Product managers provide value to their customers through their product offerings.
Our primary objective is to create so much value for customers that they choose us, stay with us, and recommend us over any other alternatives.
Yet, we often build products that do not provide value.
This bad practice is extremely dangerous for the following reasons.
1) We lose the opportunity to ship a product that would actually provide value. Growth is compound - by losing the opportunity to provide value this time around, we’ve stunted all of our future growth permanently.
2) We lose out on potential revenue, which brings us closer to running out of profitability or cash reserves. That means we may lose resource allocation, or investors might flee, or the business comes one step closer to bankruptcy.
3) Our competitors get ahead of us by shipping products of value, while we’re providing products that provide no value or provide negative value (yes, it’s entirely possible to create products that destroy value).
4) We lose the confidence of our customers and we lose the buy-in of our internal teams.
Why might we build products that don’t provide value to our customers? Because we fall for a couple of common traps.
We might think that building a “sexy” product (e.g. chatbots or blockchain) will provide value without having validated with the customer.
Or, we might think that we know our customer already, and so we create a roadmap based on imagined personas with no evidence to back them.
Or, the market and competitive landscape might change on us, and we’re operating off of outdated information that causes us to provide stale products of little value.
Or, we might forget that our customer and our user are different audiences, and that we need to satisfy them both. This happens most commonly in B2B (business to business), B2B2C (business to business to consumer), and marketplace products.
To prevent falling into these traps, we therefore need to be clear-eyed about the definition of value.
What Is Value?
Value is a trade. Your customer pays something to use your product. If they don’t get more out of it than what they put in, they won’t be using your product again.
Even if it’s a free product? Yes, even then.
Your users always pay with their irrecoverable time to understand your product and to learn how to use it.
Psychologically, when a user commits to using your product, they are putting their egos and reputations at risk. Your product offering is high-stakes for the well-being of your users.
So, how do we ensure that your customers and your users get value out of your product?
You do so by starting with a value proposition as the foundation to any and every product that you build.
At its core, a value proposition is a proposal you make to the customer and the user: pay this cost to get this benefit. Either they take it, or they don’t. If they take it, you provided them value; if they don’t, then you failed to provide them value.
Let’s break down how to use value propositions to ensure that your product succeeds in delivering more value than it costs to your customer and your user.
We’ll break up our discussion into a series of articles:
- Identifying the customer and crafting an initial value proposition
- Testing, iterating, and executing against a winning value proposition (link here)
- Additional insights and reflections on value propositions (link here)
For this article, we’ll focus on understanding the customer and the user, and by defining them clearly.
Then, for the remainder of this article, we’ll break down the structure of the value proposition, and dive deep into its two core components: benefit and cost.
Identify the Customer and the User
One of the most common mistakes we make as product managers is that we use our product to determine which customers and users to serve, rather than starting from an identified audience and then building a product around them.
In other words, don’t bring your product into your value proposition. Your product is a vehicle to deliver your value proposition - it shouldn’t drive your value proposition.
Start with the customer and the user. They serve as the basis for all value propositions, which then serve as the basis for all product decisions you make.
The customer is the person who is paying for your product. Payment comes in various forms: through money, time, attention, data, word-of-mouth, etc.
What is the customer’s pain? What are the jobs that they’re trying to do that they can’t get done? What are the different ways to segment and identify this customer? Which customers are most likely to need your help, and which customers are you most likely going to be able to help?
The user is the person who uses your product to solve some pain of theirs. In fact, we can actually consider users as a kind of customer as well, because they must pay the price of their time and attention, and also need to change their habits to accommodate your product instead of whatever they were using before.
In evaluating your user, think about the pain that they face. What are the jobs that they’re trying to do that they can’t get done? What are the different ways to segment and identify this user? Which users are most likely to need your help, and which users are you most likely going to be able to help?
You shouldn’t sit in a room to come up with these customer and user definitions. While you can pull together hypotheses on your own, you need to actually find real-world data to back up your decision to go after a particular customer and user segment.
Interview people. Conduct surveys. Shadow people in their daily lives. The goal is to gain deep customer empathy and user empathy, so that you can identify the right pains to solve.
Value Proposition Templates
Now that we understand your targeted customers and users, let’s talk about your value proposition.
The standard value proposition structure looks like this:
For <target customer> who <need statement>, the <product/brand name> is a <product category> that <key benefit statement/compelling reason to buy>. Unlike <primary competitor alternatives>, <product/brand name> <primary differentiation statement>. - Russell Winer and Geoffrey Moore
Here’s an example of the first half:
For non-technical marketers who struggle to find return on investment in social media, our product is a web-based analytics software that translates engagement metrics into actionable revenue metrics.
What’s key to the structure above is that each “fill in the blank” is ordered by priority. You must start with the target customer, then the need statement, and so on. That’s because each section builds on the section before it.
We’ve defined the target customer and their pains already. Now we can start working through the key benefit that we want to provide.
The Benefit of Your Value Proposition
Consider the key benefits that our team can actually deliver to solve the pain. Having a clear understanding of your internal capabilities and competitive advantages will greatly help you identify the benefits that your team can deliver. Furthermore, you should supplement your internal-facing analysis with brainstorming, with competitor analyses, and with market research.
Remember, the key benefit needs to solve real pain, for either the customer or the user (and ideally both). What pain points are you trying to solve? Then, from there, how does your proposed feature or product relate to that pain? Does it actually ease the pain?
Not only does your proposed product need to be relevant, it also needs to be impactful. How does your product meaningfully change the magnitude of the pain that your customers and users are feeling? How does it give them superpowers?
Also, part of the benefit of your value proposition is how it differs from existing products or alternatives. Therefore, consider using Widerfunnel’s value proposition optimization model to break down your proposed value proposition into 3 kinds of points:
- Points of parity - where your product has the same set of features as competitors
- Points of difference - where your product has different features vs. competitors, and these differences actually matter to the customer
- Points of irrelevance - where particular features don’t matter at all
Focus on the points of difference, and only invest in points of parity where they are table stakes: that is, the user absolutely must have this set of functionality to carry out their work, regardless of which product they select.
Note that your competitors will always say they have points of difference. These may actually just be points of irrelevance that “sound sexy” but don’t meaningfully make the customer or the user any happier.
Therefore, be careful in chasing your competition. As you can see in the infographic, when you copy your competitor, you will never create points of difference.
If you copy your competitor on points of parity, you’ll get to helpful table stakes but not sticky differentiators.
If you copy your competitor on points of irrelevance, you’re sinking yourself. Even if those points of irrelevance are on-par with your competitor, they provide no value.
The Costs of Your Value Proposition
Unfortunately, the standard value proposition template only takes us so far. We’ve discussed meaningful benefits, but we haven’t discussed cost to the customer and to the user yet.
Your product imposes costs. Too often, we believe that our product provides only benefits, which is simply untrue.
The most obvious costs are tied to your pricing model. What you charge your customer is how much the product costs them financially.
However, there are even more important hidden costs to your proposed product.
First, there’s an adoption cost. Your product is replacing another product, which means that people need to now change their processes and their other technologies to fit.
In many cases, process changes requires training and change management. In some cases, process changes require other technologies as well.
For example, say you purchased a license for a CRM. If the CRM requires data backups, the cost of developing a data backup and the cost of maintaining the data need to be considered as part of the “cost” component of a CRM value proposition.
Adoption costs can come in many different forms: training, change management, new technologies, new employees, new skill sets. Be sure to understand which adoption costs you will impose through your value proposition.
Second, purchasing or using particular products comes with a reputational cost.
For example, when Uber had many scandals, using the Uber product meant losing social reputation. This meant that many users decided to stop using Uber, since they did not wish to pay the social cost.
Similarly, some organizations will simply never adopt particular technologies because they feel that those technologies hurt their reputation.
The most common example is a that prefers to build all of their technology in-house, rather than purchasing other technologies. The reputation of “we build everything in-house” overrides any sort of value proposition you might be able to provide, just due to the way that particular sees itself.
Keep in mind that there are sometimes costs that are just too high for particular kinds of customers to pay. Be mindful of those costs and seek to reduce them where feasible, but know that there are just some customers that will never fit.
Putting Costs and Benefits Together
Every value proposition is made up of costs and benefits. Even free products impose a cost.
By putting together your value proposition, you can now see how your benefits line up against competitors, and how your costs line up against competitors.
Most of the time, if your value proposition provides higher ROI (return on investment) than what your targeted customers are currently using, then they will switch to you.
However, in some cases, if your initial costs are too high, even if the expected ROI is higher than what these customers are currently getting, they cannot switch to your product due to the high upfront investment.
To build winning products, we need to with a value proposition first.
A compelling value proposition always begins with the customer and the user in mind.
From there, identify their key pains, and how you can provide unique benefits to solve those pains.
As you create your value proposition, remember to assess not just the value, but also the cost that you will impose on your customers and users.
In our next article, we’ll discuss how to validate the value proposition you’ve generated above, and you can build faithfully against it.
Have thoughts that you'd like to contribute around value propositions? Chat with other leaders around the world in our PMHQ Community!