Know-How Exchange : Strategy

Value Proposition:

1. The unique added value an organization offers customers through their operations.

2. The logical link between action and payoff that knowledge management must create to be effective; eg, customer intimacy, product-to-market excellence, and operational excellence [Carla O'Dell & C. Jackson Grayson].

www.balancedscorecard.org/basics/definitions.html

Positioning Statement

* A concise written statement of the positioning concept, conveying the essential features of the brand and its niche.
www.wompro.com/catalogue/category22/product4514

* The expression of how an organization wishes to be perceived by its target audiences. The Positioning Statement states the reason for the brand’s existence and, once successfully established, it should rarely be changed. It provides a blueprint for the marketing and development of a brand.
www.jhsph.edu/identity/glossary/glossary.shtml

* Also By-Line, Strap Line A written description of the position that a company wishes itself, its product or its brand to occupy in the minds of a defined target audience. (eg The Warehouse -"Where everyone gets a bargain".)
www.yellowpencil.co.nz/brand%20sharpening/brand%20glossary

VALUE PROPOSITION
A working definition of value proposition is the price that a customer would be willing to pay for the product as you offer it. Thus value can be subdivided into tangible and intangible value. The tangible value can be further subdivided into universal and conditional. As an example, suppose you are selling a new modem integrated circuit, the Supermodem IC, to a computer manufacturer. Your modem IC integrates the modem IC function, which costs the customer $0.85, and the Ethernet IC function, which costs the customers $0.75, and an IEEE1394 Firewire IC, which costs the customer $0.90, into one IC. ALL PCs use the modem and Ethernet IC function, and some also incorporate the Firewire function. The universal tangible value proposition is the sum of the Supermodem IC is the sum of the cost of the modem and Ethernet IC - $1.60. A conditional tangible value can be added to the price in the right circumstances. In this case, for those PCs adding Firewire also, the value proposition can be increased to $2.50. But, not for all customers and applications because this function isn’t of value to all customers in all applications. As an aside, in this case, it would be smart to bring out a second product with just the modem and Ethernet functions “pinned out” and price it according to the lesser value – Supermodem Lite, while keeping the full-function Supermodem priced according to the total value. This move is required because, given the near-instantaneousness of information in the electronics industry, you can’t price the same product differently for two applications.

Some of the other conditional tangible benefits: If the Supermodem IC required a third of the board space of the three ICs for which it is a replacement, saving 2 square inches, and printed circuit board space on the average costs $0.25 per square inch, you save the customer another $0.50 and this can be added as a value proposition. The condition here is that the customer may not have a use for additional board space. In a desktop where ample board space is readily available, the customer doesn’t recognize the value. In a notebook computer, where board space is premium, the customer will see this as a benefit.

The intangible benefits: Since the Supermodem IC integrates three ICs into one, the design time required to design the printed circuit board is less. Additionally, the cost of assembling the board is reduced because of inserting one IC versus three. Technically, you could calculate these costs and make them “tangible,” but since the impact of design time of a single function on a printed circuit board on the total cost of the PC is difficult for a customer to determine, it’s best to mention the “side” benefit only versus try to argue with the customer on pennies.

Some other intangible values could be “service offerings” such as local warehousing for customers’ assembly sites in Asia and local application and quality engineering support. Again, these items have tangible costs to you as a supplier, definitely. But the value to the customer PER IC is difficult for the customer to calculate.

In general, when using the value proposition for pricing strategy, starting at the sum of the universal tangible benefits shouldn’t create much controversy with the customers. The academics will tell you to add in all of the benefits – universal tangible, conditional tangible, and intangible – but my experience has been that: 1) You can’t recover intangible benefits in the price – they are more “share” differentiators (i.e. you will have a larger share than your competitor given the intangible benefits), and 2) Since the customer will incur cost in redesigning his product to incorporate your new one, probably he will need to SAVE money to adopt your solution. The more money you save him, the faster the adoption rate.

POSITIONING STATEMENT
A working definition of the positioning statement is: Which customers (and applications) you sell the product to and why customers would buy it versus the competitive product. In the example of the Supermodem IC, the positioning statement would be: The Supermodem IC is a communications IC for computer customers that uniquely incorporates the functions of three separate ICs - a modem IC, an Ethernet IC, and a Firewire IC - into one IC, saving the customer printed circuit board space, design time, and assembly cost.

You may be more prepared to market tech products than you realize, because "traditional marketing" is exactly the approach you need to be using. The tech industry has been in another world for many years, thinking that "if you build it they will come." That's changing now, and they need "real marketing" more than ever.

Learn the language and benefit from the experience of folks who have been there, but don't think that they know something you don't know. If anything, it's the other way around -- at least when it comes to marketing fundamentals.