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.
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