Value Proposition Controls:
Strategically Creating Surplus Value
By Mark Meckler, PH.D. - September 2015
One of the worst things that can happen when running your craft business is when you are not offering enough of the kind of value that anyone cares about. This paper explains putting controls in place to make sure that the value proposition a) is delivered and b) provides the right kinds and the right amounts of value.
Why should I read this?
Even a great craftsperson will find their business struggling to survive if they do not offer products, services, or benefits at a price that their stakeholders truly and emotionally feel is a great value. We call this surplus value, and entrepreneurs need to be strategic about what kinds of value they create so that customers are willing to pay for it and / or employees are willing to work for it. For an overview of Strategic Controls, click here… and for a review of Control Systems Basics, click here… This paper focuses on how strategic controls help you deliver your value proposition.
Strategy Short by Mark Meckler, Ph.D. - Added October 2015
Belief Proposition Control
Beliefs system controls rely upon the culture within the organization to dictate and control behavior, which makes micro-management far less necessary. When belief systems are working well, company performance and morale increase.
Implementing Internal Belief System Controls: First, everyone must know why the company exists; what important value the company strives to add and for whom. Instill the belief that your organization exists for these reasons. Next explain the how. By providing enough surplus value over the price charged that the targeted stakeholders feel strongly that they are getting a great deal.
For example, Laurelwood Brewing and Brew Pubs exist to provide great craft beer and good pub food for families (customers), profits for the owners, and meaningful, fulfilling jobs for their employees. They do this by ensuring that families feel strongly that the beer and the food is a great deal at the price offered. This brings them back as repeat customers. Owners feel that the profits they get and the industry they serve are a great reward for the work and risk they put in. Employees must feel that the extrinsic wages and benefits that they get along with the intrinsic fulfillment, are a great deal for the amount of work, time and effort they have to put in.
Belief systems control how people go about their tasks. What kinds of things it is ok to do, and what are not ok. Everyone in the company must believe in delivering more and more surplus value to customers and stakeholders in unique ways that deliver your company’s unique value proposition.
Implementing External Belief System Controls: Belief system controls work well with repeat customers, with suppliers and with all those that you create ongoing business relationships. Therefore, the same beliefs must be instilled in external to your business in these crucial stakeholders. Your business is all about providing a lot of surplus value of some specific sort to some specific group(s). When repeat customers know what value you are hoping to deliver, they will more likely notice it and let you know when you are, and are not, delivering. The same thing goes for other industry stakeholders.
Diagnostic Value Proposition Control Systems
Diagnostics are measurements that provide objective “outsider” observations. Sometimes it is hard to find measures for exactly what we need to know, and we have to be disciplined mentally not to focus on measures that are easy to get. Usually, the easy things to measure are not really indicators of what is strategically important. A craft business is unique, and measures and good working scales must be carefully crafted to get at the information that is really valuable.
Some examples of diagnostics for value proposition control that are not overly difficult to implement:
- Measuring alcohol content per batch is simple. There do exist technologies and scales for alcohol percentage, and this may be an important part of the value proposition.
- You can measure portion sizes, and make sure they are consistently surplus value sized.
- You can measure spending per customer, as a proxy for their appreciation of the value the business is providing to them.
- You can measure employee turnover, as a proxy for their satisfaction with the job.
- You can find ways to measure number of repeat customers and number of new customers. Customer retention is an indicator you are delivering attractive surplus value.
Sometimes, you have to be clever, and use proxy diagnostics to get the information you. Think creatively about ways to gather information quickly, within your existing routines and processes. For example, I used to walk the dining room floor and take a quick assessment of how full/empty were the guests’ water glasses. If glasses were mostly empty, I took it as a warning that service was slacking and falling behind. I could then act immediately to resolve the problem before it got out of hand, without having to go and talk to all the guests, or worse, wait until they filled out comment cards and left, never to return. If glasses were mostly full, I took it as an indicator that service was relatively attentive and they were keeping up with guests’ desires.
Interactive Value Proposition Control
Interactive controls are imperative for things that are dynamic or emerging. They include meetings, conferences, focus groups, forums, comments and discussions. They provide access to subjective “insider” participant experiences.
Value proposition development and delivery must flex and adjust to changes in the market so that the intended recipients perceive appropriate levels of value, and different kinds of value. We recommend communicating with existing customers and with non-customer and listening very carefully. For a cheap and effective way to learn where to find customers and non-customers, listen to our July 2015 podcast: Sample Design For Craft Breweries. When I was a Chef, I would put on a clean white chef’s jacket and hat, get out of the kitchen and go talk to customers at their tables every single night.
Let’s continue with our scenario that your business exists primarily to deliver surplus value to owners, employees and customers. Here is a list of some of the most appropriate things to talk about to interactively control your value proposition.
- Do you feel that this is a great job for the amount of wages and satisfaction you get out of it?
- What kinds of rewards/compensation make you feel best?
- Describe the details of when you feel/would feel that we pay or treat you in ways that you really like, and better than what you probably deserve. How often, if ever, does this happen?
- We try to provide extra X for employees. Do we deliver? Does this matter a lot or very little to you?
For Customers / Non-Customers:
- Do you get the sense we should be charging more or less for anything?
- When do you feel like you got a great deal here?
- What would a really great value / deal look like?
- What could we do more or less of that would make you feel you should have paid more?
- What could we do more or less of that would make you willing to purchase more often?
- We try to provide extra X. Do we deliver? Does this matter a lot or a little?
Boundary System Value Proposition Control
Boundary system controls are the easiest to implement. Establish a few critical things that must NEVER be done, and if they are ever done, MUST be documented. These are the actions and behaviors that are out-of-bounds. Good managers do not tolerate variance in boundary system rules. Implement these control rules carefully because you everyone will expect you to act swiftly and dutifully to deliver the promised consequences when any of the rules are breached.
Some possible value proposition boundary system controls:
- Never let a customer leave unhappy without a promise that they will come back and try us again. It costs a lot to acquire a new customer. Once you have one, in front of you, you must do everything to keep them, including giving them the product or service for free, if it means they will probably come back and or purchase again.
- Never use ingredients that do not meet documented specifications.
- Never serve, sell or bottle something that does not meet or exceed your standard.
- Never argue with customers in your tasting room or restaurant. It is best to let a customer, no matter how difficult, have things their way. As long as the customer is not stealing from you or cheating, or breaching one of the core values of the organization, let them have their own way.
- Never do something that makes a customer or an employee feel they are getting less value from us than they are expecting to be getting.
Of course there are thousands, millions even of iterations within each of these controls. The key is to use as few controls as possible and still maintain dynamic control of your value proposition.