The Debonair Commercialist

A blog about crafting compelling propositions and cultivating commercial nous

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Profitability: Rule #4 of proposition development

Profitable propositions

Marketing community might be cross with me after reading this post, but I can assure you that profitability  of any new proposition is the most omitted part from crafting value propositions. I have nearly seven years in product marketing and you can trust me on that.

Why profitability is sometimes neglected in proposition development?

Because it is the most difficult step – to prove that your idea is not only relevant to the customer, focused of strong capability and differentiated from competition, but that it can actually make money and drive profitable revenue.

To assess whether a new proposition will be commercially beneficial, you need to have a good understanding of your business’ cost base – i.e. what drives the cost to deliver your current products or services and how this cost base will be affected when you launch a new service and start selling it in volume.

In big organisations, building such understanding is no mean feat. Even for smaller businesses this requires the proposition professional to develop a robust grasp of the activities requiring capital investment and the ones driving incremental operational expenses.

Yet, without having a very clear idea if your new opportunity drives more money than generates costs, you risk launching a product or service that does not deliver the goals you have set initially. Even worse, this new offering can eventually hurt your business and disappoint customers.

Yes, but what about Amazon?

I know that Amazon is a great example of a fantastically successful business that does not focus on short-term profitability. If you want to know more how Amazon does that for so long, I totally recommend Ben Evan’s analysis on Why Amazon Has No Profits (And Why It Works).

Nevertheless, 99% of businesses launching new products and services should explore profitability as the fourth pillar of successful propositions.

Why profitability is so important for a new proposition?

Let’s explore why profitability is the fourth pillar of any compelling proposition, in addition to Relevance, Focus and Differentiation.

•    True measure of success – a product or service can have impregnable differentiation from the competition or utmost relevance, but if it burns cash rather than it generates you cannot say your proposition is truly successful.
•    Improve current cost base – By analysing how the new offering can generate cash, you can uncover cost efficiencies and ways to improve how you do things in your business overall.
•    Generate cash for growth – By launching profitable products and services you provide much needed bandwidth for the company to invest in other markets and verticals. Profit is freedom!!

Some time ago I spotted Mark Suster’s great piece on Should Startups Focus on Profitability or Not? According to Mark, “Most companies (98+%) in the world (even tech startups) should be very profit focused “ and he goes over the basis of profitability – revenue and cost of goods sold (COGS). Do read it when you have a spare 11 minutes.

In the next series, I will focus on some tactics that proposition teams use to determine future profitability.

What are your tools and levers to drive profitability in your new propositions? If you want to share tips and stories and lessons learned, please feel free to send me your comments.

If you enjoyed this post, I’d be very grateful if you’d help it spread by emailing it to a friend, or sharing it on LinkedIn, Twitter or Facebook. Don’t forget to sign up for email alerts too. Thank you!

Propositions and innovation in the news: 5 June 2016

In defense of online lending

A Tool to Map Your Next Digital Initiative

2016 Global 2000: The World’s Largest Transportation Companies

Differentiate from competition: Rule #3 of propositions

Differentiate from competition

If you haven’t noticed already, we have been looking at each principle of the Proposition Mantra, which summarises the four principles of compelling commercial propositions. In the two previous posts, we covered the Relevance to customers and Focus on strong capability principles, and today we will talking about the third one, Differentiate from competition.

We all know from economics class that differentiation has a critical role in competitive advantage. Here we will not be talking about barriers to entry, sustaining advantages, and signalling criteria, but concentrate on the differentiation lens which proposition teams use to create a compelling proposition.

How your commercial proposition can differentiate from competition?

Contrary to what marketers tell about the ‘uniqueness’ of the value proposition, commercial propositions focus more on the value it brings to the customers and how to make it hard for competitors to replicate that value.

It is perfectly OK for the proposition to not be unique or exceptional – let’s be honest, most goods and services we use and purchase have a myriad of versions which compete against each other.

Proposition teams use three questions to establish whether their idea or business opportunity can be difficult to replicate:

Differentiated from competition

Do we offer something new?

Undoubtedly, the paramount shout against competition is to bring to market a completely new capability – new feature, new flavour, new style.

But newness does not carry you far if it is not relevant to customers as we have analysed before, or if it is so far ahead of its time that mass market adoption is light years away. I am two thumbs up for innovation if it makes lives easier and happier and if it can be delivered at an acceptable cost.

In commercial propositions, we use ‘new’ to the extent it gives us an edge against competitors.
Do your research and benchmark whether the new opportunity is already present in existing competitive offerings. Investigate how competitors market it in terms of channel, price and advertising methods. Go over sales data to analyse whether this capability gives competitors identifiable advantage ahead of your products or services.

If what you offer is entirely new, if it is relevant and desired by customers and no other competitors offer it, you are spot on. Even more, you can move to the second step:

Can we do it better?

This question usually stirs the innovation juices most, no matter if you are a Follower or an Innovator. Is your proposition giving extra value which customers truly care about and your competitors cannot offer it to the same extent?

In my experience, 95% of all compelling propositions are about smaller improvements, rather than earth-shattering innovations which dazzle the markets. In my book, “better” means three things:

  • Improved experience for the customer – from finding and purchasing the product or service, though using and interacting with it, to disposing or stopping to use your service.
  • Rich and immediate service – how to set the product up or activate the service, how make the most of it, how to repair it, how to return it – end to end.
  • Transparency of communication with the customer –

Can we do it cheaper?

Speaking of value, a third way to differentiate is to make your offering better value for money.

I am not talking about temporary promotions or sales offers on your products – this is a great commercial tool, but when your products enable customers to save time or money (or both!).  That is using novel production techniques or innovative technology platforms to completely revamp your offering and drastically reduce its price, or increase appeal and efficiency. Household examples nowadays are cost of processing power, virtualisation, Cloud storage.

Using such improvements to pass the cost and efficiency benefits back to the customers in the form of slicker, faster, cheaper services creates great advantage which is hard to replicate, at least temporarily.

How to uncover and shout about your difference?

With help from marketing and customer service teams, make sure you talk to your customers, interview them on why they stay with you, why they recommend your company and products? Once you have nailed the current competitive angle and the key call outs, align the rest of the organisation to support the shout.

Every business has a tendency to move to the next big thing – it is so tempting! Yet, propositions teams should be one of the guardians of those evolving competitive differences. These need patience to stick around and to grow in customers minds to make differentiation truly lasting.

To conclude, I recommend a reading which vividly illustrates how well-known brands have differentiated against the competition, Bethany Sheppard’s piece in HubSpot.

How does your business approach differentiation? If you want to share stories and lessons learned, please feel free to send me your comments.

If you enjoyed this post, I’d be very grateful if you’d help it spread by emailing it to a friend, or sharing it on LinkedIn, Twitter or Facebook. Don’t forget to sign up for email alerts too. Thank you! 

Propositions and innovation in the news: 30 May 2016

Technological innovation is often simply an innovation in how we think about technology

Why Amazon is the king of innovation: Online retail mastery

How Blockchain Technology Will Disrupt Financial Services Firms

Focus on strong capability: Rule #2 of propositions

Focus on strong capability

In this second principle of the Proposition Mantra, I will explore the next fundamental rule of developing compelling propositions – Focus on strong capability. One that matches the customer need. This is the doability rule and any business development effort should be able to address it before progressing to the next steps of building a new offering.

So far, we covered the Relevance to customers principle  and went though how to identify that a business opportunity is relevant to  customers and the market a company operates in. We have done our research uncovering strong data points, we have been given strong customer feedback that the opportunity will be improving your offering. Now what?

Let’s move to the Focus on strong capability element, whose main concern is what product or service capability you are offering to address the market opportunity? Or even simpler:

Can we do it?

No matter how relevant and direct the tie between the business opportunity to the market, if a company cannot deliver a strong product or service to match it, we do not have a compelling proposition.

This is the step where many business development efforts find their Rubicon. Good intentions and strong insight are worth nothing if you cannot deliver a capability that relates to what customers wants.

Focus on strong capability

Let’s use the same two examples from the Relevance to customers post – a startup company and a big corporation to examine two real scenarios.

Developing a strong product or service is a popular topic and a whole library of books is dedicated to it, but here I want to illustrate how Propositions and Commercial professionals go through the principles in order to establish if an idea or an opportunity has any legs.

Focus on strong capability

Small start-up example: The startup has launched a rich software suite and customers are excited. Sales increase and with those the customer feedback to provide 24/7 support from software developers to those customers that want to implement the software and need near constant developer-to-developer interaction.

Now following the Focused rule, the company has to analyse whether they can deliver such a support wrap.

On the face of it, around the clock support is a great service shout but implementing it means that the company has to provide extra time for its precious software developers to deal with customer queries or hire more software developers to deal with support issues. Another third option is to outsource the support function entirely to a third party software development team offshore.

The startup proposition team really wants to make this happen and decides to hire more software developers in order to expand the core team. There is little room for trial and error, so before progressing with the hiring campaign they test the idea with current employees who are willing to spend a chunk of their time supporting customers in order to improve their communication skills and general business awareness.

In addition,  another idea of the propositions team to boost the 24/7 support capability is implementing a “10% support” rule,  across the whole software development team. This is where 10% of the time of each software developer will be dedicated to supporting customer questions, issues or asks. They believe that this drive even greater customer focus in their product development process and improve Agile techniques.

Big corporation example: Our devices team have found a remarkably strong unmet need in their consumer segment for a Do Not Disturb capability on their phones, one which prevents unwanted calls and gives customers peace of mind when they need it most.

What does it take to develop a Do Not Disturb functionality on your phone? Well, this must be a new product feature, which requires a series of steps to make it real. For simplicity, lets outline the most obvious ones:

  • Add Do Not Disturb to the user experience specification,
  • Develop the software rules managing how Do Not Disturb manages calls – how the phone behaves when this option is switched on,
  • Build a relevant capability for the answering machine,
  • Perform good testing of the new feature,
  • Update user guides and training documents.

It does sound like a standard process for adding a new feature to an existing product. Yet, the team is worried about the impact on customer experience if this new feature prevents too many calls to reach their intended recipients. It is a very valid concern, which the proposition team needs to test further.

In both examples, the companies need to develop this functionality from scratch, and go through testing the idea before weaving it into their existing offerings.

Building a strong capability and making it real is the hardest part of proposition development, but before any business takes the decision and gives a green light it needs to explore two more parameters: Build it better than the competition and Monetise it.

Next in the series in how to Build it better and how to differentiate from the competition. Stay tuned! 🙂

 

If you have any questions, or you want to share stories, lessons learned around proposition development and commercial innovation please feel free to leave a comment.
If you enjoyed this post, I’d be very grateful if you’d help it spread by emailing it to a friend, or sharing it on Linkedin, Twitter or Facebook. Thank you!

 

Propositions in the news this week: 23 May 2016

Latest Thinking Blog: Where are you on the digital wave? The importance of digital segmentation

HBR: How Your Leadership Has to Change as Your Startup Scales

K@W Weekend Edition: Beyond 10,000 Hours of Practice: What Experts Do Differently

 

 

 

Relevance to customers: Rule #1 in propositions development

Relevant - Propositions development

In my Propositions Mantra a couple of weeks ago, I outlined the four fundamental principles of proposition development. I got several reader requests to discuss my approach on how I evaluate an opportunity against each of those four, plus I already promised a small deep-dive for each.

Today I focus on the first element – Relevance to customers. This is the relevance of the proposition idea or ‘opportunity’ to your customer base, to the market segment and to your company. Its core question is “What is the strong insight which makes us believe there is an opportunity to fulfil a need and monetize it?”

 I usually take apart this question into two subsets:

Do you have data points from the insight to support the idea?

Search for data points to support and confirm the idea. You get those from multitude of sources ranging from direct, but consistent customer feedback to vast market segmentation and quantitative research. Working for several software start-ups, I have found that one of the best sources of ideas is customer feedback.

Small start-up example: While I worked for software start-ups, we found that the best source of proposition ideas to develop our offering has been our own customers. In one example, we had launched a new version of our software suite where the initial customer feedback was very promising. Over the next few months, some of our existing customers shared that introducing 24/7 development support for their own in-house team of software developers using our product will be highly appreciated and even expected.

Big corporation example: Let’s say your team is looking after a devices portfolio and a recent consumer market research shows a great number of consumers buying home phones would strongly prefer to have a Do Not Disturb feature on those phones, so they can avoid unwanted calls entirely while at home. Such data points come from a quantitative research, teasing out the preferences (or needs) against each consumer segment and how strongly these preferences affect your customers.

On the back of market research, proposition teams usually run a propensity to pay study to identify if these strong preferences can be monetized and whether a ‘sweet spot’ price range exists.

Relevance to customers

Is it relevant to your market and company strategy?

What turns your supporting data points from mere numbers into a true opportunity is the ability and judgement of the commercial proposition manager to connect the dots – from the findings to how those may potentially improve the product or service offering if they are implemented, and how the whole may become more desirable to customers.

Sometimes connecting the dots is obvious, sometimes it makes you leap into the unknown.

Let me try to illustrate that thought process in my two short examples:

Small start-up: “24/7 support” is nowadays a given in retail and service industries, yet in software development a 24/7 presence has been relatively novel…especially performed by other software developers rather than support officers who may not be software trained. Yet, it looks like this support opportunity can give an edge to this little company compared to more established competitors in this space. It is a relevant ask as it adds a service hug to the core software product and complements the proposition.

Big corporation: Looking to refresh your devices portfolio you search for exciting features to add to the new devices. At first glance, the evidence for a Do Not Disturb feature is really strong and such a feature will be unique addition to your product capability.

Is it relevant? Yep, 100% so.

Yet deeper analysis raises concerns. Your phones’ single purpose is to put a call through, not block it! How is your product going to be perceived if this new Do Not Disturb feature ends up blocking important calls? Is this going to be hurting sales eventually? Affecting your brand even?

Revelance is the first stage in the four step process – you cannot decide whether an opportunity is worth pursuing by looking at its relevance only.

In the next post of the series, I will move to the second attribute of any proposition – Focused, and develop those examples further. The Focused step covers what capability you need to address the market opportunity.

 

If you have any questions, or you want to share stories, lessons learned around proposition development and commercial innovation please feel free to leave a comment.
If you enjoyed this post, I’d be very grateful if you’d help it spread by emailing it to a friend, or sharing it on Linkedin, Twitter or Facebook. Thank you!

Propositions in the news this week: 15 May 2016

Several interesting articles from this past week on proposition development:

In Product Development, Let Your Customers Define Perfection

 

 

Propositions in the news this week: 8 May 2016

Things I am reading this week include:

Water utility deals herald revolution in energy industry

Connecting the disconnected: the Internet of Everything

Morrisons’ supply chain is ‘a key strength’

Disruptive innovation of little interest to Civil Servants despite tech being critical to their plans

Self-Driving Vehicles May Be Closer Than You Think

How to build commercial awareness in 5 steps

Anyone who has looked for a new job in the recent years knows that commercial awareness about the business vertical and the company he or she is applying for is an increasingly important prerequisite. But basic commercial awareness is a good life skill even if you are not looking for a job and there are plenty of websites which offer sound advice around improving basic numeracy skills, getting a voluntary role or learning about world business in media such as The Financial Times or The Economist.

But how do you build that extra commercial nous when your day job is to spot new opportunities in the market which a product can address, or to conceive new ways to sell an existing product?

Commercial nous and proposition development are like salt and pepper – you cannot cook a decent dish without applying the right amount of both.

To nurture the commercial talent in my team, I guide my colleagues through those five key steps:

Top productsFind out the top 5 products or services which bring the most revenue to your company (or the one your are applying for) and the top five that generate the most profit.

This will help you orient yourself in the product portfolio, no matter whether the company is a small startup with a handful of offerings or a big corporate with thousands of products and services on their list.

It gives you clues which products and services are likely to attract highest product development spend and but also strategy focus in the near future.

It shows what part of the portfolio keeps the company profitable (and pays your salary).

Top clientsIdentify the main clients of your company and what products and services they buy from you

For companies that sell products to big corporates, I apply the 80/20 rule. Find the twenty clients that generate 80% of your revenue, what is common about them, what are the volumes they purchase or rentals they pay for subscription, what service wrap they get on what terms.

For retail companies – I encourage my team to uncover what groups of retail customers find value in what you offer – a decent market research on consumer or business segmentation has a good cross section of personas, habits, propensity to purchase trends and many other useful information on the customer dynamics.

Why us vs competitorBuild strong understanding why those clients buy from your company versus any competitor and how they use your products.

By joining Sales reviews with those clients or speaking to Sales Relationship managers in your company you will learn tons about what sets you apart from the competition but more importantly what makes your products unique and desirable.

What is more, by interacting with customers directly you gain invaluable insight about how your products or services are used in real life and what can be improved upon – features, user experience, pricing, anything.

If you are new to the company or applying for a job and have no internal view, you can gather similar insights from product forums, customer reviews and feedback which is available online for most companies.

Commercial modelFind out how those top performing products in step 1 are priced and how their commercial model works.

After you have learned about who buys what from the company and why, my favourite next step is to get the detail on the pricing models  tried and tested in your market segment as well as the commercial structure applied.

Some questions for more in-depth analysis are: What are the implications of a rental model vs. one-off fees in this market? What are the subscription criteria? How has the company structured their commercial model to take their customers from a value product to a premium product?

As a proposition development expert, this step gives you not only a benchmark for any new proposition development but also brings to light how the market works and how clever new ideas can be tested – both as pricing and as completely new product offerings.

Product pipelineGet the most up-to-date view of the product development pipeline and what new products or offers are coming to market in the next 3-6 months.

For an outsider, you may think this information is a very highly guarded secret, but you are wrong. Most product or service pipelines follow an evolutionary path, rather than create a revolution with every release. A good comparator are competitors and their recent product launches. Also, press news are abundant on company product announcements or major market developments that impact the evolutionary path in products or services.

This pipeline view is a like a mirror into the company which shows you what capabilities and commercial models have passed through more rigorous testing with customers and have the potential to bring market share and ultimately profitable revenue.

And I may sound a bit biased, but in addition to all tips above one more way to build your commercial acumen is to sign up for my blog and get extra tips on commerciality every week.

If you have any questions, or you want to share stories, lessons learned around proposition development and commercial innovation please feel free to leave a comment.
If you enjoyed this post, I’d be very grateful if you’d help it spread by emailing it to a friend, or sharing it on Linkedin, Twitter or Facebook. Thank you!

 

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