Value Proposition (III). From roasting and selling coffee to “inspiring and nurturing the human spirit”…
Last week, I shared Alex Osterwalder-Ives Pigneur videos about designing value proposition canvas.
Today, I would like to clarify that the “Value Proposition Canvas” is just the first step when building business models. But I wish to dedicate a lot of time in this part, because the key to create good business models starts with a good beginning, and we must start here.
The process of building a business model starts by building the first two elements: The Customer Segments and the Value Proposition. And as promised, I will use an example, a company that is well known by everyone in the world: Starbucks Corporation.
Eighteen years ago, when I was studying at Cornell University, I had the opportunity to take a class called Economic Evaluation of Capital Investments at the Johnson Graduate School of Management. It was one of my best courses in that cold and snowy upstate New York campus. At Cornell, Professor Swaminathan taught valuation, security analysis, and portfolio management. He was twice selected, “Teacher of the Year” by the 1995 and 1998 graduating class of MBA students. Professor Swami as we all called him, utilized his own progressive methodology to teach us valuation using a company example, and he used Starbucks Corporation. I decided to follow Doctor Swami example this time too.
If you google what is Starbucks? You will find the following answer:
“Starbucks Corporation, together with its subsidiaries, operates as a roaster, marketer, and retailer of specialty coffee worldwide”. But if you visit Starbucks website, their value proposition is more than coffee. Starbucks Value Proposition is 100% reflected in their corporate mission ” To inspire and nurture the human spirit – one person, one cup, and one neighborhood at a time”.
Let´s go to the Value Proposition Canvas tool.
To define the Customer Segment or Client Profile, we must start by defining which client would we target. The process of customer segmentation is actually one of the most important relevance: it is to identify groups of people or organizations with certain shared needs or “pains”. Also, these groups have expectations or wishes. These groups expect or want certain “gains” when buying the product or service.
To find our Customer Segments, we must classify them. There are 4 main ways to segment and organize consumers:
- Behavioristic Segmentation: Behavioral segments are determined by several variables, such as user status, usage rate, purchase occasion or benefits sought.
- Geographic Segmentation: People from one country or a region have different needs, wants and purchasing habits that differ from those in other regions.
- Demographic Segmentation: refer to population´s statistical characteristics such as sex, age, ethnicity, education, occupation, income and other quantifiable factors.
- Psychographic Segmentation: to categorize consumers by personality and lifestyle, values, attitudes, tendencies, feelings.
I have tried to organize Starbucks Customers based on my observations. I define myself a coffee lover, and I go regularly to Starbucks. I started as a Student Client at Starbucks in NYC when I was studying at NYU (the year 1996) previous to Cornell. I have been a Starbucks client for more than 20 years. In consequence, I will classify Starbuck Clients from the point of view of general demographic/psychographic segmentation, but I recommend to define and quantify your client profile using the behavioristic and geographic segmentation too.
Coffee Lovers are the most general and traditionally category for Starbuck Clients. Then I have classified the next segments as Working Professionals, Academic community, Families and Social Groups and No Coffee Drinkers. In addition, I have added a new segment called Businesses.
Each segment must be quantified and localized (you must assess the behavioristic, demographic segmentation and geographic segmentation) with numbers otherwise your business model won´t give you the overall scope of your clients and potential growth for the future. I won´t cover this part because it is not my aim to get into this level of details, but if you wish this tool to help you cleverly, we must use quantitative tools or big data and statistics to support all these premises.
Each customer segment or group listed above has its specific needs or pains, and their respective wants or gains. Since Starbucks started operations in my country, I have observed for more than 4 years the behavior of their customers. I see what they gain when they enter to the stores. I see what they need when they pay for their favorite coffee and stay inside the shops. Therefore, let´s define clearly what each customer needs or lacks (pains). Let´s use a pain from an individual who is a student and lacks a pleasant place to study. That lack of a pleasant place represents a pain for this client. Or let´s think about a business consultant who lacks an upscale atmosphere to meet with some suppliers. That lack of a pretty place to meet is a pain for that client. Let´s think of a family who doesn’t have good coffee at home, and they lack the ingredients to prepare a caramel macchiato. That lack of coffee represents a pain for that family.
See the figure below to read the list of pains.
Additionally, I proceed to list each customer segment wants (wishes) or gains. Each gain represents the customer likes, or what are they looking for.
After we have defined the customer profile and respective gains and pains, we easily proceed with the Value Proposition second part of this canvas: Starbucks Corporation has defined it in their website clearly: Starbucks offers an “Experience to inspire and nurture the human spirit-one person, one cup and one neighborhood at a time”.
Why does Starbucks show such “value proposition”, without even writing the word “coffee”?
Well, because clearly, Starbucks is not selling only coffee, it is selling the whole experience at their stores.
What is Starbucks offer? Instead of automatically list the products and services, we ask ourselves: what value is offering Starbucks to each customer segment? Moreover, it is so easy to link each service or product offered by Starbucks with its respective Client Group or Segment.
The same applies to the Pain relievers, each pain reliever acts as a medicine or a pill for each Pain we already identified from each customer segment. The same applies to each of the Gain Creators: Each gain creator responds to each Gain the customer is looking for…
When you have designed a perfect fit between your Customer Segments needs and the Products-Services offer: a specific pain relief targets each customer pain. In addition, each gain creator fulfills each of the gains or wants from the customer segments, which we identify previously.
And here we are, we have built a good Value Proposition using the company Starbucks Corporation. You can see, there is a fit in between each of the components of the canvas.
We will continue next week with another value proposition example.