I have always believed, and I still believe, that whatever good or bad fortune may come our way we can always give it meaning and transform it into something of value.
—Hermann Hesse
The term value proposition is thrown around a lot in business today. Almost every company claims to have one, but few people who run or work within them actually know what it is; in fact, they don’t have a clue. In my mind, if a company’s people don’t know what its value proposition is, then it doesn’t have one. To me, a value proposition is the sum total of the various ways that you differentiate your company and your products and services so people want to do business with you. I don’t care if you sell Levi’s jeans, table tennis balls, or Christmas trees—it doesn’t make any difference. People need a good reason to do business with you.
If the products and services you offer aren’t yet commodities, there’s a danger that people that may see them as such. And when that happens, they make their buying decisions primarily or solely on price, not on the other things you offer. The way to prevent this from happening is to create a value proposition that demonstrates clearly to customers the extra value that your products and services provide that none of your competitors offer.
This is especially true in the financial industry. Unfortunately, it’s the rare bank that has spent the energy, time, and focus required to create a meaningful value proposition. The only thing these businesses can rely on is price, and in my experience, that’s a losing game. Most of these companies don’t know it, but at some point they will hit a brick wall, and that will be the end of the road for them. There are definitely exceptions to this, particularly in the case of companies that have a huge scale. But relatively few companies have that level of scale.
Companies that compete primarily on price are in great danger of stepping into the quicksand of a death spiral where consumers are always shopping for the best deal, and the relationship they can build with a business doesn’t matter much to them. I think about a company like Hewlett-Packard that tried to get into the personal computer business in a big way by acquiring Compaq. Unfortunately, it ended up getting stuck in a near-death spiral as it was forced to drop prices and got caught in a race to the bottom. HP still sells personal computers, but its leaders know that there isn’t much of a future in it. The future, its leaders have decided, is in enterprise software, where the products are not caught in the commodity trap and the margins are much more favorable to the company’s bottom line.
The simple fact for smaller companies is that whatever you’re selling, the big guys can outprice you anytime they feel like it. The same thing is true with banks. To thrive—and to survive—you’ve got to have a better value proposition than the big guys.
When it comes to a value proposition, a lot of companies make a big deal about having one, but they don’t bother to live it. It’s the same thing that often happens with companies and their mission statements. Someone in the company takes the time to write it, and then the company frames it and puts it on the wall. But as soon as it goes on the wall, it’s forgotten. A lot of people do the same thing with their value proposition.
A value proposition is good only if people understand it, practice it, are held accountable to it, develop a passion for it, and can tangibly and actively see how it works and makes a difference in their business. When this happens, it creates the wind that drives everyone forward and can be measured. A value proposition is something that you use every day to differentiate your company from the competition.
When people go to Walmart, they know why they’re going to do business there: the low prices on the things that they regularly buy. On the opposite end of the scale, people know why they want to do business with the Ritz-Carlton: they’re going to be treated increasingly well and they’re willing to pay for that. I believe that everyone will pay for quality up to a point. While I might pay five dollars for a quality loaf of bread, I’m not going to spend fifty dollars for the same loaf. Similarly, people are willing to pay a dollar or two to buy a cold soda or water from a beverage machine, but they won’t pay ten dollars for it. People will pay for quality and service, but you better deliver. If they ever feel they’re not getting the value they expected, it could be the last time they buy from you.
The value proposition sets you apart from the rest of the pack. In a tough economy like the one we’ve been going through and that this book is focused on, the question is this: How do you get through the difficult and uncertain times and get on with life? A meaningful value proposition is probably the most important thing you have in your arsenal to motivate and stimulate your company to get through challenging times.
Umpqua’s value proposition was created out of our culture, and over time it became part of who we are. But our value proposition didn’t just appear out of nowhere: we had to create it.
I’m a bit of a contrarian when it comes to some of the standard management rules that are taught in business school. I believe, for example, that if your value proposition is a good one from the start, then you should be able to ride it through good weather and bad. That doesn’t mean you don’t tweak it from time to time to optimize it for the market conditions in which you find yourself. But you can’t be a fair-weather supporter of the value proposition. You can’t and you shouldn’t change it every time the business environment changes. Your value proposition is something you should stand up for come hell or high water.
Not long ago, I was invited to go on a sales call with one of our loan officers. Before we arrived at the place of business, my guys were peppering me with the deal terms of the loan and what our competitor, a large bank, was offering. They told me that we were going to have to tighten up our deal to meet the pricing that the other institution had presented. During the conversation, I finally said, “Stop, stop. You guys should know that I am not going to talk price with this prospect. I don’t need to understand the loan terms. I know you do, and you should be able to work out the details.” They looked at me with a concerned look on their faces, and I’m sure they thought to themselves, Oh, no, this guy’s going to lose this deal for us!
When the meeting started and after we made introductions all around, I asked the company executives a simple question. Keep in mind that this was all taking place in the middle of the recession with the housing market crashing all around us and that our prospective customer manufactured a product specific to that industry. Despite the downturn, the company was continuing to do well. So I asked, “It’s great to see how well your company is doing considering the economic situation we all find ourselves in, and I’m curious what you attribute your success to. Is it because your product is inexpensive and it’s easy to swap out when it wears out, producing multiple sales? Or is it because it’s a top-of-the-line product to start with, and the product and service reputation you’ve built over the years is so good”?
In reality, I was asking them, “What’s your value proposition?”
One of their executives was quick to answer. He said, “No, Ray, we’re not the least expensive. We don’t believe in that strategy. What has sustained us during good and bad times is the simple fact that we produce a very high-end product that our customers trust is reliable. We couple that with a level of installation support and after-sales customer experience that we believe our competitors will not and cannot equal. We don’t believe in being cheap. We do believe in quality and producing a product we are proud of.”
When he finished, I looked at him and said, “Welcome to Umpqua Bank.”
“What do you mean?” he asked.
“You just described our company,” I replied. “Like your company, we’re not the K-Mart of banks either. Like you, we believe in quality. Like you, we understand that we have to be price competitive, but our service levels, commitment to our communities, and unique delivery system provide great value that should never be discounted. We agree that your value proposition of building a quality product that you’re proud of and standing behind makes an incredible difference. You know it’s worth the extra money that your clients are paying.”
“You’re absolutely correct,” said the executive.
“That’s where we stand,” I explained. “And we look forward to welcoming you to the world’s greatest bank, Umpqua Bank.”
I walked out of the room with my loan officer close behind me. He appreciated my attendance, and we felt confident about earning the company’s business. As we got back into the car, I told him, “There’s a lesson to be learned here. A quality company with quality people and products doesn’t have to be the least expensive to obtain new business. During sales calls, you should always lead with what our value proposition and company culture mean to our clients. Leading with price cheapens our company and places you in a position where the only topic you will be able to discuss is price and terms. The larger banks can always outprice us if they choose. What they can’t do is outdeliver us. Focus on that, and I guarantee you’ll increase your loan portfolio fast.”
I’m constantly reinforcing this message with our loan people: when you go talk with people about our products or services, the first thing you should be talking about is not price. You should be talking about the quality of our company and our products and the strength that stands behind them. When you do that, you’re telling people what type of company we are. And if they recognize and can appreciate the value that you provide, they’re likely to pay for it.
This is what separates you from everybody else who’s walking in there saying, “Well, if Umpqua Bank is at 5 percent, then we’ll do 4.5.” What kind of business is that? Not one that I want to be in.
A lot of research is done each year on value propositions. And when the consultants come in, they say that before you create a value proposition, you need to make sure you know and understand your customers and your competition. I’m sure there’s value in getting all that information, but as many times as they do that—and we’ve done that at Umpqua Bank—I believe that those things don’t drive the value proposition. For me, it’s more about what I want to accomplish with my company. How do I want to do business, and what do I stand for?
If you go out and ask your customers what they would like your products to be or to do, they often don’t know. They do know they want you to remain competitive and continue to provide them with the products and support they need. They want you to continue to provide more of the same. So it’s less about what the competition is doing and it’s more about what you want to do. What can you do to continue to execute the basics well and deliver on your value proposition? And as you’re delivering on these promises to your customers, what can you do to occasionally surprise and delight them—to continue to move your organization and its products and services and the way you deliver them forward?
That said, there is a right way and a wrong way to build a value proposition. Summarizing the work of marketing and sales optimizers MarketingExperiments Lab, Peep Laja offers the following list of characteristics that make a good value proposition:
Living your value proposition requires that your people buy into it. And to get your people to buy into it, you’ve got to communicate it and hold them accountable to reinforce it. It may require tough love over a sustained period of time to create a value proposition that you want to make happen, but the results will be worth it.
Everybody hates regrettable turnover or when good people leave the company for whatever reason. Good people are the core of your company, and you shouldn’t let them get away easily. If an associate has an opportunity to leave but is fully engaged in her work, then you should fight hard to retain her. On the flip side of the coin, if you have someone who isn’t a believer in what you’re doing, he or she needs to get out of the way. People who don’t buy into your approach of doing business become contagious and can carry a virus that will quickly spread throughout your company and kill everything you’re trying to do. And even with good people, every now and then you’ve got to go back and make sure that they’re still plugged in.
In challenging times, the value proposition keeps muscle on the bone—something people can have faith in that will get them through the difficulties. If the value proposition is a meaningful one, you can create a lot of loyalty and momentum with it.
So how do you best communicate that to your clients, your customers? You have to tell your customers—and your community and other stakeholders—what you stand for. I find it interesting that salespeople expect you to want to talk about the pricing and the discount and the FOB point when what most people should be talking about instead is the quality of their organization. If you’re doing a presentation, you would say something like this, “Here’s why you need to buy from us.” This often answers the question they’re thinking about anyway, which is, “Why should I buy from these guys?”
Two common pitfalls of value propositions are not having one at all and having a value proposition but not knowing what it is. For example, if I were to walk into ten bank presidents’ offices and ask them to tell me what their value proposition is, I’ll bet you that the majority of them would say something along the lines of, “We’re locally owned and operated,” and, “We provide great service.” But that’s what everybody else says as well, so it’s not a differentiator with customers. In fact, comments like that have lost their meaning and importance to customers. What’s worse, the bank president says the bank provides good service, and when you ask him or her to provide you with some quantitative measure of that good service, that same presidents will look at you like you’re nuts.
You need something that makes your company stand out, and it must be meaningful for it to register with your customers and your potential customer.
The culture of Umpqua is built around empowering people to do incredible things—anything they want to do to enhance our customer’s experience with us. Our culture has been built around the empowerment we’ve given our associates. It also includes a healthy dose of accountability. Our value proposition was born out of a culture we’ve created over the past eighteen years. It’s proven to be an incredible asset for us and one that allows us to compete on more than price. A meaningful value proposition creates just that: value not only to the company but to the companies that you’re speaking with. A good value proposition takes a company’s culture and puts it into action. It’s what makes a company’s culture come to life: people can see it, touch it, and appreciate it.
If you’re in the business of selling a commodity like groceries or computers, the value proposition becomes even more important because you’re selling the same thing all your competitors are. And if you have a small- or medium-sized business and you think you can stand out using price, you’re dreaming. In Umpqua’s case, our value proposition was built on empowerment and accountability, but it came out of a process. I like to think of it in the same terms as a murder mystery. When the police are trying to narrow down suspects, they do so through a process of elimination. The question is not who did it. The question is who didn’t do it. The last guy standing is usually the bad guy.
When I came to Umpqua, the question was, How do I differentiate the bank from my competition? I can’t outprice the big guys, I can’t out-resource them, and I can’t out-computer them. But what I could do through this last-guy-standing process was out-deliver them because I’m more agile, I’m smaller, I can move more quickly, and I can do things that would be impossible for them to do. And that, combined with empowerment and accountability, became the value proposition of our company.
If you grow only for the sake of growth and don’t continue to nurture your culture and your value proposition, they will most certainly erode. As your company gets bigger, bureaucracy has the tendency to raise its ugly head and take over. Before you know what hit you, you’re just like all the other larger nondescript companies where process rules. In Umpqua’s case, it’s taken a lot of work to grow our company so rapidly. What’s more important is that at the same time, we were strengthening our culture and value proposition to make us what we are today. To ignore these areas would have been devastating for Umpqua. It would have been admitting defeat and failure since we would have sacrificed all that hard work and lost what has differentiated us from our competition.
We have an expression here at Umpqua; it’s called “big bank creep,” which is the process where a nimble small bank that cares about its customers becomes rigid and bureaucratic and succumbs to processes. We fight like hell to prevent it from creeping in unnoticed when we’re not paying attention. It comes at us all the time and from every direction, and inspires us to be diligent in protecting our culture. We have something on our intranet called UmpquaSmart, which enables associates to let us know when they encounter a policy or process that’s killing the pulse of the company. It’s preventive medicine that unfortunately insurance companies don’t pay for.
Note
1. Peep Laja, “Useful Value Proposition Examples (and How to Create a Good One),” Conversational, February 16, 2012, http://conversionxl.com/value-proposition-examples-how-to-create/.