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07 September 2022

Value Proposition - the First Step in Building an Attractive IT Product

business

The value proposition describes how the benefits of a product will be delivered. In a nutshell, it determines the product’s attractiveness. It should encourage the investor to invest and the customer to buy. It emphasizes how your product differs from similar offers. Therefore, it is the first differentiator that convinces a person to use it (or not). It is even more difficult because a potential recipient’s attention is brief. The cognitive effect lasts only a few seconds, and during this time you need to "captivate" him.

The importance of a value proposition

Developing a value proposition is an important part of business strategy. The value proposition should take the form of a short, clear and concise statement of tangible and intangible benefits. Ideally, it communicates the company's differentiating values to potential customers/investors without the need for further explanation. It answers the following questions:

  • Investor: "Why should I invest in your solution and not your competitor's?"
  • Customer: "Why should I use your solution and not your competitors?"

How to create a value proposition

Creating a value proposition is a difficult task. Here are some tips for writing an effective value proposition:

1. Be clear and concise

An effective value proposition is clear, concise and well-organized. It presents the most important information, and arranges it into a logical whole. It should be positive and emphasise the strengths of the product, convincing of its competitive advantage.
Highlight key points, unique propositions (sales, support features, and minor benefits), and small "feature-detractors" that provide appeal to specific market segments and customers with unique problems.

2. Describe the problem

First, summarize the problem that affects the potential customer. In doing so, you show that you have a clear understanding of their needs and the problem they need a solution to. Let me give you some examples of realistic problems:

    1. The overwhelming amount of fashion products available online
      Because of the process of computerization of societies, the customer now has incomparably more possibilities to make a choice than there were a dozen years ago. It is a blessing of our times, but also a curse. The requirement to search through the offers of many online stores manually reduces the level of satisfaction with the purchase decision. Companies offering specific goods must therefore react much faster, formulating and verifying the created values - practically in real time.
    2. Problems with product/clothing fit and, consequently, many returns of goods purchased online
      Sizing is not the only issue (companies have their own sizing tables, which users are not able to use due to the differences)
    3. High rate of returns influencing the growing costs of the manufacturer
      Mostly because free shipping and returns are now a standard.
    4.  Overproduction or insufficient production
      Wastage of producer's resources. In the case of insufficient production - commercial resources; in the case of overproduction - raw materials, human resources, warehouse resources, and consequently financial resources, as well as negative impact on the environment.

3. Describe the solution

The value proposition shows how you solve the main problems of your potential customers. Refer to specific benefits (free shipping) or general and emotional experiences (ease and convenience of shopping). Include problems as well as nice touches. A good value proposition also provides customers with "something more than pain relief." In our example it could be:

What if you applied a decision-making support application with profiled online shopping which:

      • Lets your customers save time by making the online clothes shopping easier,
      • Presents products based on personalized user parameters
      • Increases the customer satisfaction factor through profiled shopping, thus reducing the rate of returns?

4. Unique value proposition

Customers and investors should quickly grasp the message you are communicating. It is generally accepted that it is best communicated in three or four sentences. Answer the question: How do you improve the lives of your customers?

This is absolutely a key question that anyone working on a value proposition should ask themselves.

You don't have to waste time searching for outfit. One touch and you know what to buy. Your application will do everything for you, like a personal stylist.

5. Advantage - understand what makes you unique

To find out what makes you unique, write down how you are different from your best competitors, what you do better, differently or what you offer that might be completely new.

The opportunity for competitive advantage is also hidden in creating the so-called blue oceans of market space where there is no competition. This often means creating a new category of product or service. According to our example, it could be:

  • Detailed personalization and profiled shopping
  • Detailed customer segmentation

But also:

  • Dedicated team, set up in an experienced technology group
  • Product Owner with experience in the Fashion industry and building software solutions

6. Know your customers

Before you create a value proposition, you should analyze your market and potential customers to understand their desired benefits. Ideally, create a profile of your ideal customer. There are many supporting tools for this. Below is just a summary:

User

An actor whose goal is to purchase fashion products online. The person we profile;

A person with a high shopping awareness who is specific about their profile and style, but values their time

7. Reach channels

How to reach app users? To better understand the needs of a particular person, your target customer, you create his profile. As a result, you come up with ideas on how to find him faster and easier. Such a dedicated offer will allow you to focus on the shortest path to the customer. Example:

Users

- Social media

- TikTok - young generation, users who follow trends, want to be fashionable, want to be trendy, their idols are influencers

- Instagram and Facebook - a place to attract users aged 30+

8. Key Performance Indicators

These are the indicators that are used as measures in the process of measuring the effectiveness and achievement of the goals of an organization or startup. They could be considered the desired results to be achieved, making it easier to set operational and strategic goals. Often used in lean management. The idea is that KPIs should be responsive to the needs of the business. It is assumed that there should be a maximum of 20 KPIs in order to cover the most important areas of the company's activity. Each KPI should have a specific numerical target for the year, with the previous year's results as a starting point. The most important KPIs are those that characterize the satisfaction of customer needs and expectations. Examples of KPIs:

Start-up phase

  • Daily number of active users (you check if your product can become a daily habit)
  • Monthly number of active users
  • Average time spent in the application
  • Net revenue retention
  • Number of new customers acquired

Growth Phase

  • The Monthly Recurring Revenue growth
  • Number of new application users
  • Churn rate (percentage of lost/inactive application users)
  • Number of transactions
  • Number of refunds

Effectiveness Phase

  • Payback Period for Customer Acquisition Costs
  • Net Profit
  • Annual Revenue Per Employee

 

9. Describe Your Revenue

Customer Value is the difference between A product's or service's benefits and costs. The price of your product is related to the perceived value of the item. However, value is not just a monetized unit. It is related to cultural influences, personal identity, and much more.

It’s worth to check it here to think about the validity of your pricing strategy.

Examples of free and paid accounts in the application:

  • user account - free version
  • user plus account - paid version, more options, e.g. profiling proposals

10. Understand your costs

After identifying the benefits of your idea and products, analyze the costs incurred to deliver them. Write out the operational costs of bringing the product to market. What are the team expenditures? What are the infrastructure costs? What are the research and development fees? What are the customer acquisition and promotion costs? What are the average monthly expenses? Knowing the costs and revenues, you can assume an approximate break-even point.

Examples of cost items:

  • Hosting + Azure infrastructure
  • Development team cost: (number of MDs x price)
  • Customer acquisition costs:
  • Cost of advertising
  • Profitability threshold: x customers; x users

11. Remember to test your value proposition!

Once you have prepared and thought through all the elements of your value proposition, be sure to test it. The best ways to do this are:

  • Survey
  • Focus group

Individual feedback is often the best way to validate an untested value proposition. Hold a focus group made up of your ideal customers and ask them if your value proposition solves their problems. User research will provide valuable insights and information about the values you value. This will allow you to make strategic decisions about your value proposition. In a nutshell, the more you build your product with the customer in mind, the higher the chances that the value proposition will be.

12. A picture is worth more than 1000 words

Make your proposition visualized and appealing in all investor and marketing materials. A picture is a powerful tool in discussing the value proposition.

Overall, the value proposition is crucial in business. A unique one gives customers a reason to use your solution and investors a reason to invest in it. It impacts all company departments (marketing, sales and customer service).It also makes creating promotional materials and shaping a loyalty program easier.

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Author

I am a French language speaking Project Manager and certified Scrum Master. I am responsible for the effectiveness of the project implementation and an internal organization of work. Before joining the IT industry, I worked in the fashion industry.