Value Propositions in B2B
When marketing goods or services B2B (business to business), it’s crucial to avoid falling into the commodity trap. Basing your competitive position purely on pricing considerations is the first step in a race to the bottom in which no wins.
Ask customers what they care the most about, and they’ll often start with price. Dig a little deeper, though, and it’s clear they value a complex assortment of qualities which range from the very rational and objective (such as price and performance) to much more subjective and emotional factors (such as aesthetics, reputation and social responsibility).
Pyramid of Value Spanning Five Categories
Bain and Company, a global management consulting firm, set out to dig deeper into this dynamic. They reviewed and analyzed three decades worth of customer studies, and identified what matters most to buyers. “We identified 40 fundamental ‘elements of value.’ They fall into five categories: table stakes, functional, ease of doing business, individual, and inspirational,” according to an article written by partners of the firm in the March/April 2018 issue of The Harvard Business Review.
They arranged these considerations into a five-level pyramid in which strictly objective value forms the base and elements increase in subjectivity as they ascend the pyramid, in the style of psychologist Abraham Maslow’s iconic Hierarchy of Needs.
The bottom layer, the foundation of any product, are simply “table stakes,” meaning the bare-bones basics. This foundation depends on “meeting specifications at an acceptable price in compliance with regulations while abiding by ethical standards.”
Level two includes functional elements. These relate to economic or product performance needs, such as cost reduction and scalability. Here’s where lots of B2B companies focus much of their energy.
At level three, subjective considerations join objective ones. Along with objective benefits like time savings, reduced effort, simplification, organization, we find subjective judgments from buyers, such as a good cultural fit and a seller’s commitment to the buyer.
Level four is increasingly subjective, including personal considerations (reduced anxiety), elements of taste (appealing design and aesthetics) and big-picture concerns (increased marketability or network expansion.)
Level five crowns the pyramid with appropriately lofty notions: social responsibility, vision and hope.
Differentiation Must Transcend Price
Here’s the dilemma: Traditionally, the base of the pyramid has been a focal point for businesses. These elements are simple to measure and fairly transparent. It’s easy to compete on these. As you ascend the pyramid, the elements are increasingly hard to isolate, to quantify, to implement and to evaluate. However, this is where the battle for differentiation takes place, and it’s the key to shifting the competitive field away from price.
While these elements are subjective, it is possible—and advisable—to apply an element of scientific rigor to these decisions. Here are the steps Bain and Company recommends:
- Benchmark your company’s value proposition against your competitors’ by surveying your customers on how your products and services perform relative to rival offerings on the 36 non-table-stakes elements. A quantitative survey with a sample large enough to produce reliable results can reveal dramatic insights.
- Talk with customers to understand their experience. Conduct follow-up interviews to explore their needs and sources of satisfaction and frustration, and the compromises they make in using your products and services. Since many people can be involved in buying decisions, especially at larger organizations, it’s worth mapping who is on the buying team, who has influence on it, and the different priorities and sources of value for each. (A business unit head may want to address market needs in Southeast Asia, while an end user may want a product that’s easy to learn.) Make sure to conduct interviews in a spectrum of customer organizations, especially those at the leading edge of growth in their industries. Avoid using an existing customer panel or user group, whose members might say what they think you want to hear. And consider conducting the interviews through a neutral third party, because customers are more likely to provide honest feedback to an intermediary.
- Imagine ways to increase value for customers. Once you have identified a set of elements warranting attention, hold daylong ideation sessions to determine which core elements to focus on first. The participants might include product planners, pricing experts, salespeople, service representatives, and other customer-facing staff, and even customers themselves. Typically, a good way to prepare for such sessions is by developing advance reading materials, such as the competitive benchmark surveys and interviews; giving homework (for example, “Come with five ideas”); and talking to devoted customers of competitors.
- Refine, test, and learn. Assess the best ideas from the ideation session by discussing their appeal with customers and your firm’s ability to deliver on them. That will allow you to revise value concepts before further development, understand how they fit into the overall customer experience, and identify the tangible results that customers would expect from any enhancements. Those insights can inform rapid, successive improvements to the concepts prior to a market test or a broader rollout.
- Apply the acid test. After introducing enhancements, reevaluate how you stack up against competitors, ideally by rerunning the original research. Especially in fast-moving markets, your competitors will probably have carried out their own innovations while you redesigned your value proposition. Objective follow-up analysis is important to ensure that your initiatives have actually delivered the value customers are seeking.