1. First, decide what market need you are trying to fill. Filling a market need implies a gap: something that is not available to your target audience in the other choices that they have. Let’s take the example of micro-finance. Micro-finance institutions extend small loans to poor people, primarily in the developing part of the world, for the purpose of starting a small business and/or becoming more self-sufficient. A family may need seed for a crop, for example, so that they can raise their own food, and eventually have enough to sell to others. There are institutions that make these type of loans. But many may not offer what stands in the way of a poor family taking advantage of that loan: a payback schedule that fits the individual circumstances of the family. If you offer not only the loan, but a payback mechanism that doesn’t rely on a fixed schedule, but begins when the crop is harvested, the family is much more likely to be able to take advantage of the loan.
A need can be known, or unknown. Customers can often fall victim to orthodoxies. “That’s just the way the world works. I could never take out a loan.” Only when one is offered that meets the need they didn’t realize was there does the light-bulb go off.
2. The second job is to choose where to compete. What combination of attributes will you offer that others cannot, because of structural issues, their own strategies, or something else. For example, a small Mom and Pop hardware store is unlikely to be able to beat Wal-mart on price. So they might choose to offer a small selection of the most popular merchandise and emphasize personal service instead of price. As long as people will pay a slightly higher price for the service they receive, the store has differentiated itself along one attribute of its offering.
3. Next, you need to structure all of your organizational activities so that they relate to each other and support the value proposition. The goal here is to create a chain of activities that is as strong as its strongest link. Southwest Airlines, for example, chose to offer low fares, short-haul point-to point flights, and fast gate-turnaround. They did not choose to set up the hub system many airlines offer, and concentrated on the passengers who do not mind drawing a number for the order of boarding and seat selection.
4. Finally you must create a positioning statement that creates shared understanding of your value proposition in the minds of your target audience. Virginia Woolf famously said, “Nothing happens until it is described.” Your positioning statement forms the bedrock of your unique go-to-market strategy, and must be translated into messaging and communications activities that are easy to understand, compelling, authentic, and unique in the emotional and functional benefits offered to your customer. It should be instantly clear to those you are trying to reach that “you are talking to them” and “you have something there for them” that they prefer over other market choices they may have.
Following these four steps will ensure that your value proposition not only differentiates you and forges a bond with your customers, but that it is sustainable.