Product Value vs. Value Proposition
When pricing and delivering a product to market, a lot of people tend to only thin of the value within the product itself and this leads them to gloss over potential financial gains and/or positioning blunders that will ultimately deliver less than stellar sales figures for your firm. The important thing to remember is not “what does this product do”, but rather “what does this product do for the customer” because the often times the two answers can be drastically different.
The classic saying from an executive at Black & Decker was “We don’t sell drills, we sell holes”. This captures the idea that they are not just selling a product, but that they were instead selling the end result that the product offers the customer. But even this value goes beyond the hole that the drill produces, often times it has fringe benefits such as the feeling of accomplishment (for DIY craftsmen), being readily available for a quick fix as well as the finished product that the product can be attributed to making possible.
Going with the drill example, a drill’s product value would be defined as “The ability to drill holes into any product or location seen fit by the consumer”. In contrast, it’s value proposition could be described as “The ability to accomplish and build things with your own hands to a personal level of satisfaction, thanks to the drills ability to give you the components you need at the time you need it”.
So why is it important to understand the difference between a products value compared to it’s value proposition? The answer is slightly muddy, however the short version is that by delivering a value proposition to your customer you will have the ability to charge more for your product based on the perceived value to the customer with the inclusion of all the added benefits that are not necessarily tangible as a physical item. This perceived value is paramount when/if a company starts to expand it’s product lines in any way at all.
Perceived Value
To quantify the profits that are possible through perceived value are highlighted when you look at the needs that a Lexus fulfills over a Toyota with similar components and functions. While the Lexus version of the vehicle does indeed cost marginally more, the brand image coincides with a different value proposition for its customer base. Consumers will buy the Lexus because they don’t just want the value of a reliable form of transportation (which is what the Toyota offering is perceived as), but instead these customers desire luxury, status, a sense of quality and often times a perceived reward for hard work by simply being able to afford such a more expensive product than it’s less expensive yet very equal counterpart.
So who cares? That is the classic question when taking in any marketing topic of discussion, and not only should you care as a consumer, but especially as a business because understanding your products full value proposition you will not only be able to create an appropriate positioning statement which will resonate with your target market but it will also let decide the profit maximizing price for your product based on the immediate and fringe needs that are fulfilled by your product as a whole.
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Nice writing style. Looking forward to reading more from you.
Chris Moran