The value proposition is the psychological contract between the customer and the organisation about what is going to be delivered by the organisation and retained by the customer. A novel Value proposition often expands the market.
Value Proposition more than $s and services
word of mouth
Importance of Value Proposition:
It is important because value proposition is the bridge / link between strategy and implementation. It provides strategic alignment and connects all pieces of strategy and implementation.
An organisation has a successful competitive strategy only if the organisation has an unique value proposition compared to other organisations, a distinctive value chain embodying choices about how the organisation will operate differently to deliver its uniqueness, clear thinking around tradeoffs and choosing what not to do, a clear Fit – connecting activities in the value chain and continuity - continue to find better ways of doing things and better ways to implement your strategy (but don’t change your basic strategy and value proposition).
Defining Value proposition for an organisation:
Part of the strategic positioning is to develop a unique value proposition – Doing things differently to deliver superior value to customers and organisation. To define a value proposition – organisation needs to look at the following questions and align them:
What customers? – What end users? What channels?
Which needs? – Which products? Which features? Which services?
What relative price? What price? What premium? What discounts?
For instance: Starbucks
Value proposition: Premium coffee, Personalised service and Experience (Third place) – this was built around their understanding of the customer market, competitive advantage strategy around product leadership. As noted, a novel value proposition will often expand the whole market as we saw in the case of coffee shop industry in US.
2. Strategic Innovation (in the Taco bell case)
Strategic innovation is about fundamentally changing the way you look at the industry. When an organisation makes a strategic innovation it is visible because there will be response and impact in the overall industry.
Strategic Innovation in Taco Bell:
In the Taco Bell case, being unique was important part of the strategy. Taco Bell had a clear strategy around “Cost Leadership – Low cost, High volume” but there can only be one cost leader in the fast food industry. This needs Taco Bell to differentiate.
Martin looked at the fast food industry and shifted the way competitors were competing against each other . He took few key decisions that demonstrated a new shift in thinking. When competitors were taking away things from customers to keep their costs low, Taco Bell looked at “Adding more to customers” at the same price. This was a fundamental shift in thinking. Taco Bell economically justified and differentiated Taco Bell by “Giving more back to the customers”.
Taco Bell added a food court for their customers by taking kitchen out of the restaurants. When others were taking space away from customers, Taco Bell provided more space by reducing the kitchen space and by internal innovations around product offerings and operations. Taco Bell also introduced the concept of “Value meal” which fundamentally shifted the way economics worked in the fast food industry. He provided more value for every dollar through food offerings.
Strategic innovation was very important for Taco Bell if they have to be cost leaders. This shift of
“adding more value to customers” resonated well with the customers and it showed in the economic growth of