Many managers – especially in SME firms – confuse the meaning and use of the terms Positioning and Value Proposition. A related concept, Competitive Advantage, often becomes an innocent victim as a result.
Getting a grip on the meaning and distinction between these terms is easy. Putting them into practice effectively in a manner that sets your firm apart from its competitors in the minds of customers is hard and exacting work.
To begin, if you’ve been looking for the short answer to what these are, this should help.
Understanding a Value Proposition
A value proposition profitably matches the company’s offering to the particular needs of target customers better than competitors can. If that reads very much like the description of marketing, it is no accident. At the heart of marketing lies the creation of customer value; at the heart of good strategy lies the way of creating value profitably.
A few words and implications lie in this definition. They are important to understand:
- An offering is more than merely the product and price. The offering encapsulates everything about the company that creates value: distribution channels, brand, retail presence, return policies, how 1-800 calls are handled, etc.
- While a value proposition can be captured in words, it is about delivery. It involves action. Distilling a value proposition down to a memorized sentence or two that is parroted by the sales organization misses the point.
- Identifying target customers is the close cousin of the value proposition – one leads to the other. This is why identifying target customers – and developing a value proposition that fits them snugly – is a repetitiveprocess.
- Customer need ≠ Company need. Common sense, right? I’m not so sure.
- The customer is the judge of whether your offering is superior to the competition.
- It is easier to insert profit into the sentence above than it is to earn one.
There are a few different – yet good – frameworks for developing value propositions. There are many more that are bad and that, unfortunately, readily show up on web searches.
Understanding Positioning
Positioning creates the perception and image of a company, or its offering, remembered in the minds of customers that differentiates it from competitors.
When you think about cars, Volvo wants you to associate safety with its name. BMW hopes that you associate “ultimate driving experience” with its brand. Toyota will likely spend enormous sums of money to ensure that the market once again associates reliability with its marque.
Of note:
- Positioning is always derived from a value proposition. It involves the heady task of choosing onecomponent of a value proposition that you want to stick in the market. Hence, positioning can only be as good as the value proposition that it starts with.
- According to Jack Trout and Al Ries, who coined the term, there are 22 ways to differentiate oneself. (Leadership is one of them; however, based on usage, category leadership seems to be the only one known among Silicon Valley tech start-ups.)
- Positioning is about the company creating a memorable perception – not the market.
- Positioning must set you apart from competitors in a legitimate and compelling way; otherwise, it buys you nothing.
Understanding Competitive Advantage
Competitive Advantage represents the actions that convert competitive differentiators into superior customer value. Competitive advantage is always derived from possessing superior customer value – not simply claiming to possess it.
- Competitive differences are not necessarily competitive differentiators. Most, in fact, aren’t. A differentiator must be both relevant and important to the customers. It must create customer value.
- Value creation is not merely what the firm would like the customer to accept and believe, but what the customer chooses to accept and believe.
- The ultimate test of superior customer value is acceptance of the offering in the market – purchase, and share relative to competitors.
- The weaknesses of your offering (they really do exist) represent potential competitive advantage to your competitors.
During the next month I’ll delve into these three topics further, offering some principles to follow and simple techniques to use. You can attempt this in your own home – trained professionals are not required!
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