VPS Matrix, a valuable marketing strategy

‘The value propositions strategy matrix’ (VPS Matrix) simply means ‘value propositions strategy matrix’ or the appropriate strategic directions for marketing value propositions. Let's first see what value propositions really are.

Concept of Value

In the past the paradigm was that customers bought products that they believed satisfied their needs and wants. Later it was learnt that instead they go for benefits in products that would satisfy them.

The example given was the purchase of drill-bits. It was said that when a customer purchases a quarter inch drill-bit it was really a quarter inch hole that the customer purchased.

Not only because there is very little that the customer can do with a quarter inch drill-bit other than making a quarter inch hole, this example also illustrated that what was purchased was the benefit from the product and not the physical product itself.

Thus a subtle difference from products, to benefits in products, came to light. Then came the paradigm shift.

Purely because of the abundance of options and choice available today it is now believed that what customers want is value. Not just products or benefits as previously believed. Value is the measure of the worth of an attribute. To illustrate this is the example of a customer buying a wristwatch.

A Rolex is one of the most expensive brands in the world and perhaps a hundred times more than another brand also providing similar benefits that the Rolex provides, giving time and date. But some customers prefer the Rolex instead of the lesser-priced alternative. To them it is emotional value that the lesser priced will not provide.

Conversely South West Airlines have a no frills service giving no food service on board, no reserved seats, no agents, short hauls targeting automotive travel, costs very much less but was reported the most successful Airline in USA, purely because customers value this service than others who offer the full service.

One can see in each case the superior value offered to attract discerning customers. Therefore today, modern marketers strive to provide customers with superior value, to create & sustain competitive advantage through what is described as the value proposition.

The Value Proposition

The value proposition is often misconstrued to be the product, service or idea, which is offered by a company.

It goes way beyond that. It goes right into the very basics of the marketing process. In fact the value proposition is the outcome of the marketing process.

The end result is that the value proposition will provide value that target markets want.

A product, service or idea is the vehicle that delivers the value proposition. Competitive advantage and demand are created through the value proposition. To create the right value proposition and competitive advantage, we need the right strategic direction and appropriate strategy. We then need to drive the chosen strategy with effective tactics and programmes.

Strategy

“Strategy is creating a fit among a company's activities. The success of a strategy depends on doing many things well - not just a few - and integrating among them.

If there is no fit among activities, there is no distinctive strategy and little sustainability” Porter (1996).

Identifying the company compatible and appropriate strategy for a particular value proposition is a tremendous challenge and to achieve this the VPS Matrix or the value propositions strategy matrix is proposed.

The VPS Matrix

Now what should we market goods, services or ideas or value propositions? The answer is value propositions. If we are marketing value propositions what should the strategy be, to achieve success?

Two basic aspects determine success of marketing value propositions and they are:

* Market share for the value proposition

* Profitability of the value proposition

The above strategy matrix provides alternative strategies that can be adopted within a frame work of profitability and market share as follows:

* High profitability and high market share

* High profitability and low market share

* Low profitability and high market share

* Low profitability and low market share

The objective of any business marketing value propositions would be to achieve the first but it is not always possible.

We need to evaluate the external macro and micro environments and the internal environments thoroughly before deciding on a strategic direction.

New Category Strategy

This is the most successful position to achieve for any value proposition. This is achieved by producing something not in the market place or industry. It is something new to the world.

The Walkman, iPod, Viagra etc., when they were launched were new to the world and these innovations created new categories putting back the frontiers of science.

They had first entry advantage and built great success around them. But scope and opportunity for innovations isn't that wide and isn't easy.

The characteristics of a New Category Strategy are its ability to gain high market share and high profitability. This was demonstrated aptly through the launch of Celltel, mobile communications innovator in Sri Lanka many years ago. The price of a connection was Rs. 145,000 whilst today mobile communications are available for a monthly rental of even Rs. 100. This is the benefit of first entry advantage where the value proposition can be positioned as a new to the world value proposition and a new category.

Sub-category Strategy

The next is the ability to pioneer the development of a category within a category or the establishment of a new sub-category.

The most recent launch of Anchor Pedia Pro, a sub-category in the full cream milk powder category is an example of such a Sub-category Strategy and a resounding success.

Similarly in the toilet soap industry the launch of herbal soap some decades ago was a new sub-category that made inroads to several households.

The characteristics of a Sub-category Strategy are its ability earn high profits but will have lower market share.

The latter is due to the fact that when you compare the total category share against that of a sub-category it is generally smaller. But here too the positioning is very strong as it enjoys first entry advantage being the first in the sub-category.

Re-positioning Strategy

Malted milk was positioned as a convalescents’ drink where many of those who visited patients in hospitals carried them.

But the brand Nestomalt which was also a malted milk broke the shackles and created for itself a huge market by re-positioning it as an energy drink.

Similarly the smaller size Marie biscuits failed to capture market share when it communicated its positioning as a smaller Marie biscuit, which in fact was its differentiation. But when it was re-positioned as the one that ‘has more biscuits in 100g’ its sales soared like an eagle.

The characteristics of a Re-positioning Strategy is its ability to gain high market share but will have lower profitability.

In a re-positioning it is difficult to increase pricing as it remains within a category but with only specific value additions as shown in the examples.

Me-too Strategy

A new biscuits factory deliberated on following a Me-too Strategy and it has not got them anywhere. They are in a competitive jungle with an exceptionally strong leader holding nearly 52% market share and an equally strong challenger holding around 22% market share.

Between them they hold 74% market share and the other 25 manufacturers the balance.

Consumer doesn't see any real purpose to shift to the new brand or anything new to trial.

If they have to be successful they have to consider a strategic shift to any of the other strategies given above. At least re-positioning.

The characteristics of a Me-too Strategy are its inability to have high market share or high profitability. Such a strategy is good where goods are in short supply or in commodity type products. In such products people look for similarities not difference.

Conclusion

In conclusion it must be stressed that the most appropriate strategy depends on the market and the value proposition the company has to offer.

The wrong choice can be disastrous hence it is imperative to have the most effective strategy and to that end the VP Strategy Matrix will be invaluable.