Why your value proposition starts with services…

It’s that time of year again when most business owners start looking ahead and their plans for the year ahead.

There is no doubt that 2020 presented us all with major challenges, which led to lots of change for most companies. Some of the challenges have, of course, been catastrophic for certain sectors, especially hospitality and travel, but for others there have been opportunities.

No matter how this year has affected your business, whether you have pivoted, just about survived, or you’re thriving despite everything, it is now a good time to start considering what your future business model may look like. How can you position or even reposition your business to respond to your customers, changing market trends, and building in the resilience to continue to navigate the turbulence that is going to remain with us for some time yet?

Get planning

Effective planning starts, of course with your purpose: your vision and your goals and understanding in some depth who your target audiences are and what are your markets and segments. From there, you can start to craft your value proposition for each of these segments, sectors and markets.

The term ‘customer value proposition’ typically describes an offering made by a company or brand to its customers. Although it is a common term used widely in business circles, it is often frequently misinterpreted and misunderstood, but fundamentally your value proposition is the value or benefit that your customers will gain from your products or service offerings. The customer is the focus, so you need to be clear on who the products and services are aimed at and craft your value proposition accordingly.

Time to reset and refocus

One of the biggest realisations of doing business in 2020 is that nothing is the same anymore. Change was always a constant pre Covid, but it has now become almost a daily challenge for many.

This is why it is so important to take the time out to revisit your business strategy, and the New Year beckoning is usually a good time for doing this. So even if your business hasn’t pivoted or you happen to be in one of the sectors where it’s been pretty much “business as usual”, you might still want to go through this exercise.

What is the value?

When developing a new value proposition, or building upon an existing one, the first question is: What do our customers actually consider to be of value? For example, a customer’s value does not always lie just in the benefits they attain from a product itself, but from what that product enables them to do. An effective value proposition looks at the benefits that customers accrue which enable them to achieve their own business goals and objectives, or which enable them to provide greater value to their own customers.

One company that has been working with the SME Partnership to incorporate servitization within their business model produces milling machines to its customers in the manufacturing industry. You may think that the customer values the machine itself because it enables them to machine flat and irregular surfaces, but it is worth changing your perception slightly. In this case what the customer actually values is what the machine enables them to do, which is to quickly manufacture items in a uniform and precise manner and cut back on operational costs.

When working on your new value proposition, it is worth considering whether or not actually owning a milling machine is what delivers value to the customer, or could that value be realised through a different business model?

In the example, we’ve given this company has transformed its business model and arrived at a new value proposition. Instead of being a company that manufactures and sells milling machines, it now offers milling-as-a-service, which has delivered several advantages not only for its customers but also for the business itself to extract value from its value propositions. They have achieved this by offering milling machines for free, with the income generation being derived from the output of the machines, rather than the purchase cost. This form of servitization opens up the opportunity to improve the company’s revenue streams and instead of making one-off transactions, it can now create a guaranteed monthly income from charging for milling-by-the-hour. The customer benefits from being able to spread the cost of milling over a period of time and does not have to commit to a one off, potentially expensive machine purchase.

It’s a win-win scenario: the business can now enter new markets where incomes are traditionally lower, and any potential cost barriers for the customer have been removed.

It is clear to see that the standard business output does not have to change too much – the company is still manufacturing milling machines – but the business model and profit has the potential to change significantly.

It is also clear to see that the value being delivered to the customer could be a more attractive proposition. When you also combine a service and maintenance agreement alongside the machine rental, this becomes a strong value proposition for customers and one that is likely to result in longer term relationships.

How can you get the best value out of your value propositions?

At the SME Partnership, helping businesses to develop their value propositions is a fundamental part of the fully funded programme designed for SMEs who are looking to transform their business models and deliver additional value to their customers through servitization.

We have a new programme starting in early 2021 so now is the time to get the right support in place and explore how servitization can help your business to extract value from its value propositions by looking at what your customers truly want.

The SME Partnership Programme is open to SMEs in the Black Country, Birmingham and Solihull. Places are limited so book now to learn how to transform your business in 2021.