Kevin has edited encyclopedias, taught history, and has an MA in Islamic law/finance. He has since founded his own financial advice firm, Newton Analytical.
A central strategy for marketers is value proposition, by which companies try to demonstrate why consumers should purchase their goods. This lesson shows how it works, as well as some real-life examples.
The Ultimate Goal of Marketing
Let's step back for a second and think about what the real purpose of marketing is. Is it to create masterful campaigns to win awards? Or, is it to increase the ego of the owners of a company with respect to the competition? Of course, both of these reasons are nonsense. The ultimate goal of marketing is to convince target consumers that your good or service is the best fit for them.
However, what does this idea of best fit even mean? Could best fit mean different things to different people? Could it mean different things to the same person at different times? In short, yes! Through the idea of value proposition, marketers demonstrate why their good or service is the best for consumers at a given moment. In this lesson, we'll see this idea in action and learn how it helps to insulate a business from the competition.
The Importance of Value Proposition
Simply put, value proposition is the reason that marketers give customers to buy their products. Very few people just throw money away for no good reason, and those that do that generally don't have money for long enough to remain loyal customers. Instead, you've got to prove to your customers why you are a good value. That means being able to convince them to purchase your goods and, moreover, to avoid your competitors' goods. The reason for this is pretty simple - if they buy your goods, you make money. However, it's not just short-term money that is affected by value proposition.
An Economic Moat
Imagine a castle with high walls and a big moat. Crocodiles in the moat are optional. Now imagine that castle as your business. It's big and imposing but is vulnerable to outside attack. In fact, the only thing keeping the opposing army away from your walls is that moat. But what is that moat? In this case, an economic moat is the barrier between a company and its competition that comes from having a long-term comparative advantage. So what does that mean? Let's look at an example.
There are only a handful of really successful soft drink manufacturers. You can find them everywhere, from grocery stores in suburbia to gas stations in the middle of nowhere. You'd have to have a pretty spectacular product to be able to convince even one restaurant to stop serving their chosen brand in favor of one that you own. That advantage is an economic moat. As you can see, it's a pretty useful thing to have, and the best way to make that moat wider is to constantly be working on the value proposition of your goods.
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However, everyone is different and everyone has different economic drivers. An economic driver is the biggest reason that you ultimately make a decision to buy something. While there's a ton of psychology that goes into this, we can ultimately boil it down to three major categories: cost, quality, and ease. To get a handle on how these three work, let's look at how someone who wants to buy a hamburger would respond to each of those.
Someone driven by cost will go to the 99-cent burger fast food place, no matter how bad the food is or how bad the wait. Someone obsessed with quality will go to a restaurant that serves Kobe beef or bison burgers with artisan buns - no matter the cost or wait. Finally, someone driven by ease will go to the drive thru with the shortest wait. Of course, these are generalizations, but all hold a grain of truth.
But wait, what does this have to do with value proposition? Simple - these are the keys to knowing your customer base. If you don't know your customer base, there's no way that you can demonstrate the value proposition of your product.
We've covered quite a bit so far, so let's piece it all together with an example. Say that your firm produces widgets. But for whom does your firm produce widgets? Let's say you have your eyes set firmly on the quality crowd. As a result, your prices are higher, and you can't buy your widget everywhere, but it is an incredible piece of widgetry. Therefore, you should constantly be marketing to those whom are motivated by quality.
You gain very little by appealing to the crowds that chase low prices nor do you really gain much by going after the drive thru crowd. However, if you can constantly be demonstrating your value proposition to your target audience, then your economic moat continues to grow. This makes it harder for competitors to grab your market share, meaning more long-term profits for you.
In this lesson, we focused on the idea of value proposition. Value proposition is when marketers demonstrate why their good or service is the best for consumers at a given moment Three very basic economic drivers are quality, cost, and convenience. We saw that the advantage of being sure that value proposition was maximized was not only short-term profits but also long-term comparative advantages over competition that increased a product's economic moat.
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