Chapter 7

Completing Your Offering with a Unique Value Proposition

In This Chapter

Making your value proposition unique

Considering your unique selling proposition

Getting the most from your product

Using your UVP to become more marketable

Creating a powerful brand

After you know the most attractive market for your business (see Chapter 6 for details on determining market attractiveness), you want to create a differentiated offer by defining your unique selling proposition, price point(s), unique value proposition, and brand. The combination of your strong offer and excellent market niche comprises the most important aspect of your business model.

Building a Unique Value Proposition

You don’t need a unique offering in order to have a business model. If, however, you want to have the most successful model possible, you want to offer customers something they can’t get somewhere else. This uniqueness may be only one thing, such as the sole gas station on a particular corner, or it may be a combination of product and service features, such as those in a Lexus automobile. All the differences of your offer versus your competitors’ equate to your unique value proposition.

Nearly every market is crowded with an abundance of offerings and competition, yet many of these same markets have one company that dominates. How do these companies rise above so much competition and do it profitably? These stellar companies — like Apple, Virgin Airways, Amazon, Discovery Networks, and Priceline — have captured large market shares by offering customers something they simply can’t buy somewhere else. Traditionally, customers not only choose these differentiated offerings over those of competitors, but also pay a premium price for them.

Examples of differentiated offerings include the following:

Morton salt is differentiated by tradition, reputation, and brand. Morton was the first company to offer salt in convenient cylindrical containers as well as the first to add iodine to salt. This addition may not seem like a big deal, but it solved a national health crisis. Thyroid-related growths called goiters were common, and small amounts of iodine in the diet prevented them. Morton established a dominant market share in the 1920s and still maintains it. More importantly, this market-leading brand sells for two to three times more than generic salt, which is virtually identical.

Sony televisions sell for nearly double the cheapest brands in the market. Sony’s reputation for quality and cutting-edge features allows the company to command a large market share and premium pricing.

Disney theme parks are 95 percent the same as hundreds of other theme parks. All theme parks have carnival rides, mascot-type characters, shows, lousy food, and prime rides/attractions. Yet Disneyland can command 25 percent more for admission than Six Flags Magic Mountain, which is right down the road. Disneyland drew 16.14 million patrons in 2011 versus Magic Mountain’s 2.7 million. That last 5 percent difference — memorable movie characters, magical atmosphere, clean parks, impeccable service levels, and a corporate culture built upon memorable customer experiences — matters!

Toyota Prius wasn’t the first hybrid car. Believe it or not, hybrid vehicles pre-date most combustion vehicles and were available as early as 1870. The Prius wasn’t the first hybrid available in the U.S. (although it was the first hybrid available in Japan). In the U.S., the Honda Insight was released a year earlier than the Prius and got 10 mpg better mileage. The Prius, however, was more like a “real car” and not like an electric car trying to be a real car. Because buyers could be environmentally conscious and have a vehicle that functioned like every other car they had owned, it was a huge hit.

Priceline.com's name-your-own-price system is so unique it's patented. Other travel sites simply aggregate hotel and airline offers and display the results to customers. Priceline effectively flipped the role of buyer and seller. When customers are on other sites, their option is "here's the price; take it or leave it." Priceline offers buyers the opportunity to name the price they're willing to pay, and the hotel or airline has the right to take it or leave it. This approach can result in a win-win, in which the buyer gets a great deal and the hotel or airline gets at least some money for an otherwise empty seat or hotel room.

Different is almost always better than better.

Differentiation comes from unique product attributes. Good news! Just about anything can be unique. Examples of uniqueness include these factors:

Convenience: Think corner location, ingress/egress, online

Emotions the product invokes: AT&T’s call-home campaign or Newman’s Own donating profits to charity

Expertise: This factor is particularly important for doctors and lawyers

Higher quality: Toyota and Panera Bread offer higher quality than their competitors

Longer-lasting: Maytag washer and Steinway piano differentiate themselves this way

One-stop-shop/integration: Meijer and Amazon led the way in this category

Physical location: Corner lots are so important to Walgreen’s business model that the company even made it part of the slogan

Pricing: Dollar stores and Big Lots offer low prices

Product attribute: Toothpaste with baking soda is one example

Scale: Not many companies can build skyscrapers or space shuttles

Service: Nordstrom’s offers exceptional service, and Ed Debevic’s offers unique service (see the nearby sidebar for details)

Speed: Domino’s and Jimmy John’s deliver quickly

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Comparing a Unique Selling Proposition to a Unique Value Proposition

The goal of any great business model is to have a high-profit product that customers want to buy. A highly marketable product is traditionally described as having a unique selling proposition. Whole Foods offers only healthy choices in its stores. Domino’s Pizza grew rapidly because of its super-fast delivery. UGG boots are not only fashionable but also allow you to walk comfortably without socks. These are all unique selling propositions.

Your product also needs a unique value proposition. Value is what the product does for customers that they’re prepared to pay you for — not its features. A product can have unique features, but do they benefit the customer, and is the customer prepared to pay for them? Recently, minivan manufacturers decided that more cup holders are better. Some minivans offer a dozen or more cup holders. This feature is unique and offers a unique selling proposition. However, if the customer doesn’t value the cup holders, the value proposition is weak. In order to create the best possible business model, you must create the right combination of features and value.

Defining unique selling proposition

Rosser Reeves was the author of the phrase unique selling proposition, or USP, which is a unique message about your business versus the competition. The USP is a marketing concept that was first proposed as a theory to understand a pattern in successful advertising campaigns in the early 1940s. The theory states that campaigns made unique propositions to the customer, and this unique proposition convinced them to switch brands. Put another way, a USP is why a customer should care about your brand.

What’s tricky about a USP is that being unique is easy. Simply pick something obscure like raw octopus ice cream and, boom, you’re unique. However, you must be unique and attract a large number of profitable customers. UGG boots started as a small, unique market for sheepskin boots. This unique niche caught fire and UGG now sells millions each year.

The Dave Matthews Band started off small, playing bars, fraternity parties, and small venues for years. The band’s music was somewhat unique, but not enough to be considered a USP. The Dave Matthews Band did, however, allow and encourage recording at their events. Generally, taping live events was discouraged or illegal during this time period. Not only did DMB allow taping, they encouraged it. Fans were allowed to plug directly into the sound mixing system for high quality recordings, which they enthusiastically traded. Matthews believes these recordings were instrumental to the band’s success.

Typically, market winners start off with a few loyal customers that love the value proposition. Eventually the value proposition, which was targeted to the loyal few, grows beyond expectations and becomes a market winner. The trick is to find the loyal and fanatical first customers. You can’t be all things to all people, so don’t try. If your product doesn’t create rabid fans, you probably don’t have a strong USP.

Defining your USP means examining your business in detail; hence, you may start with a freeform brainstorming session, and go over these main content areas:

Audience: Who is your ideal customer? Be as specific as possible, and don’t be afraid to exclude people. (You may even think about who isn’t in your audience.)

Problem: What problem do you solve for your ideal customer? Ideally, your product solves a specific problem that other products can’t solve. What pain are you eliminating? How is your customer better off after working with you or buying your product versus the alternatives?

Uniqueness: What sets you apart from others? Better yet, what meaningfully sets you apart? A USP of yoga shoes for women meaningfully sets you apart from other athletic shoes. A USP of athletic shoes for teenage women/girls probably doesn’t. You can differentiate yourself in thousands of ways: service, range, experience, technique, guarantee, features, and so on (see the earlier section “Building a Unique Value Proposition” for details). Focus on a handful of things that really make you one-of-a-kind — things that make a tangible difference to your audience.

A great USP comes from a deep understanding of who your customers are, what they want, what they value, and what motivates them. It should also cause your prospects to crave your product or service. It should cause them to see almost instantly that they’d be foolish not to investigate your company and your product. You’ll likely have a different USP for each product or service you offer.

Why is the USP so important? Think about it this way: If you can’t differentiate yourself from the hundreds or thousands of other choices out there, how do you expect your customer to do it?

The following list shows you some good examples of products with a clear USP and tagline:

BMW: The Ultimate Driving Machine

Dawn Dishwashing Liquid: Gets grease out of your way

Domino’s Pizza: You get fresh, hot pizza delivered to your door in 30 minutes or less — or it’s free

FedEx: When it absolutely, positively has to get there overnight

MetLife: Get Met. It Pays.

M&M’s: Melts in your mouth, not in your hand

Target: Expect more. Pay less.

Walmart: Everyday low prices

When you’re creating your USP, don’t forget the old saying, “Price, quality, service: Pick any two.” You can’t be all things to all people. Starbucks can’t deliver the highest quality coffee with expert baristas at the same price as McDonald’s coffee. By the same token, you won’t get the same shopping experience at Walmart that you get at Nordstrom’s. You’re far better off to excel at something than be acceptable at everything. USPs are about being exceptional at something — anything.

Defining unique value proposition

The unique value proposition (UVP) extends the concept of the unique selling proposition (USP; see the previous section) to include the benefits derived by the customer. Customers ask themselves, “Are the unique features of this product worth the price?” Customers engage in this features–value weighing for all purchases. Augmenting your USP with a strong value proposition creates customers’ desires to trade their hard-earned dollars for your product.

One model, the Value Proposition Builder, creates six stages for value proposition analysis:

For what market is the value proposition being created?

What does the market value the most — the value experience or the customer experience?

What products are being offered?

What benefits will the customer derive from the product?

What alternative options exist?

What evidence substantiates your value proposition?

Famed business author Neil Rackham believes a value proposition consists of four main parts: capability, impact, proof, and cost.

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Making the comparison

You could have a strong selling proposition, but a weak value proposition. A Rolls-Royce automobile has a unique selling proposition as the most luxurious, hand-crafted automobile in the world. But for many buyers, the UVP of Rolls-Royce is weak. Is a $262,000 Rolls-Royce Phantom a better value to the high-end car buyer than a top-of-the-line $137,000 BMW 7 Series or a $213,000 Mercedes CL65 AMG? All these cars have a USP that doesn’t factor cost or perceived customer value. In order to get the full picture, also consider the customer’s weighing of the unique value provided by the product and the financial or opportunity cost to purchase.

The unique selling proposition combined with the unique value proposition shows how marketable the product can be. It isn’t enough to be unique; you must be unique in a way that creates the perception of good value to the customer.

USP + UVP = Marketable Product

Business models with a strong USP and UVP have an excellent foundation. Here are some examples of companies or products in which both USP and UVP are strong:

Cheesecake Factory: Freshly-cooked, creative meals in ample portions, served in an inviting atmosphere, for a reasonable price.

Hyundai: Lots of options for not a lot of money.

Target: Save money but still get cool stuff.

Whole Foods: The groceries may cost a lot, but the value of being healthy outweighs the cost.

Zappos: The world’s largest shoe store delivered to your door with free shipping both ways.

Some of these companies offer higher-priced products than their competitors. However, when customers weigh the benefits versus the value provided, they choose to spend more because the additional perceived value exceeds the additional cost.

Maximizing Product Potential

After you create a strong USP and UVP (see the previous section “Comparing a Unique Selling Proposition to a Unique Value Proposition” for details), you can assess the market potential of your product or service. Will you be filling an important unmet need in a multibillion dollar industry or simply babysitting for friends in your neighborhood? Both of these examples are perfectly valid markets. However, creating the next iPad will create a much larger market than babysitting for your neighbors. Answer the following important questions:

Do you fill a compelling unserved or underserved market? You can create a strong value proposition for a market that’s too small, too crowded, or too risky. The new Newton by Apple was a sophisticated product with a strong selling proposition and value proposition — on paper, that is. Despite all the signs of success, the Newton wasn’t a commercial success. What Apple deemed to be an unserved market was in fact a market that wasn’t ready to be served. Another example is a much-needed product for an extremely small niche. Dozens of products would probably fill the needs of sword fishing enthusiasts, but the market is very small.

How valuable is this USP? Being the only whitening toothpaste is much more valuable than being the most experienced plumber in a town of 1,000 people. Balance a strong and focused USP with a market worth chasing. When Apple succeeded in creating a market for tablet computers, the market was worth billions.

Do you have a blue ocean strategy? In their groundbreaking book, Blue Ocean Strategy (Harvard Business Review Press), W. Chan Kim and Renée Mauborgne suggest that powerful new markets can be created by challenging the existing paradigm of competing better in existing markets, which they call red water. They suggest that these overfished, bloody waters are no place to build a long-lasting business. Instead, the authors suggest finding deep blue water to fish by challenging conventional wisdom. After you find the blue water, you can fish prosperously for a long time. For more information on the blue ocean strategy, see the nearby sidebar.

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Building Marketability

The best products are highly marketable. Everyone knows the story of the better mousetrap. The new mousetrap may be vastly superior to any other mousetrap on the market; however, no one buys it. Customers don’t want or need a new mousetrap. They’re satisfied with the old one. The new mousetrap isn’t marketable. Make sure you don’t fall into the better mousetrap trap!

Summing up your unique value proposition in one sentence

Can you clearly and effectively explain your unique value proposition in one sentence? It’s not always easy, but it’s absolutely necessary. If it takes a paragraph to explain why people should buy your product, a) they’ll tune you out after ten words and miss the important stuff, and b) your value proposition won’t be finely tuned enough to stand out in a crowded marketplace.

Your UVP should be:

Specific: “I’m a dentist” is too vague and short to be unique. What type of dentist? What special client needs do you meet? A stronger UVP may be, “I’m a dentist who has sensitive teeth, so I built my practice to make dental visits painless.”

Succinct: Some value propositions sound like, “Our software company works with manufactures, distributors, retailers, and other companies to increase efficiencies by leveraging synergies with their existing human capital infrastructure and cutting-edge technological solutions.”

Huh? This UVP is too long, serves too many customers, and doesn’t offer a specific solution the buyer can envision. Something better may be, “Our software leverages valuable internal human and intellectual capital, resulting in lower turnover and training costs.”

Meaningful: Your UVP is always interesting to you; it’s your company after all. Unfortunately, your customers are overwhelmed with other offerings and advertising overload. A UVP like, “We are the most respected men’s clothier in town,” may sound great internally. However, to the customer it sounds like, “We think we’re pretty awesome . . . blah blah . . . something about clothes.” This clothier may do better with something like, “The most expensive suit in town, for a reason,” or “For more than 100 years, men have trusted their most important dates to us.”

Being first to market

One of the best ways to have a highly marketable product is to be first in the market. There are several ways to define first to market. Crest toothpaste has been the most successful toothpaste brand in history. Crest wasn’t, however, the first toothpaste; Colgate was. Crest was the first fluoride toothpaste. Being the first to market with the significant feature of cavity protection catapulted Crest to the number one position for decades. Many times, being first with a significant feature or differentiation has the same benefit as being the first to offer the product at all.

Focus on creating a niche where you can be first. Being first in a niche makes you the only option for the customer and effectively leaves you with no competition. My recommendation is to be first to claim a USP rather than be first to market with an entirely new product category. The financial and human resources needed to be first to market are simply too expensive for most mid-sized and small businesses.

Creating a new USP when yours gets crowded

Pay attention to how many of your competitors have a similar USP. When Crest toothpaste first entered the market as the only cavity protection option, the USP was extremely powerful. Many competitors adopt what markets refer to as the “me too” strategy. They put little time, money, or effort into identifying or developing niche markets. But they do make it their business to be extremely quick and very good at ripping off successful entrants into lucrative niche markets with very similar or even flat-out generic offerings. As other “me too” toothpastes entered the market, Crest’s value proposition was weakened simply by the sheer number of participants claiming a similar USP. The value of your USP fluctuates with not only its uniqueness, but also the number of competitors claiming similar USPs.

From 1901–1950, the only three brands of toothpaste were Arm & Hammer, Colgate, and Ipana. Today you can find 34 brands of toothpaste and dozens of sub-brands (such as Crest with Scope or Colgate Total). The toothpaste category provides an outstanding lesson in how selling propositions can be carved ever smaller. In the early days, competitors simply focused on being a quality toothpaste that didn’t taste horrible. Then fluoride came onto the market and created two categories, fluoride and non-fluoride toothpaste. Next came toothpaste aimed at children. Whitening toothpaste came to market next. Today, all-in-one toothpastes that do everything — whiten, control gum disease, taste good, and vacuum your floor — seem to be the rage.

Making your value proposition matter to customers

Your customers determine what your unique selling proposition is. Other companies may be fighting for a similar USP with the same customer. Many companies are battling for similar USPs in the toothpaste market. You may be a Colgate user and view that toothpaste’s value proposition as the best one for you. Your next-door neighbor may be a Crest user and feel the value proposition for Crest is better. Effectively, the USPs for Colgate and Crest are nearly identical. However, in the mind of the customer, the USPs are very different. What the customer believes the USP is matters — what you believe it is doesn’t matter. What a product represents to an individual is called branding or, more specifically, brand loyalty.

Ask yourself whether most prospects or customers would agree that you own your USP. Many businesses claim that they’re the most reliable plumber in town or the best product to meet some specific client need. Would your customers agree with your claims? Ideally, there should be no doubt in the customers’ minds that your product has the best value proposition for their needs. If you can clearly communicate a differentiated strategy in one sentence or less, you have a much better chance of successfully owning this USP with your customers. (If you can’t communicate your differentiated strategy in one sentence, see the earlier section “Summing up your unique value proposition in one sentence” for help.) If it takes a paragraph or a long-winded soliloquy to communicate your value to customers, your odds of owning the USP in the customers’ minds are slim. The best value propositions are usually the simplest ones because they’re the easiest ones on which to build a strong brand.

Can customers clearly differentiate your product? This is the “me too” test (see the previous section, “Creating a new USP when yours gets crowded” for more on the “me too” test). Your value proposition is highly differentiated and incredibly valuable — to you. Let’s face it, this is your baby and it’s beautiful. Every other business owner feels the same way about his or her business.

Unfortunately, sometimes customers don’t see things the same way you do. They may not view your differentiators as all that differentiated. It’s frustrating, but take a pragmatic and customer-centered view of your differentiators. Do customers see you as just another plumber, dentist, or product? A simple way to tell whether your product may be undifferentiated or commoditized in the eyes of the customer is excessive price competition. If the customer is obsessed with low price and discards or undervalues your features and differentiation, the message from the customer may be, “We don’t view your product as differentiated,” so the only thing left to discuss is the price.

Creating strong value proposition isn’t easy. What’s meaningful to you may not be meaningful to the customer. These phrases are usually a signal that your value proposition needs some work:

Best: Okay, you say you’re the best. Doesn’t the customer get to decide who’s best?

Fast: Does this mean fast by your definition or mine? What does fast service mean? To me, fast means “right now,” but I bet the service guy doesn’t show up right now.

Quality: Does quality mean it never breaks or doesn’t break very often? The customer’s expectations define what quality means, and it typically can be defined as something less ambiguous. “Never needs repairs,” “always starts on the first pull,” “perfect fits and finishes,” and “the last one you will ever buy” are much more meaningful ways to say “high quality.”

Customer service: Every company views its customer service as exceptional. I’m sure the credit card companies even have stats to show the excellence of their customer service. That doesn’t mean the customer thinks their service is good. Better value propositions include: all calls answered on the first ring, all calls answered by a human, or all calls resolved on the first call.

Does your product solve a problem customers want to be fixed, rather than need to be fixed? “Need” can be a dirty word. Many times businesspeople say, “People really need this,” and try to sell something customers need but don’t want. The market for health clubs should be significantly larger than it is. As society gets less and less active, the need for health clubs continues to grow. However, only those who want to exercise join a health club — not all those who need to exercise.

Create a product the client wants to buy, not one the customer needs to be convinced to buy.

Sensing a change in consumer preferences, McDonald’s introduced the Arch Deluxe in 1991 with a $150 million advertising campaign. Boasting less calories and fat, the Arch Deluxe seemed to be a perfect fit for the growing health-conscious demographic. Companies like Whole Foods were growing rapidly by catering to this market. However, the Arch Deluxe failed miserably and McDonald’s removed it from its menu in 1996. The lesson of the Arch Deluxe is that people buy what they want — not what they need. McDonald’s learned the hard way that all the research in the world can tell you what the customer should want, but only customers can tell you what they do want.

Creating a Powerful Brand

It’s possible to create a strong selling proposition and value proposition but not create a powerful brand. The Newton by Apple had both a strong USP and UVP but failed to create a good brand for Apple. Part of your goal in creating a great business model should be to create a powerful brand.

All companies and products have a brand. Branding isn’t exclusively for consumer products. Service companies, manufacturers, distributors, and all other types of businesses have brands. Your brand is simply the emotional linkage that your customer has to your product. The more unique and useful your brand is to the customer, the more valuable it is to you.

Your brand in the eyes of your customer

It doesn’t matter what you think your brand is; only the customer’s perception of your brand matters. To you, Starbucks coffee may mean a delicious pick-me-up on the way to work. To your neighbor, Starbucks coffee may mean a brief indulgence during a tough day.

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What does your brand mean to your customer? Is your brand meaningful in the eyes of the customer? In order to be meaningful to your customers, your brand should solve an important problem for them. Meaningful brands can be difficult to create for some business models. A distributor of wholesale plumbing supplies is the important vendor to its customers, but it may be difficult to turn into a meaningful brand simply because of the business type. This is the curse of non-consumer businesses. It’s much easier to create a powerful brand for a consumer-based business than for a business that sells to other businesses.

Don’t use this difficulty as an excuse not to develop your brand. Many business-to-business companies have created powerful brands despite this handicap. Some examples include:

BASF (“We don’t make the things you buy, we make the things you buy better”)

Boeing

FedEx

Intel Inside

Snap-On Tools

Augmenting your USP and value proposition with a strong brand gives your business model a solid foundation. You can have a solid business model without a strong brand; however, competitors will have the opportunity to steal market share if they can create a good brand.

Other brand considerations

As you build your brand, you may want to consider these factors too:

Do you have a compelling price/value combination? Tide is a great detergent, but it’s also competitively priced. It’s almost certain that sales of Tide would drop dramatically if the price of Tide were doubled. The market will bear a premium price for a high-quality brand like Tide. However, there’s a limit to the price the market will bear. Having a strong price-and-value combination will only strengthen your brand.

What is your current market share? Great brands have great market share. The trick is how you define market share. Starbucks has a 29-percent share of the coffee shop/convenience store market. However, Starbucks’ internal data shows it has only a one-percent share of the global coffee market. If Starbucks expanded the analysis to include all dining establishments, this share would be even less. Starbucks’ share of total beverages consumed — both in the home and at restaurants (and including soda, water, juice, and so on) — becomes minuscule compared to its significant market share in coffee shops. Most often, you want to use the narrowest definition of market share. Twenty-five-percent market share for plumbers in the North suburbs of Atlanta is more relevant than the market share for all of Atlanta or all of Georgia.

Can you pass the Warren Buffett test? Buffett has stated that if you don’t have the power to raise pricing, you’re in the wrong business. If you were forced to raise prices five percent immediately, how much business would you lose? If you’d lose a lot of business, you don’t have the pricing power Buffett desires. Buffett’s investments in companies like Coca-Cola have proven his theory correct. In 1945, a bottle of Coke cost a nickel. Today, the same amount of Coke costs 14 times more.

Is the overall market expected to grow/shrink? Blockbuster Video enjoyed a 40 percent market share of all U.S. video rentals. The company enjoyed an impeccable brand and profits to match. You know the rest of the story. With the availability of easy-to-mail DVDs, Netflix entered the market and took a sizeable foothold in Blockbuster’s market. The next blow to Blockbuster came with the introduction of streaming technology. Now customers can instantly download and view videos without having to go to the store. Eventually, the once great Blockbuster brand succumbed to the shrinking market.

Brand loyalty is very fickle in commoditized niches. Consumer product marketers for products that don’t have a highly differentiated USP (think toothpaste) know that if they can get a consumer to try their product, they’ll likely switch to the alternative brand. This is why you see coupon and sample wars for toothpaste all the time. This is all low-margin, high-promotion costs terrain that you’d do well to stay out of unless you know exactly what you’re doing and have the budget and the skills to fight the promotion wars.