Define your business value proposition… or die !

The importance of business value propositions

Running a company is hard. Every day, you have to make decisions that could spell the end of your company, and nothing’s there to help you choose the right option. And yet, by doing this one thing when creating your company, you would have a clear guideline when making these decisions, and you could save both your company and your sanity. All you have to do is to define precisely your offer.
But what exactly does it mean to define your offer? It’s a simple two-steps process: it starts by understanding the life cycle of your product and ends by defining its range.

Summary

  1. The life cycle of a product or service
  2. The range

1- The life cycle of a product or service

The life cycle of a product is comprised of four phases:

  • The launch (new product or service)
  • The growth (constant increase in sales revenue)
  • The period of maturity (stable evolution in sales revenue)
  • The period of decline (gradual decline in sales revenue)

Of course, not only does the duration of each of these steps depend on the type of goods or services marketed, but it also depends on the dynamics of the market and its speed of innovation. The greater the rate of innovation of a market, the shorter the life cycle of the product. To face the competition and the evolution of the needs of the demand, the company has to make its product evolve, it has to innovate… And as such, products quickly become obsolete. This can be observed in software, applications, computer equipment, etc.

The life cycle also has an impact on the decisions that the entrepreneur must make. For example, investment in advertising and communication should be higher in the product launch phase than in the decline phase.

The table below summarizes the actions to be implemented and the decisions to be taken according to the life cycle.

 ProductPriceDistributionAdvertisement and communication
LaunchCreation and marketing of the basic productThe price tends to be high because of production costsSelective

– A lot of investment in advertisement.

– The manager wants his future clients to try out the product.

GrowthImprovement of the product to keep your advantage over the competitionThe price stays high, but it is possible to lower it to attract new customersIt becomes necessary to develop the distribution networksCommunication remains important, but a bit less than at launch.
MaturityThe product becomes standard and several competitors offer it, but it remains well established on its market.The high levels of competition cause the prices to dropAll of the distribution networks are maintainedInvestment in advertisement starts to decline. The question is now to stay present in the mind of the customers.
Decline

A few solutions are available:

-Either improving on the product in order to launch it again

-Leaving it to slowly disappear

-Or stopping all sales of the product immediately

2- The Range

When a company wants to offer its products or services to several types of customers, it is generally necessary to have these products meet the expectations and needs of said customers. For example:

  • At the library, several different types of books are offered (sport, history, gastronomy), depending on the clients,
  • The computer scientist will not offer the same services and the same rates to companies and to individuals.

The creation of several offers (and therefore of a large range) allows the entrepreneur to cover his market, meet the needs of as many consumers as possible, increase his sales revenue and reduce the risk of failure. Thus, the loss of a customer doesn’t mean the end of the activity.
The products or services usually serve different purposes within the range. For example, some products are sold at a very low price to bring in customers, thus allowing clients to get familiar with the brand or with other products.

A product can have three different roles:

  • It can attract customers: its purpose is to bring in clients
  • It can finance the company: it’s the one that sells the best and the one with the best margin
  • It can serve as a transition: it’s intended to replace aging products (or services) that will quickly become obsolete. For example, digital photography has replaced film, the flat-screen television that replaced CRT television, and so on.

The advantages of a large range, which means selling many different products or services, are:

  • The ability to meet the demands of a large number of customer segments,
  • The reduction of risks: if a product in the range no longer sells, this doesn’t jeopardize the survival of the company.

The advantages of a reduced range (few products or services offered) are:

  • A better knowledge of the market: there are fewer customers and it is easier to study their habits,
  • A bigger commercial margin: it makes it possible to concentrate on niches, and to have higher prices