What value do we deliver to the customer? 23 Which one of our customer's problems are we helping to solve?Which customer needs are we satisfying? What bundles of products and services are we offering to each Customer Segment? A Value Proposition creates value for a Customer for instance,created a whole new industry around Customization Segment through a distinct mix ofelements cater- mobile telecommunication.On the other hand, Tailoring products and services to the specific ing to that segment's needs.Values may be quan- products such as ethical investment funds have needs of individual customers or Customer titative (e.g.price,speed of service)or qualitative little to do with new technology. Segments creates value.In recent years,the (e.g.design,customer experience). concepts of mass customization and customer Elements from the following non-exhaustive list Performance co-creation have gained importance.This approach can contribute to customer value creation. Improving product or service performance has allows for customized products and services, traditionally been a common way to create value while still taking advantage of economies of scale. Newness The PC sector has traditionally relied on this factor Some Value Propositions satisfy an entirely new set by bringing more powerful machines to market. of needs that customers previously didn't perceive But improved performance has its limits.In recent because there was no similar offering.This is often, years,for example,faster PCs,more disk storage but not always,technology related.Cell phones, space,and better graphics have failed to produce corresponding growth in customer demand
23 A Value Proposition creates value for a Customer Segment through a distinct mix of elements catering to that segment’s needs. Values may be quantitative (e.g. price, speed of service) or qualitative (e.g. design, customer experience). Elements from the following non-exhaustive list can contribute to customer value creation. Newness Some Value Propositions satisfy an entirely new set of needs that customers previously didn’t perceive because there was no similar oΩering. This is often, but not always, technology related. Cell phones, for instance, created a whole new industry around mobile telecommunication. On the other hand, products such as ethical investment funds have little to do with new technology. Performance Improving product or service performance has traditionally been a common way to create value. The PC sector has traditionally relied on this factor by bringing more powerful machines to market. But improved performance has its limits. In recent years, for example, faster PCs, more disk storage space, and better graphics have failed to produce corresponding growth in customer demand. What value do we deliver to the customer? Which one of our customer’s problems are we helping to solve? Which customer needs are we satisfying? What bundles of products and services are we oΩering to each Customer Segment? Customization Tailoring products and services to the specific needs of individual customers or Customer Segments creates value. In recent years, the concepts of mass customization and customer co-creation have gained importance. This approach allows for customized products and services, while still taking advantage of economies of scale. bmgen_final.indd 23 6/15/10 5:32 PM
2 "Getting the job done" Price Value can be created simply by helping a customer Offering similar value at a lower price is a common get certain jobs done.Rolls-Royce understands this way to satisfy the needs of price-sensitive Cus- very well:its airline customers rely entirely on Rolls tomer Segments.But low-price Value Propositions Royce to manufacture and service their jet engines have important implications for the rest of a busi This arrangement allows customers to focus on ness model.No frills airlines,such as Southwest, running their airlines.In return,the airlines pay easyJet,and Ryanair have designed entire business Rolls-Royce a fee for every hour an engine runs. models specifically to enable low cost air travel. Another example of a price-based Value Proposi- Design tion can be seen in the Nano,a new car designed Design is an important but difficult element to mea and manufactured by the Indian conglomerate Tata sure.A product may stand out because of superior Its surprisingly low price makes the automobile design.In the fashion and consumer electronics affordable to a whole new segment of the Indian industries,design can be a particularly important population.Increasingly,free offers are starting to part of the Value Proposition. permeate various industries.Free offers range from free newspapers to free e-mail,free mobile phone Brand/status services,and more(see p.88 for more on FREE) Customers may find value in the simple act of using and displaying a specific brand.Wearing a Rolex watch signifies wealth,for example.On the other end of the spectrum,skateboarders may wear the latest "underground"brands to show that they are"in
“Getting the job done” Value can be created simply by helping a customer get certain jobs done. Rolls-Royce understands this very well: its airline customers rely entirely on RollsRoyce to manufacture and service their jet engines. This arrangement allows customers to focus on running their airlines. In return, the airlines pay Rolls-Royce a fee for every hour an engine runs. Design Design is an important but diΩicult element to measure. A product may stand out because of superior design. In the fashion and consumer electronics industries, design can be a particularly important part of the Value Proposition. Brand/status Customers may fi nd value in the simple act of using and displaying a specifi c brand. Wearing a Rolex watch signifi es wealth, for example. On the other end of the spectrum, skateboarders may wear the latest “underground” brands to show that they are “in.” Price OΩering similar value at a lower price is a common way to satisfy the needs of price-sensitive Customer Segments. But low-price Value Propositions have important implications for the rest of a business model. No frills airlines, such as Southwest, easyJet, and Ryanair have designed entire business models specifi cally to enable low cost air travel. Another example of a price-based Value Proposition can be seen in the Nano, a new car designed and manufactured by the Indian conglomerate Tata. Its surprisingly low price makes the automobile aΩordable to a whole new segment of the Indian population. Increasingly, free oΩers are starting to permeate various industries. Free oΩers range from free newspapers to free e-mail, free mobile phone services, and more (see p. 88 for more on FREE). 2 bmgen_final.indd 24 6/15/10 5:32 PM
Cost reduction Accessibility Helping customers reduce costs is an important Making products and services available to custom- way to create value.Salesforce.com,for example, ers who previously lacked access to them is another sells a hosted Customer Relationship management way to create value.This can result from business (CRM)application.This relieves buyers from the model innovation,new technologies,or a combina- expense and trouble of having to buy,install,and tion of both.NetJets,for instance,popularized the manage CRM software themselves. concept of fractional private jet ownership.Using an innovative business model,NetJets offers individu- Risk reduction als and corporations access to private jets,a service Customers value reducing the risks they incur previously unaffordable to most customers.Mutual when purchasing products or services.For a used funds provide another example of value creation car buyer,a one-year service guarantee reduces through increased accessibility.This innovative the risk of post-purchase breakdowns and repairs. financial product made it possible even for those A service-level guarantee partially reduces the with modest wealth to build diversified investment risk undertaken by a purchaser of outsourced IT portfolios. services. Convenience/usability Making things more convenient or easier to use can create substantial value.With iPod and iTunes Apple offered customers unprecedented conve- nience searching,buying downloading,and listen- ing to digital music.It now dominates the market
25 Cost reduction Helping customers reduce costs is an important way to create value. Salesforce.com, for example, sells a hosted Customer Relationship management (CRM) application. This relieves buyers from the expense and trouble of having to buy, install, and manage CRM software themselves. Risk reduction Customers value reducing the risks they incur when purchasing products or services. For a used car buyer, a one-year service guarantee reduces the risk of post-purchase breakdowns and repairs. A service-level guarantee partially reduces the risk undertaken by a purchaser of outsourced IT services. Accessibility Making products and services available to customers who previously lacked access to them is another way to create value. This can result from business model innovation, new technologies, or a combination of both. NetJets, for instance, popularized the concept of fractional private jet ownership. Using an innovative business model, NetJets oΩers individuals and corporations access to private jets, a service previously unaΩordable to most customers. Mutual funds provide another example of value creation through increased accessibility. This innovative financial product made it possible even for those with modest wealth to build diversified investment portfolios. Convenience/usability Making things more convenient or easier to use can create substantial value. With iPod and iTunes, Apple oΩered customers unprecedented convenience searching, buying, downloading, and listening to digital music. It now dominates the market. bmgen_final.indd 25 6/15/10 5:32 PM
3 Channels The Channels Building Block describes how a company communicates with and reaches its Customer Segments to deliver a Value Proposition Communication,distribution,and sales Channels comprise a company's interface with customers.Channels are customer touch points that play an important role in the customer experience. Channels serve several functions,including: Raising awareness among customers about a company's products and services Helping customers evaluate a company's Value Proposition Allowing customers to purchase specific products and services Delivering a Value Proposition to customers Providing post-purchase customer support
The Channels Building Block describes how a company communicates with and reaches its Customer Segments to deliver a Value Proposition Communication, distribution, and sales Channels comprise a company's interface with customers. Channels are customer touch points that play an important role in the customer experience. Channels serve several functions, including: • Raising awareness among customers about a company’s products and services • Helping customers evaluate a company’s Value Proposition • Allowing customers to purchase specifi c products and services • Delivering a Value Proposition to customers • Providing post-purchase customer support 3 Channels CH bmgen_final.indd 26 6/15/10 5:32 PM
Through which Channels do our Customer Segments 27 want to be reached?How are we reaching them now? How are our Channels integrated?Which ones work best? Which ones are most cost-efficient?How are we integrating them with customer routines? Channels have five distinct phases.Each channel can choose between reaching its customers through its Partner Channels lead to lower margins,but they cover some or all of these phases.We can distinguish own Channels,through partner Channels,or through allow an organization to expand its reach and benefit between direct Channels and indirect ones,as well as a mix of both.Owned Channels can be direct,such as from partner strengths.Owned Channels and particu- between owned Channels and partner Channels. an in-house sales force or a Web site,or they can be larly direct ones have higher margins,but can be costly indirect,such as retail stores owned or operated by the to put in place and to operate.The trick is to find the Finding the right mix of Channels to satisfy how organization.Partner Channels are indirect and span a right balance between the different types of Channels customers want to be reached is crucial in bringing whole range of options,such as wholesale distribution, to integrate them in a way to create a great customer a Value Proposition to market.An organization can retail,or partner-owned Web sites. experience,and to maximize revenues. Channel Types Channel Phases Sales force Web sales 1.Awareness 2.Evaluation 3.Purchase 4.Delivery 5.After sales How do we raise aware- How do we help custom- How do we allow custom- How do we deliver a Value How do we provide ness about our company's ers evaluate our organiza ers to purchase specific Proposition to customers? post-purchase customer Own stores products and services? tion's Value Proposition? products and services? support? Partner stores Wholesaler
27 Through which Channels do our Customer Segments want to be reached? How are we reaching them now? How are our Channels integrated? Which ones work best? Which ones are most cost-eΩicient? How are we integrating them with customer routines? Channels have five distinct phases. Each channel can cover some or all of these phases. We can distinguish between direct Channels and indirect ones, as well as between owned Channels and partner Channels. Finding the right mix of Channels to satisfy how customers want to be reached is crucial in bringing a Value Proposition to market. An organization can choose between reaching its customers through its own Channels, through partner Channels, or through a mix of both. Owned Channels can be direct, such as an in-house sales force or a Web site, or they can be indirect, such as retail stores owned or operated by the organization. Partner Channels are indirect and span a whole range of options, such as wholesale distribution, retail, or partner-owned Web sites. Partner Channels lead to lower margins, but they allow an organization to expand its reach and benefit from partner strengths. Owned Channels and particularly direct ones have higher margins, but can be costly to put in place and to operate. The trick is to find the right balance between the diΩerent types of Channels, to integrate them in a way to create a great customer experience, and to maximize revenues. Channel Types Channel Phases Sales force 1. Awareness How do we raise awareness about our company’s products and services? 2. Evaluation How do we help customers evaluate our organization’s Value Proposition? 3. Purchase How do we allow customers to purchase specific products and services? 4. Delivery How do we deliver a Value Proposition to customers? 5. After sales How do we provide post-purchase customer support? Web sales Own stores Partner stores Wholesaler Indirect Direct Own Partner bmgen_final.indd 27 6/15/10 5:32 PM