The Science behind Great Value Propositions
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Understanding Customer Outcomes at 9 Levels
Is it possible to turn new-product innovation into a science? In the same way microbiologists and astronomers use microscopes and telescopes, so B2B product developers must use special tools to study their subject. Let’s see why Customer Outcomes (desired end-results) are the most important tool in the lab.
Sorry, No Value Proposition Workshops
I am sometimes asked by suppliers if AIM would do a workshop for them on developing value propositions. It’s a great question, but my answer has to be, “No… unless you want to invite your customers to it.” Seriously: Suppliers already spend too much time in conference rooms guessing what their customers want. Why try to legitimize this innovation malpractice by word-smithing value proposition statements?
Instead, let’s understand the very essence of a winning value proposition. It’s simply improving one or more customer outcomes so customers reap meaningful benefits. Unlike many B2C benefits, e.g. amusement, comfort, and self-esteem, B2B customer benefits are usually measurable, economic and-wait for it now—predictable. The predictable nature of B2B customer behavior means B2B suppliers that study customer outcomes—like a science—will be handsomely rewarded.
The value proposition comes into increasing focus, waving its arms and screaming to be addressed.
Great value propositions begin and end with customer outcomes. It’s like collecting specimens, sliding them under your microscope, and continuing to turn up the magnification. When done well, the careful researcher—the supplier—doesn’t have to agonize over the right value proposition. The value proposition comes into increasing focus, waving its arms and screaming to be addressed.
The proper study of customer outcomes is not simple: There are actually nine levels of understanding to pursue. Skipping even one dramatically decreases your odds of a highly-profitable new-product launch. How many of these levels are baked into your new product innovation process? (If you use New Product Blueprinting, look for lavender notes to see where each level is addressed.)
9 Levels for Understanding Customer Outcomes
Level 1: Uncover outcomes Research by Tony Ulwick of Strategyn shows there are between 50 and 150 outcomes for every job your customer hires your product to do. You need to conduct divergent, qualitative VOC (voice of customer) interviews to ensure you don’t miss key outcomes. (In Blueprinting, this is done during qualitative Discovery Interviews while projecting sticky notes. Asking “what else?” after each outcome lets the customer guide you to previously unarticulated outcomes.)
Level 2: Understand importance During qualitative VOC, make sure you probe to understand why an outcome is important to the customer. At the end of the interview, ask the customer to identify the most important outcomes they mentioned. (During Discovery Interviews, probe deeply within each sticky note—one per outcome—and ask customers for their Top Picks at the end.)
Level 3: Define & set direction An “outcome statement” crystallizes the customer’s thinking. If a paint-producing customer has problems with foods staining their paint, you would probe for an outcome statement, e.g. “minimize time to clean food stains,” or “minimize number of foods that leave a stain,” or “maximize number of household cleaners that can remove stains,” and so on. For more on this brilliant approach from Tony Ulwick, read What Customers Want. (At the end of each Discovery Interview, enlist the customer’s help in creating outcome statements for each Top Pick.)
Level 4: Prioritize outcomes Many suppliers stop with qualitative interviews. Big mistake. We all tend to hear what we want to hear, so you need unbiased, unfiltered quantitative customer data. In a second round of interviews, ask customers how Important and how Satisfied they are on a 1-10 scale for each of several outcomes. (Nearly 10 years ago, AIM pioneered the Preference Interview and resulting Market Satisfaction Gap: The less satisfied customers are with important outcomes, the higher the Gap and the more eager they are for improvement. Visit The Book on New Product Blueprinting and download Chapter 14: Product Objectives to learn more.)
Level 5: Learn how to measure While you’re conducting quantitative interviews, ask customers how they measure each outcome. If the outcome statement was “minimize time to clean food stains,” the customer’s insights on cleaning protocol will let you develop and run this test yourself. (Blueprinting methodology can replace earlier approaches for developing test methods, e.g. QFD’s “house of quality,” for one simple reason: B2B customers are smart enough to tell you all you need to know. These rich discussions take place during Preference interviews.)
Level 6: Identify satisfaction levels It’s not enough to ask customers how to test for their outcomes: You need to know “how good is good enough” for each outcome test. (In Blueprinting Preference Interviews, you ask customers to describe the test result for “barely acceptable” and “totally satisfied”… which correspond to a “5” and “10” respectively on the 1-10 Satisfaction scale. While beyond the scope of this newsletter, this gives you side-by-side testing rigor unavailable prior to Blueprinting.)
Level 7: Measure next best alternatives Customers will only pay you a premium for value above the next best alternative, so it’s critical to understand these alternatives, aka competing products. (Blueprinting methodology converts your side-by-side test results into an “Outside-In Score” … for competing products… for your existing products… and for your new product design. This is the most accurate view a supplier can create for predicting market reaction to a product. It allows the supplier to replicate the customer experience without needing to lob samples at them.)
Level 8: Quantify value created When you’ve completed Level 7, you know which outcomes customers want you to work on, but not how much they will pay for improvements. This is where value calculators can help; for more see The Value Merchants by James Anderson, et al. (Blueprinting practitioners are in a unique position to create extremely powerful value calculators, given the rigor of their interviews and customer tours. If you have access to AIM’s 31 online modules, be sure to check out Module 8: Creating and Capturing Value, and download the value calculator template.)
Level 9: Quantify value captured I’m a fan of the “value salami” concept created by Irv Gross and Ralph Oliva of ISBM (www.isbm.org) . If your new product creates $500,000 of annual value for a customer, how much of that value will you capture through premium pricing? Where will you slice the value salami? Value calculators not only help you quantify value creation (Level 8), they increase customer’s perceived value, which is more important to pricing than customer’s actual value. (Blueprinting practitioners supplement value calculators with AIM’s CARE model for addressing human behavior to maximize new product pricing… Confidence, Audience, Risk and Effort.)
What results from the process just described? The “value proposition” writes itself. You can simply summarize the top customer outcomes and the value they provide and, voila, there you have it…from the most important perspective there is — the only perspective that really counts. No word-smithing required.
I hope this doesn’t seem too complicated. Fact is, thousands of Blueprinting practitioners around the world regularly move through these levels. But we don’t often recognize this work for what it is: increasingly thorough insight into customer outcomes. For those tempted to dismiss this as overkill, two important questions might be: 1) Are we pleased with our company’s new-product success rate today, and 2) what would happen if our competitors gained these customer insights… and we didn’t?
If you’d like to discuss areas that may need “shored up” in your company’s process, want to see some Blueprinting tools discussed above, or have a private consultation with someone at AIM, please contact us. For general information on Blueprinting, please see Blueprinting Overview and view the Blueprinting tour.
Originally published in B2B Organic Growth Newsletter, Jan-Feb 2014