Companies talk about value propositions, but only a fraction of them really have one. Why? Pekka Töytäri’s keynote speech at Aalto Startup Center gave an insight on how companies can create more value to their customers. Töytäri explained how the value proposition is connected to the customer’s decision making process. And better yet, how to build a value proposition that communicates towards the customer’s goal.
Pekka Töytäri is a Professor of Practice at Aalto University. His research and teaching focus is on value-based strategies in business markets, including networked value-based exchange, business model innovation, service-based value creation in the context of digitalisation, and institutional change. Pekka combines over 15 years of international business management, research program management with extensive practical and research experience.
“Value proposition is something you can explain, calculate, and connect to customer’s goals. Empty slogans are useless jargon that are not implemented into operations,” begins Pekka.
What is a value proposition?
How to define a value proposition? And what are the building blocks of a value proposition? For example, both Metso-Outotec and Nike help their customers to reach their goals. Nike helps their customers running faster and Metso-Outotec helps their customers to improve the production process performance.
“Value proposition is something that communicates value towards customers’ goal,” begins Töytäri.
Value proposition explains the value creating changes “benefits”, which the solution implements to create the value.
“Pretty much everything we do, we do because we have goals. We share our time between different goals. Some goals are big and important, some goals get a lower priority.”
The gap between the goal and the current situation invites us to explore the reason behind the gap, and lead to discovering needs. As a result of this process, you arrive at a vision of a solution to implement the needs. Innovation is often about creating the gap by setting the goal higher by new technology, new products and services.
“For suppliers, it is important to see the connection between a customer’s business goal and the supplier’s solution. To differentiate from competition, it is important to understand and communicate how the solution helps to set and achieve higher goals.”
Töytäri underlines the fact that innovation is needed to set and reach higher goals. That is why it is not enough to start from customers’ needs – instead of asking, politely challenge the customer by showing what is possible.
“When you sell something new, connect it to customer goals. Ask what the customer wants to achieve. That is how you can participate in the need discovery and influence the outcome.”
In order to find the unmet needs, you need to focus on the customer’s goals, not already identified needs. Ask yourself how you can help your customer to reach their goals.
From goals to solutions
There is nothing new for companies to join forces to create value. However, companies are very used to operating in the established market, where the goals, needs, and solutions are well known for everybody. Situation is different at the innovation end of the market development cycle. Any product, such as the smartphone, experiences a maturing process from being innovations to being commodities. This process can take longer or shorter time, depending on the barriers to market development, such as legislation, technology, patents. At the innovation end of the cycle the value is not known; at the end the value is known. Hence, innovations require explicit demonstration of value. When companies try to escape the intense competition of the “commodity corner” by innovating to differentiate, they must show value.
“For instance, Siemens has innovated intelligence in kitchen devices. Their products have turned into solutions that help their customers to create new value. However, those innovations require convincing evidence of value for the customers.”
Choose your customers for co-creation
Pekka shared ideas about how companies try to create more value. How these messages are connected to the customer’s decision-making process. How can you build a good value proposition? Most technology companies are interested in technology and internally-focused “inside-out” innovation. The risk with the “inside-out” innovation is that it may fail in addressing customer’s compelling goals. An “outside-in” innovation process offers an alternative, where the starting point to identify customer’s prioritized business goals and develop solutions to those goals that are based on the innovator’s differentiated capabilities.
“Select the right customers, establish partnerships. Then understand what the customers are doing, how they are running their business process. Innovate improvements into the business process that are leveraging your strengths. Find out if and how the improvement ideas connect to the customer goals. Finally, develop a value proposition to communicate the improvement ideas.”
Pekka encourages startup’s to analyze the customer’s business process for improvement opportunities.
“Think – the epicenter of success is to understand how your strengths can be leveraged to create differentiated solutions that address your customer’s important business goals,” ends Pekka.
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