The Purpose of a Business is to Create Value
For a business to achieve market success, it must create superior value for its customers, collaborators, and the organization. Peter Drucker, the famed management theorist, stated that the purpose of business is to create a customer and that business enterprise has only two functions: marketing and innovation. Thus, the responsibility of creating value and winning customers falls on the shoulders of marketing.
The American Marketing Association defines marketing as the activity, set of institutions, and processes for creating, communicating, delivering, and exchange offerings that have value for customers, clients, partners, and society at large.
The Value Proposition Relationships
Since market success, at the strategic level, is a result of creating superior value for customers, it is the function of the value proposition to define the value of a brand offering for a target market. Marketers seeking to design relevant value propositions for their brands must first understand the value—exchange—value-based relationships and define the relationships between the customers, collaborators, company, and competitors in any given market.
As an example, consider the relationship a manufacturer has with a retailer and the relationship the retailer has with the target customer. The retailer (a collaborator) partners with the manufacturer (the company) to deliver products (a value) to the target customer. The customer receives value from the manufacturer by way of the product and the retailer’s value by way of delivery and service of the product. Both the manufacturer and retailer receive value from the customer through the revenue generated by the customer. Additionally, the retailer gets value from the manufacturer through varied trade promotions granted by the manufacturer. The manufacturer receives the retailer’s benefit through the services performed by the retailer on behalf of the manufacturer, i.e., product advertising and promotions (See diagram below).
The Optimal Value Proposition Critical Questions
The company, collaborators, and customers’ symbiotic relationship reflect only the company side of the value exchange. Marketers need to be aware of competitors who often work with the same collaborators and target the same customers. Both the competitors and the company’s value exchange are balanced. Thus, to be successful, marketers must craft the optimal value proposition —balanced value — for customers, collaborators, and the company.
Before creating a balanced value proposition, the marketer must evaluate the market potential of an offering by answering three critical questions:
- Does the offering create superior value for target customers relative to the competitive offerings? In other words, are the products and services offered perceived to be superior to that of the competition?
- Does the offering create excellent value for the company’s collaborators relative to what the competition is offering? Is the manufacturer providing a better overall value to the retailers?
- Does the offering create superior value for the company relative to the other options the company must generate to pursue this offering? Does the benefit the company receives outweigh the costs to deliver the product or service?
In a recent survey on MarketingCharts.com, 87% of global brand managers and CMOs agreed that an aspect of their overall brand strategy is to include a brand story and value propositions as part of their strategy. Less than half (46%) claimed to have a deep understanding of their audience personas, helping marketers identify customer values that lead to the creation of compelling value propositions.
To truly develop the optimal value proposition, marketers need to understand their target audience and customer personas fully. Then, they need to be able to answer the three critical questions (above) surrounding an offering. If the company’s offerings create superior value for the customer, collaborator, and company relative to the competitors — and to other options, the company must generate to provide the offering — then the company is positioned to achieve market superiority.
Adkins, Amy (2016, March 31), Biggest Driver of B2B Success: Meaningful Customer Impact. Retrieved from http://www.gallup.com. Accessed April 7, 2017.
“Definition of Marketing.” American Marketing Association. N.p., July 2013. Web. 8 Apr. 2017. Retrieved from http://www.ama.org. Accessed April 7, 2017.
MarketingCharts staff (2017, March 23). Which Components Are Essential to Marketers’ Brand Strategies? Retrieved from http://www.marketingcharts.com. Accessed April 8, 2017.
Trout, Jack (2006, July 3). Peter Drucker on Marketing. Retrieved from http://www.Forbes.com. Accessed April 9, 2017.
Chernev, A. Strategic Marketing Management. Chicago, IL. Cerrebellum Press; 2014