The true power of understanding your value proposition

Written by Andy Roost, Brainiact Northgate

Have you ever stopped to think about why your business truly exists beyond just selling products or services? Why should customers turn to your business in a sea of options? How does your business solve your customers’ problems or boost their happiness in ways no one else can? These are questions you should ask yourself at the very start of your business.

At the core of every successful small to medium-sized enterprise (SME) is a crystal-clear value proposition. Discovering this isn’t something that happens instantly; it comes with commitment and research. Here’s why you should prioritise a great value proposition and how you can craft one.

Understanding your value proposition

A value proposition is a clear promise of the value you’ll deliver to the customer. It’s the main reason a customer should buy from you. In other words, it’s what sets you apart from the rest.

Understanding and communicating your value proposition is crucial for several reasons. Having a clear value proposition ensures your customers understand the unique value they get from choosing you. This clarity helps in many ways:

Justifies your pricing: If customers understand the value you’re offering, they’re more likely to pay your asking price. Without a clear value proposition, you risk setting prices that are too high or too low, potentially missing out on profits or selling at a loss.

Builds a strong business strategy: Knowing your value proposition inside and out guides your business decisions and strategy. It helps you focus on what’s truly important to your customers, ensuring your efforts are targeted and effective.

Attracts quality customers: When customers see the value in your business, they’re more likely to buy and come back. A compelling value proposition attracts customers who are a good fit for your business, making repeat business more likely.

Attracts partners: A well-defined value proposition can also make your business more attractive to potential partners. They’ll see the benefits of working with you, whether it’s for cross-promotions, joint ventures, or other collaborations.

Improves marketing and sales: Understanding your value proposition allows you to create marketing messages that resonate with your target audience. You’ll be able to communicate more effectively, highlighting the benefits and solutions your product or service offers.

Neglecting your value proposition may leave you with the wrong pricing, ineffective marketing, and a lack of direction, ultimately affecting your business’s profits and longevity.

Look at Apple’s iPhone as a prime example. Apple didn’t just sell a smartphone; it sold an experience, an ecosystem, and a lifestyle. By effectively communicating the comprehensive value its products bring its target customers, Apple has been able to justify its pricing and build an extremely loyal customer base. This success story highlights the transformative power of a well-defined value proposition, demonstrating how it can elevate a product from simply being a physical item to becoming an essential and valued part of a customer’s life.

How to make a great value proposition

To create an effective value proposition, there are two critical tools businesses should have: the Business Model Canvas and the Value Proposition Canvas. The Business Model Canvas gives an initial overview of your business. On the other hand, the Value Proposition Canvas dives deeper into what exactly you’re offering and why it matters to your customers. The value proposition is made up of three parts:

  1. Products and services: What you offer.
  2. Gain Creators: How your offerings benefit the customer.
  3. Pain Relievers: How your offerings solve specific customer pain points.

The other part of the Value Proposition Canvas is the Customer Segment section. This is where you get into your customers’ shoes. Why would they want to buy from you over anyone else? What are they trying to improve or fix in their lives?

A great value proposition bridges the gap between your products or services and what your customers really want or need. When you get this right, you can attract the right customers, price your offerings confidently, and grow your business effectively.

Instead of relying on low price as your differentiating factor in the market (which might not get you the profits you want), this approach gets you to dig into what your product brings to the table and the problems it solves. Once you understand why your product is valuable, you can justify any business decision because you can explain what makes your product worth it.

Imagine you run a lawn mowing service in Queensland, where grass grows quickly. Your customers might not have the time, equipment, or know-how to keep their gardens tidy. Here, your service isn’t just about cutting grass; it’s about giving them a beautiful, worry-free garden every month. This is your value proposition. You understand their pain (fast-growing grass and no time) and their gain (a lovely garden). Knowing this, you can set your prices on the basis of the value you have offered, market your services more effectively, and build a loyal customer base.

But it doesn’t stop there. You also have to think about what differentiates you from the next lawn-mowing business. You’ll have to think about how factors such as punctuality, reliability, and additional service offerings come into play. Recognising the market you’re serving is also key. Is the area affluent, with many homeowners preferring not to DIY their garden care? These insights guide your service delivery, pricing, marketing, and customer engagement strategies, making your offering truly resonate with your customer’s needs.

This will take a bit of research, whether through customer surveys, market analysis or competitor research. But your efforts will reap rewards. Many small businesses don’t bother with this research and rely on “common knowledge” or “gut feel” experience. A lot of the time, this only leads to them severely underselling their business with little or no profit.

Common mistakes when crafting value propositions

Many businesses, especially at the outset, tend to oversimplify their value proposition. They might focus only on being cheaper than competitors or base their value on a shaky understanding of what their market wants. This overlooks important things that customers care about, like how easy something is to use, its quality, and how reliable the service is. A big error is not seeing things from the customer’s point of view, which can lead to offering something that doesn’t really hit the mark or show off what’s genuinely great about the product or service.

For example, a carpenter might decide to quit his job and start his own business. He already knows that his former employer charges $100 per hour, so the first thing he does is set his prices lower, at $90 an hour, to try and attract business. But he does this without considering that customers might have been willing to pay $120 for his unique craftsmanship and service quality. Underselling the competition may also cause more long-term harm than the short-term gain of new customers. A lot of people take the path of least resistance and don’t bother doing the proper research. This impacts everything from pricing to marketing and customer satisfaction. The trick is getting the balance right by understanding what makes your offering unique and are your customers happy to pay for it.

It’s also important to recognise that value propositions may not always be set in stone. They evolve as market conditions change, new customer needs emerge, new competitors enter the market, and businesses grow and adapt. Regularly revisiting and refining your value proposition in light of new insights, economic shifts, or changes in customer preferences can ensure that your business stays relevant and competitive.

Craft your value proposition

Crafting a compelling value proposition is an ongoing commitment, not a one-time task. It’s about really getting what your business is all about and what your customers actually want. Starting with tools like the Business Model Canvas and the Value Proposition Canvas is a great starting point. They help you visually map out what you offer and they make you think deeply about what your customers need and want. Putting in the time to explore these areas builds a strong foundation for your business, making sure you’re truly delivering value to your customers and your business.

I urge all small to medium-sized business owners to take the time to understand and articulate your value proposition. It’s not just about competing on price but on the distinct value you bring to your customers. It’s what you need to leave your mark, keep your customers happy, and build a lasting business.