The Destruction of Value

Seeking your value proposition

For many years now, we have been taught through countless management training sessions and so-called ‘sales’ experts, that we need to have and know what our organization’s value proposition is. This applies to all businesses in the supply chain as they all have some measurable value attached to what they do.

So where have all these value propositions gone?

A value proposition is simply a cost-benefit equation that an organization can deliver to customers. It is part of a business’ strategy to eliminate price being the main focus of products and services. In the vacuum that exists in a market post-mining boom however, the focus on price has become a dangerous norm that threatens to dilute many organizations’ ability to deliver value.

Basic economics shows that when supply stays constant, but demand is reduced, new price points come into being. With many companies remaining in a market and not deciding to exit, oversupply has become an issue and is driving markets towards one goal, selling on price. Add to this the low barriers to entry for many market segments and the conditions for oversupply remain. As with cars, TV’s, kitchen appliances; several price segments can exist within single markets. There are customers who will pay a premium, some the lowest price and there is also a middle ground.

Many business managers and owners talk about the margin squeeze that is currently prevailing but has little ability to arrest the trend. Caught in a cycle that is driven by top-line growth and over-ambitious budgets, the ability to keep selling at ever-decreasing price results in low margins and, more dangerously, new price points being established for goods.
What options are left for the companies then?

There are a number of options that can be done although they take some intestinal fortitude on the part of executives and owners. Some of which are;

– Exiting the market can be one option but not always a reality, given the high percentage of markets that are made up of SMEs.

– Form a cartel, a little too illegal and sure to attract the attention of the relevant regulatory body.

– Discontinue selling the price-sensitive product and specialize your offering to higher-end products.

– Develop a value proposition that reflects the type of customers you want and the products you want to offer.

All of these options are difficult and as many companies try and fail to attract higher prices for their products in a highly competitive environment, the need to stay in business results in chasing orders on price.

There is, of course, still a place for the value proposition. Many of the problems highlighted above can be resolved through better training of sales staff to be able to sell on value. And here in lies one of the issues, not a lot of point to train staff to develop value proposition if they don’t believe in and embrace it through the ability to make customers understand it.

There is no short-term panacea for this. The pressures to compete on price won’t be abating any time soon and training takes time. As long as organizations are using top-line revenue for growth, the need to sell more at any cost takes priority.