hello and Welcome …
to this introduction to Value Proposition Super Power.
Initially, I said this would go behind the paywall but have been persuaded to let the first two posts go freely into the world. Here’s the first.
As I hope you’ll quickly realize, what we’ll actually be doing here is taking a look into the heart of relationships. And although we’ll be focusing on Business relationships, other applications will, I’m sure, become clear.
Designed for Business, the Value Proposition relates particularly, of course, to the Customer-Supplier Relationship (CSR). We’ll talk a lot about that, and all the goings-on at the Customer-Supplier Interface (CSI).
What a Value Proposition isn’t … and is
To start, let’s consider the term itself: ‘Value Proposition’ (VP). What does it mean?
It’s perhaps easier to start with what a Value Proposition IS NOT.
It IS NOT an ‘internally-directed’ statement of any kind by an enterprise. For example, “We make and supply the best widget in the world” IS NOT a Value Proposition. Rather, it is an internally-focused claim on the part of the manufacturer. It makes absolutely no reference to the value that a Customer may derive from the acquisition or use of one of these widgets.
A Value Proposition is different. It IS all about the external resulting experiences that a purchase will provide or enable for a particular Customer or group of Customers. It’s all about the improvement of Customers’ real-life experiences.
Importantly, a Value Proposition does encompass the price of whatever is being sold, because, self-evidently, a Value Proposition is sustainable only if the supplier can earn sufficient from it for the continuance of the business.
Therefore, a Value Proposition can be summed up as follows …
A Value Proposition is a customer experience: a designed outcome of measurable value to a customer or group of customers, that your business can deliver profitably.
The diffuse (and often elusive) concept of Value
It all centres on what represents Value for people. And the point is, Value, like Beauty, is in the eye or mind of the beholder.
Come along with me, if you will, as I introduce this topic by reference to a smattering of my own history.
It so happens that my working life has aligned closely with a period of astonishing change - the half century from 1970 to 2020.
I started out in Sales then moved on to Marketing, both in big corporations, then supplied direct marketing and advertising services, and latterly focused on writing, including writing a range of high-level content for Accenture and co-writing a book titled Creating & Delivering Your Value Proposition.
From early in this sequence, it became second nature to me to regard Customer Value as the core issue for any Business. Later, I realized that the term suffers from the problem that too many interpretations are possible and, consequently, there’s the risk of vagueness, imprecision, wooliness. (The same problem exists, by the way, for the adjacent commonly used term Customer Centricity.)
My personal lock-on to Customer Value came about when I started out working in Sales with Proctor & Gamble (P&G) in the UK. Back then, I assumed that P&G’s customer focus was the norm. Later I learned that this was not so.
In fact, P&G pioneered marketing techniques that we have long since taken for granted. For example, what would today be given the, to my mind, horrid term of ‘Content Marketing’. Way back in the Great Depression of the 1930s ... and, before you ask, that really is before my time! ... in the U.S., P&G’s Oxydol brand sponsored a daily radio programme called Ma Perkins. The idea was to brighten the lives of American housewives ... and, of course, it gave us the term ‘soap opera’.
But, back then, and right up until the 1970s, customer value was almost exclusively thought of in terms of product value.
For example, people bought hair shampoo because it cleaned hair. Period.
‘Why else would you buy hair shampoo?’ Well, quite a lot of reasons actually.
‘What’s your hair type? Regular, oily, dry?’
‘What about colouring? Is your hair colour-treated, permed, damaged?’
‘Is dandruff a problem? Oh, we can get rid of that for you.’
‘Hey, would you like it if we put the shampoo and conditioner together in the one bottle?’
And on and on. Throughout the final decades of the 20th century the levels of product specificity and sophistication increased. As a consequence, so did the ways value can be expressed.
What was happening was a shift from Value-in-Exchange (whereby the value was considered to be intrinsic with the product) to Value-in-Use (whereby the value was in some customer outcome enabled by the product). These terms are further elaborated later.
A great early example comes from 1958. At that time a U.S. TV campaign targeting the then-brand-new teenage demographic linked hair shampoo to a customer real-life outcome. The product is Royal Drene – from P&G, of course – and the 60-second ad first sets up the problem:
“Hiya, Kate, you got yourself a date.
The guy is at the juke-joint so let’s not wait.
Golly, Joe, I can’t tonight,
Just washed my hair and it’s a fright.”
... then delivers the product promise:
“Your just-washed hair won’t fly about.
New Royal Drene can’t dry hair out.”
... leading to a customer real-life outcome:
“Now you can shampoo and date the same day.”
“Great Balls of Fire!”1 At a time when U.S. president Dwight D. Eisenhower and Russian prime minister Nikita Khrushchev were rattling nuclear-tipped sabres in all directions, and Chinese chairman Mao Zedong was rolling out his murderous agrarian version of communism, here, courtesy of P&G and Compton Advertising, “were the children of the American bop night”2 being given the solution to what was presumably a pressing problem in a 1950s-teen’s life. The Product Era had a while to run, but a new dispensation was beginning to make its presence felt.
It’s all about Customer Value. What are the specific real-life value outcomes that the customer will experience? And what, then, are the implications for the business enterprise? Consider this:
Which makes more sense to you? Consider the choices:
the machine itself – a first-generation product;
the machine tailored to your specification or with the added value of skill opportunities to get the best out of it;
or the machine designed to do a better job for you tomorrow because it is the result of a team effort involving the brains at the buying company and the brains at the manufacturer?3
This pre-millennium quote from my old friend, John Frazer-Robinson, was ahead of its time. It expresses the customer value shifts that have taken place. My only quibble might be that the third bullet doesn’t go far enough.
The different faces of Value
So, perceptions of Value in Business have changed. More notes on this will be available as we go along but the evolution can be outlined and summarized as three generations, three basic Value States.
Let’s label those generations or Value States as follows:
ViX - Value in Exchange - in its modern form this came into existence with the Industrial Revolution in the 18th and 19th centuries.
ViO - Value in Outcome - started in the second half of the twentieth century,
ViA - Value in Alignment - starting now in the 2020s,
Copyright © David Pinder
The three Value States explicitly involve different Sales, Marketing and Service approaches.
For a start, they involve entirely different attitudes and behaviours on the part of the Customer:
The ViX scenario requires the Customer to sit back, select what is offered by the Supplier, and not engage further - we call this Expectation & Entitlement.
The ViO scenario requires the Customer to enter into some form of relational conversation with the Supplier to determine precise product requirements - we call this Primary Activation & Engagement.
The ViA scenario requires the Customer to fulfill the ViO criteria PLUS conduct research to validate a Supplier’s broader beliefs and philosophy, and engage with the values-based elements - we call this Advanced Activation & Engagement.
This Value Proposition Super Power series will build on and elaborate these approaches but let’s walk before we run. To summarize the customer value pathways ...
The original proposition that came out of the Industrial Revolution was that Suppliers create value for their Customers. This was the entire basis of the ViX Era: a Supplier sourced or created a product or service that, in and of itself, provided value for a Customer on the basis simply of product benefits minus product cost. It’s about Value-in-Exchange: the product as, so to speak, the ‘value container’, enabling direct evaluation in terms of functionality, aesthetics and price.
This ViX dynamic ruled business for a very long time … but a new dynamic, ViO, emerged in the late-20th century. In 2004, a seminal paper by academics Stephen L. Vargo and Robert F. Lusch identified and analysed the situation as follows:
Marketing inherited a model of exchange from economics, which had a dominant logic based on the exchange of “goods”, which usually are manufactured output. The dominant logic focused on tangible resources, embedded value, and transactions. Over the past several decades, new perspectives have emerged that have a revised logic focused on intangible resources, the cocreation of value, and relationships. The authors believe that the new perspectives are converging to form a new dominant logic for marketing, one in which service provision rather than goods is fundamental to economic exchange.4
As a result of the work by Stephen Vargo and his colleagues the terms Goods-Dominant Logic (G-D Logic) and Service-Dominant Logic (S-D Logic) entered the marketing lexicon. A G-D Logic environment is all about the product and Value-in-Exchange (ViX). Under this regimen, the role of a company is to create or source products. The role of its Customers is to buy them. Period. For a very long time this was standard business practice. To be clear about the Value-in-Exchange & Product relationship, here’s a quote from a subsequent paper by Stephen Vargo and colleagues5:
Consider an automobile. A manufacturing firm constructs an automobile out of metal, plastic, rubber, and other parts, arranges them precisely, and packages them together. In their raw form, the metal and other components cannot be used as transportation. According to G-D logic, the firm’s production process creates value for customers through the manufacturing and delivery of an automobile. That is, the automobile manufacturing firm embeds value in the automobile by transforming raw materials into something that customers want. In this sense, value is created by the firm in the form of a good, and this valuable good is exchanged in the marketplace for money (or possibly other goods). Value is measured by this exchange transaction.
This later (2008) paper then goes on to explain the alternative, S-D Logic, which relates to the Value-in-Use meaning of value and to the associated business practice:
In S-D logic, the roles of producers and consumers are not distinct, meaning that value is always co-created, jointly and reciprocally, in interactions among providers and beneficiaries through the integration of resources and application of competences. Consider the automobile again. As before, a manufacturing firm applies its knowledge, skills, and capabilities to transform raw materials into an automobile. But according to S-D logic, the automobile is only an input into the value creation that occurs as a customer uses it (in transportation, self-identity, etc.) and integrates it with other resources. If no one knew how to drive, had access to fuel and maintenance, and functioned in social networks for which particular automobiles had particular meanings, etc., the car would have no value. It is only when the customer makes use of the automobile – in the context of his or her own life – that it has value.6
Then, in 2019, a paper titled Towards a Value-Dominant Logic for Marketing was published. Acknowledging and building on the insights of Vargo, Lusch et al, it takes the argument to a simple, logical conclusion:
Value is a subjective experience of the consumer.7
That is, today, particularly in ViA mode, it is the Customer and the Customer alone who decides the value of an offering.
Traditionally, the Supplier role was often labelled value creation. However, now, it is often better described as value facilitation.
It ain’t simple
So, does the ViX > ViO > ViA evolution through time mean that the only thing to concern oneself with now is the latest mode, the ViA mode?
No. Life is rather more complicated than that.
The arrival of ViO did not rule out ViX. And the arrival of ViA has not ruled out the continuance of ViX and ViO.
To make matters more complicated still, Customers (a category that includes you and me), switch modes in different situations and at different times.
We’ll elaborate on this next time.
I look forward to seeing you then.
‘Great Balls of Fire’, sung by Jerry Lee Lewis, was recorded at Sun Studios, Memphis, Tennessee on 8th October 1957. It sold one million copies in the first ten days and more than five million overall.
Kerouac, Jack. On the Road (1955)
Frazer-Robinson, John. Customer-Driven Marketing (1997)
Vargo, Stephen L. and Lusch, Robert F. Evolving to a New Dominant Logic for Marketing, American Marketing Association Journal of Marketing (January 2004)
Vargo, Stephen L.; Maglio, Paul P.; Akaka, Melissa Archpru. On value and value co-creation: a service systems and service logic perspective (2008)
Vargo, Stephen L. et al (2008) Ibid.
Hastings, Hunter; D’Andrea, Fernando Antonio Monteiro Christoph; Bylund, Per. Towards a Value-Dominant Logic for Marketing (2019)