Editor’s note: At LeveragePoint, the concept of value-based pricing is important to every member of the team. In this blog post series, one of LeveragePoint’s software developers, Aaron Williams, provides tips from his experience using value-based pricing during his time as the CEO of a startup company.
In my first post of this series, I described why it is important for startups to create a value proposition. In this post, we are going to begin creating a value proposition in under one hour. We will spend ten minutes focusing on selecting an offering, identifying the customer, and assessing the competition.
Before beginning the one hour value proposition process you must be familiar with your competition. In depth knowledge of competitors will be needed, and there will not be time to research competitors in this hour.
Write down your offering
The first step in creating a value proposition is to write down the product or service you are selling. This step should be quick and effortless. If you sell multiple products or services, it is usually best to select one, or one combination of products and services sold as a bundle. Write down your offering in large pride filled letters. As you continue building your value proposition this will be referred to as your offering.
After you have written down your offering it is time to identify the target customer.
Identify the customer (5 minutes)
The first real five minutes of the meeting should be spent identifying a specific customer or market segment for the value proposition. For example, the value proposition can focus on a specific company, Restaurant A, or a market segment, such as small independently owned restaurants.
Specific customer definitions make stronger value propositions, because the value described in later steps will be important to the customer. If selling to multiple customers or market segments, additional value propositions can be created in future segments.
Identifying a customer will not take the whole five minutes if you already have a specific customer in mind. If the specific customer is not known spend some time identifying the customer you want to build the value proposition for.
One technique for identifying a customer is:
- List important customers or market segments you are interested in targeting
- Select one customer or market segment by asking questions like:
– a. Which customers need us the most?
– b. Which customers are the best for us financially?
– c. Which customers will be easiest to sell to?
After the customer has been selected it is time to identify the best competitor.
Assess the competition (5 minutes)
The next step in creating a value proposition is to assess the competition. Specifically, the goal of this step is to identify the best competitor to your offering from the customer’s point of view. Similar to the previous step, the goal is to identify a single best competitor. If necessary, additional value propositions may be created in the future for each competitor the customer might be considering.
One technique for identifying the best alternative is:
- List all competitors
- Don’t forget to add “do nothing” to the list if this is a possibility.
- Identify the best competitor using questions like:
a. What is the customer already using?
b. Who is the leading competitor in this market segment?
c. What is the customer already doing about this problem?
d. Is the customer actively looking for a new solution to the problem?
Once the best competitor is identified, the next step is to compare and contrast our offering with the best competitor.
In this blog post we narrowed the scope of our value proposition to one offering, one customer, and one competitor. This gives us a good starting point to build a detailed value proposition. In the next blog post, we will continue building our value proposition by comparing and contrasting our offering with the best competitor from the customer’s point of view.
About the Author:
Aaron Williams is a software developer for LeveragePoint. Previously he was the CEO and co-founder of a ride-sharing startup, Rootless, Inc and a software engineer for Cisco Systems. He is passionate about new technology, startups, and traveling. Mr. Williams holds a BS in Electrical and Computer Engineering from The Ohio State University