We discussed in the previous video the who part of the Value Proposition, showing how a Value Proposition can be complex, offering different values to different stakeholders. And today, I will discuss the what and present an overview of different types of value propositions. When we say what, we mean what we offer at what price. Strategy is about doing something different from your competitors and companies differentiate in particular on the what. Let's look at the options a business can envisage. To do this, we are going to use a simple graph, on which we're going to position the different possibilities in terms of price and offers. The horizontal X-axis represents the price at which the product or service is sold. The vertical Y-axis represents the perceived value of the value proposition from the customer's point of view. First, there is a large zone in which we will find no value proposition because the price is not attractive enough in relation to the perceived value of the offer. We will call it the non-viable zone. It's represented on this graph by a straight line, below which there will be no value propositions on the market. However, in real life, this frontier is not necessarily a straight line. Above this line we are going to find different types of value propositions. If the market is mature enough, if it has some history, if there have been enough players on the market that have copied each other over time, we will find an average value proposition that we will call the reference offer. It can exist in reality or it can correspond to a market average. It exists as well in the mind of clients. It's the average perceived value and the average price one can expect in this specific market. If the market is nascent, the reference offer can still exist. It corresponds to what offers clients will refer to as a comparison to the new offer. For example, when microwave ovens appeared, customers would compare them to an average oven and to an average stove. Then we are going to find on the market different value propositions. In other words, different competitive positionings, different strategies from companies that are trying to move away from this average, and by doing so, generating more profits. First of all, let's look at value propositions that offer more perceived value for a higher price. They are called high-end differentiation. More perceive value can come from more functionalities, more convenience, more design, or more emotion in what we offer. Therefore, these value propositions will be proposed at a higher price and generate, if the cost base is under control, a better return on sales. It's more for more. Many examples can illustrate this positioning, some of them very innovative. Bang & Olufsen in audio and video consumer electronics. Nestle in food. Kleenex in paper products. Apple in computers. Four or five-star hotels. McKinsey in strategic consulting and so on. The opposite positioning is frequent as well. These businesses offer less perceived value for a lower price. It's called low-end differentiation. The what is stripped out of many frills. The perceived value is therefore lower, and the price is lower too. This positioning will generate, if the cost base has also been reduced enough, a better return on sales. This strategy is also called the low-cost strategy as it requires lowering the cost base of the company very significantly to be successful. It's also low cost from the point of view of clients, as prices are lower, it's less for less. Many examples as well can illustrate this positioning, some of them very innovative. Ryanair in the airlines industry. Dacia in the automotive industry. Eden McCallum in the consulting industry. Nivea in the cosmetics industry. LG in consumer electronics. These two positionings are sometimes called generic strategies. A third generic strategy should be mentioned, in which the value proposition remains untouched. Same perceived value and same price. However the company is able to lower its cost base, it develops a cost leadership. There can be many reasons for that, such as economies of scale because the business is larger than competitors, or a cheaper access to inputs, a better process, or a better management. To be able to show this strategy on your graph, I have to change the X-axis to add costs incurred by the business. All the rest remains valid and I can add this positioning on the graph. Last, we can have value propositions that can achieve both, a higher perceived value and a lower price and a lower cost. This positioning is called game changing strategy. And Laurence will detail it in our next video. So as a summary, we have five types of value propositions in terms of what is offered at what price. High-end differentiation. Low-end differentiation or low-cost. Cost leadership. Game changing and reference offer. So we will meet you soon to discuss striking examples of game changing value propositions.
