Value Proposition

One of the many things that a lot of people find it very difficult to work out is what they should be prepared to accept in exchange for any offering, product or service, they are making.

This is usually expressed in terms of the ‘price’ or the ‘cost’ of the offering to the prospective purchaser and there are different approaches to how that is expressed.

In my view these words – price and cost – are inappropriate because they don’t tell the whole story.

The ‘cost’ of a bottle of water is not what someone pays for it, especially if it comes in a single use plastic bottle. There is a massive ‘cost’ to the environment of both producing and disposing of that water container.

With products in general the cost of the packaging is rarely considered.

I remember buying fish and chips wrapped in yesterday’s newspaper – now they come in a Styrofoam box in a plastic bag.

If you make Styrofoam boxes or plastic bags and offer them for sale to fast food outlets, then you’ll probably think it represents some sort of progress – and in terms of income for you it probably does.

But at what ‘cost’?

Instead of the words ‘price’ or ‘cost’ of a product or service, I prefer to consider its ‘value’ and this is where the misunderstandings lie on both sides of any transaction.

When you or I purchase something there is always a reason for our doing so.

The ‘thing’, the ‘offering’ that we purchase has some value to us or we wouldn’t even be considering purchasing it in the first place.

It also has a value to the provider which is based on their investment of time and money in producing or creating it and then delivering it as well as the investment required to operate their business.

And there is no difference if they operate a formal business or are ‘self-employed’ – they will still make an investment in themselves to be able to make their offering.

Now here’s the thing; a good ‘deal’ or satisfactory transaction only occurs when the values placed on the offering by the provider and the purchaser ‘match’ or at least ‘fit’.

They don’t necessarily have to be equal – ‘close’ is good enough.

How do we work out this ‘value?

You and I invariably make purchases because we are looking for specific ‘results’.

I’ve discussed this before but think about it again.

What purchases have you made this week and why – what were the results you desired?

I would contend as well that whenever we offer something for purchase, we are also seeking a ‘result’.

So, if you have delivered something to a purchaser this week what was that result you were looking for?

Now, and this is the hard bit, disregarding the money you paid or received, what was the value of each of those results – or what will be the value in the longer term?

This value will relate quite closely to the investment you make in it – on either side of the transaction, because if it doesn’t, you’ll feel that the whole thing was a ‘bad deal’.

As providers of products or services you and I work out a monetary interpretation of the value of the result we are seeking – which then becomes the ‘price’ of the offering.

As purchasers we do exactly the same to figure out the ‘price’ we’re prepared to pay for the offering.

The situation is a bit different though if you are an employee. In this case you are the provider offering your time, knowledge, skills and experience to an employer who is the purchaser of your offering.

The employer is prepared to invest a certain amount of money in the result they expect from you and it’s then up to you whether you choose to accept that offer. Does it match the value of the result you are looking for by offering that employer your services?

The trouble is that we have become so ‘familiar’ (I was going to say obsessed) with the idea of money as a measure of value that our decisions, both as providers and purchasers become clouded.

We are forgetting the real value of the results we seek.

Even though we think it is, and are taught from an early age that value is simply represented by sums of money, this is an entirely false concept.

Money itself has no value whatsoever – well maybe you could melt t down and make some metal object out of it or in the case of paper money use it to wrap things in or light fires. (I’ve no idea what alternative use there is for the plastic stuff we get now though!)

All that money does is to act as a very convenient vehicle for the ‘exchange of value’ – it’s a lot easier than exchanging a certain number of eggs for so many yards of cloth, although having said that, barter can still be a good way of comparing value.

One of my RTT colleagues exchanges therapy sessions for house cleaning services and I also know someone who exchanges coaching with a client who looks after their IT in exchange.

My belief is that this value proposition, this matching of the value of results, is a critical guide to whether or not a deal can be done between a purchaser and a provider.

If the purchaser doesn’t understand the result they will get or its value to them, they are not going to enter into a transaction because they cannot really compare their value (which they don’t know) with the value placed on the offering by the supplier.

It becomes a ‘take it or leave it’ situation predicated on the ‘price’.

Fortunately, for you and I as providers, its simple (but not necessarily easy) to get around this.

Educate our potential purchasers on the value of the result we feel that our offering will provide for them rather than spending a lot of time on so-called features and benefits.

Then, if we do our marketing well people will respond – oh and if they don’t then they aren’t in our target market.

This approach works just as well if you are an employee looking for a new position.

So the questions to ask yourself are: What is the result I am looking for? And What is the value to me of that result?

Do that and may all your deals be good ones!