Written by: Ashish Kothari
About the author: Ashish Kothari has over three decades of experience in Marketing & Sales in industry sectors ranging from transport fuels, lubricants, entertainment and FMCG. He has worked in global markets across 5 continents, and currently works as a Senior Vice President in India.
(The opinions expressed here are his own.)
Joe Saldana glanced at his watch a third and final time as he eased into the corner table at Moonbucks Coffee. Relieved that he was well in time for his 11 o’clock appointment with Mr. Mehra, (his premier prospect for a lucrative endowment policy), Joe pulled out his carefully prepared benefit illustrations just as his client walked in. Joe knew that Mr. Mehra would go into the details, so he quickly ordered coffee and dived into the next 90 minutes of explaining the policy features.
Moments earlier, 30 floors above the street, Meenakshi Saxena had whipped out her smartphone, and placed a pre-saved standard order. Tarun Singhal, the COO at Shastry International, had called a meeting of function heads. Like every good secretary, Meenakshi knew that these meetings called for a healthy dose of Moonbucks coffee – in their patented to-go 8-cup Thermojug – along with an assortment of individually packed sandwiches. In less than a minute, her order was placed and paid for, and she had a confirmed delivery time of 11:15 am. Most newbies laughed when she’d tell them how long the same task would take when she first started working.
Let’s take a closer look at what’s really going on here.
Moonbucks Coffee is a well-established café chain, best known for its core product range of gourmet coffees. The brand maintains the highest standards throughout the supply chain, following fair trade practices for sustainable sourcing, and tight quality control on processing, storage, and distribution. At every Moonbucks Coffee café, trained baristas follow strict protocols in food handling and coffee preparation. Store hygiene complements the excellent operational standards.
And yet, neither Joe nor Meenakshi were actually buying coffee. Sure, they each ordered coffee, but something else drove their purchase decisions in a world of choices such as tea, soft drinks, juices and more.
Joe and Mr. Mehra were both actually indifferent to coffee. Far from being coffee connoisseurs, neither one could even distinguish Robusta beans from Arabica beans. But Joe always chose to meet his clients at a Moonbucks Coffee café, because they offered undisturbed time and space to meet clients. Where else could you find a meeting room for under Rs.500 ? The ambience, free Wi-Fi on the street, and convenient location all helped.
None of this mattered to Meenakshi – she didn’t have any use for ambience, Wi-Fi, location, or 90 minutes of undisturbed meeting time. But she loved the efficiency – the app’s features, the ordering process, the delivery guarantee, the unique packaging, the extended range (she ordered sandwiches today, knowing well that she would have to order something different at the next meeting). But most of all, it was the badge value that Tarun Singhal valued (imagine the discussion within the leadership team if they were drinking coffee from the canteen!).
The mysterious something that drove Joe’s and Meenakshi’s purchase decisions is what marketers call the Customer Value Proposition, or CVP.
What is a CVP?
The simplest explanation to describe a CVP is that it is a solution to the customers’ problem. It is the sum total of all components that deliver an outcome that the customer needs to fulfill their mission.
In Joe’s case, he needed a clean, undisturbed, conveniently located meeting venue with Wi-Fi and an ambience suited to conducting a significant business deal with a premier client. Fast-food joints were too rushed and noisy. Private clubs were too remote. Shared office spaces were few and far between, and restricted guest entry. Full-service restaurants would cost more, and wouldn’t allow extended table occupancy. Moonbucks Coffee fits the bill perfectly.
In Meenakshi’s case, her twin missions were prestige and efficiency. Prestige was derived from Moonbucks Coffee’s premium price position, earned by consistently delivering on their exacting operational standards. Efficiency was driven by a well-designed app with menu selection, checkout and delivery time selection taking less than a minute.
What a CVP isn’t.
To the uninitiated, CVP is sometimes confused with the product offer. Note from these examples that the actual product (coffee) played little, if any, role in solving a customer’s problem. The product offer is incidental and complementary to the CVP. On a different day, Joe or Meenakshi might order one of the fine gourmet teas, while on a similar mission. Or, they might order the same coffee when on a different mission!
Equally, the CVP is distinct from brand positioning. Moonbucks Coffee’s brand positioning might be “gourmet coffee”, which is a single, consistent, overarching position for the brand. This is the space that the brand occupies in the mind of the consumer, i.e. when you think of gourmet coffee, you think of Moonbucks Coffee, and vice-versa.
What does a CVP look like?
There are three self-evident components of any Customer Value Proposition:
- Customer: The very first requirement is to clearly define who the customer (segment) is. Joe and Meenakshi represent two distinct customer archetypes. There are many others – high-schoolers winding down at the end of a school day, coffee mornings organized by the socialite, office worker driving to work, and so on. Moonbucks Coffee must gain insights into their unique tasks or missions in the context of their business.
- Proposition: This is the sum of parts that enable the customer to fulfill their mission. Joe and Meenakshi each had a different mission – and Moonbucks Coffee provided each with a different combination of elements that fulfilled their requirement. Other segments will have yet more unique requirements; for example, the office worker driving to work may prefer a drive-through window and spill-proof disposable cups, coupled with a loyalty program that rewards her daily purchase. The socialite may want Ethiopian medium roast black coffee, accompanied by scones, muffins and truffles, complete with bone china crockery and white-glove service. Moonbucks Coffee is one brand, one positioning, a focused product range within the category – but multiple propositions matched to identified customer segments.
- Value: Ultimately, each proposition must deliver superior value for its target customer segment, from amongst directly or indirectly competing offers. First off, value and price are two different things. The price is fixed and numerical. Value is the perceived worth of all the benefits to the customer – evidently, perception varies across customer groups. Moonbucks Coffee is a premium brand – their coffees are more expensive than other coffees. Yet Joe and Meenakshi saw excellent value, and each for different reasons.
Value is a nebulous thing, precisely because it comes from the “eye of the beholder”. This makes it more difficult to evaluate. While developing a CVP, it is important to define value in the context of the target customer’s mission and to uncover the true underlying motivators that drive value, through formal techniques like laddering.
Functional value can often be converted into monetary terms. For example, “saves time” can be measured and translated into increased production output in an industrial context, or more sales call in a commercial context. Other examples of functional value could be “reduces cost”, “reduces effort” or “improves quality”.
And then there is emotional value, such as “recognition”, “status”, “prestige”, “enjoyment”, “privileges”, “options”, which are more difficult to measure. However, it is easier to evaluate in a relative sense, such as better, similar, or worse than the next best alternative. Be careful and consistent in identifying the next best alternative, and certainly avoid weak alternatives.
Value, in the context of CVP’s, is the sum of all sources of value, whether quantifiable or not. It is also contextual to (direct and indirect) competing solutions. Therefore, the marketing strategist could construct a model to evaluate each component of value for a given target segment, based on:
- Positive differences of delivered value versus the next best alternative.
- Parity with the next best alternative.
- Negative value versus the next best alternative.
The summation of all the sources of value will provide adequate insight into whether your CVP delivers superior value to its intended customer.
The 4 D’s to complement ABC
The A, B and C components of a CVP described above are only complete when accompanied by a liberal sprinkling of D’s:
- Differentiation: History is replete with me-too offerings, which quickly degenerate into price wars and ultimately a death spiral. Successful propositions begin with a deep understanding of customers and their motivations, and develop unique solutions that are different from what is currently available. Differentiation should sustain for some length of time, depending on the pace of change in the category; and CVP’s should evolve to stay ahead of the curve.
- Distinctiveness: CVP’s should stand out and be easily recognizable/identifiable by the target customer. This applies to every element of CVP delivery, ranging from visual identity, communication, sales pitches, form factor, or any other element to stand out from the alternatives.
- Defensibility: A good CVP should be owned by your brand through legal and non-legal means. Examples of legal means include trademarks, copyright, and patents, as well as database ownership or design registration. Non-legal examples include leveraging your organization’s unique strengths, which may not be possible for competitors to replicate.
- Delivery: So far, the CVP is essentially a statement of strategic intent. It is only complete when all aspects of delivery are defined and documented. These could include training, operational standards, KPI measurement and tracking, processes, and many more.
Unlike many other marketing concepts, there isn’t a single dominant model to define the structure of a CVP, and consequently, there are myriad approaches by different practitioners. Ultimately, the best approach is the one that is implemented. Go ahead and review if your organizations CVP’s are complete in all respects described here.
Whereas the illustration of multiple CVP’s offered by a single brand is presented here in the context of a retail outlet, it must be highlighted that the core concepts presented are universally applicable across consumer brands, industry sectors, or service providers. Readers are invited to share diverse experiences through the comments section for the benefit of the marketing community.
All characters and brands appearing in this article are fictitious. Any resemblance to real persons, or actual brands and their CVP’s, is unintentional. The contents of this article are just illustrative, purely for learning the concepts presented herein.