Why should I buy from you? Part 1

Written on 11 January, 2008 by Jonathan Crossfield
Categories E-commerce Small Business

Writing the value proposition

The battle to convert site visitors into customers is hotting up and many websites will fail by not understanding the issues that affect customer behaviour.

Recent research has demonstrated that price was the major factor in online purchasing decisions, and that postage costs mean online sellers are competing with traditional stores.

But if online businesses solely compete on price, eventually, profit margins will be shaved so much that price differences will be nominal and profits will suffer. If all the competing online stores have prices within the same narrow band in an attempt to stay competitive, there is nowhere left for the marketer to go. Or is there?

How does a customer define value?

To understand the problem, we need to analyse the notion of value. The literal definition is “relative worth, merit, or importance”. Of course there are other meanings, mostly concerned solely with price or how much an item may be exchanged for. But although most marketers focus on these other monetary definitions, a customer is actually considering the first definition of overall merit when they are comparing your offer to the alternatives available.

By this, I mean to illustrate that there is more than a simple monetary value at play here, and this can help you to determine additional ways of adding value to your offer without affecting the price, so as to create a greater ‘worth’ for the customer.

This is called a ‘value proposition’ and it is the main reason why you stand out from your competition.

One of the most commonly cited examples of a successful value proposition comes from Domino’s Pizza. When Dominos first opened forty years ago, they were entering a marketplace already teeming with pizza delivery franchises. Dominos knew that to simply compete on price would invite disaster, as price competition was too fierce. So they looked at how to increase the value of their offer.

“You get fresh, hot pizza delivered to your door in 30 minutes or less — or it’s free.”

We’re all familiar with the value proposition they settled on, especially as it was so successful, other chains had to adopt similar promises to stay competitive. The reason it worked, was that Dominos added the extra value of time. By ordering from Dominos, you were probably not spending any less than ordering from Pizza Hut or any of the other chains, but you were assured of a fast delivery. That assurance was valuable, and therefore made the worth of the Dominos offer greater than the competition’s.

Sadly, because a pizza delivery driver was killed in a car accident trying to live up to this promise, Dominos had to stop using this campaign. But by this stage, it had been successful in helping Dominos grow into a world-wide franchise and the second largest pizza chain in the United States behind Pizza Hut.

“When your package absolutely, positively has to get there overnight”

Another famous value proposition from FedEx. By identifying that the customer didn’t want just fast delivery but also valued a rock-solid guarantee of urgent delivery, FedEx became the leading overnight courier in the world.

“The milk chocolate melts in your mouth, not in your hand”

M&Ms tapped into a customer need by realising that a chocolate that didn’t make a mess, particularly with children, would be a snack of choice among consumers.

What can we learn from these value propositions?

Firstly, none of these examples mention price. Price is not even a factor in deciding a value proposition and if your marketing strategy revolves around price, you may need to address this. Price will be a major factor in the purchasing decision, but assuming there are a few online suppliers within a given price range, then other elements will decide where they buy.

Good value propositions also don’t mention customer service, which is so often used as a selling point by marketers that it is virtually worthless in adding value. A customer assumes they will receive quality service when they purchase a product – otherwise they won’t come back. Therefore, advertising customer service as a value proposition does not make your business special but simply shows that you are willing to meet the expected standard.

What these three value propositions, and others besides, do achieve is a focus on a separate identified customer priority. By knowing your likely market, you can determine what they will also value and incorporate that into your value proposition.

Designing a strong value proposition can be difficult for an established product line or brand. This is because a strong value proposition may even mean performing some changes on your business model or product range. Do not be afraid of this. If your current business model does not allow for a value proposition that elicits a strong customer response, then a staunch refusal to not change means you are playing with a handicap.

But sometimes change isn’t necessary. Sometimes, the benefit to the consumer is inherent within the product or service but no one has identified and promoted it before. M&Ms are an example of a product where the value proposition was devised after the product was created when it was realised that their product had a quality that was valuable.

This means analysing your current products from a consumer point of view. Resist the temptation to want to dictate to customers what you think they should want and give them what they really want instead.

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