How to Design Everlasting Value Propositions in B2B Marketing, Part 1

For the past ten years, I’ve been working for companies that offer software solutions to other companies, that is, business-to-business (B2B) products and services. From 2007 to 2013, I was working as a product marketing manager for a Software-as-a-Service (SaaS) company, and from 2014 onward I’ve been working in strategic marketing roles offering software to device manufacturers (OEMs) and enterprises working with the Internet of Things (IoT).

If one thing I learned about B2B markets during my career is that business-to-business models, although very monetarily rewarding, can pose two huge challenges for sales & marketing organizations:

1. Sales cycles can be very long, taking months or even years to close a deal
2. Typically, the customer life-time value (LTV) is relatively short due to high competition and pricing wars

Being a service designer at heart, I always apply design thinking to my job as a B2B marketeer and I found a way to palliate these two issues:

Beyond all product features and benefits, you always have to design your value proposition in a way that minimizes the sales cycle and establishes a long-term customer LTV.

Part 1: Reducing the sales cycle — Design a value proposition around ROI

Ever worked on designing value propositions? It’s one of the most interesting and rewarding tasks that are rarely performed within marketing organizations. Using the Business Model Canvas (BMC), you can layout a simple business plan without having to write a lot. The BMC focuses on the nine key components of a business model, including the two most important ones of all: what is your offering (Value Proposition), and for whom (Customer Segments). Here’s the Business Model Canvas by Alex Osterwalder:

When filling in a BMC, you always start from the target customer: Customer Segments, or “for whom it is”. Then, you move onto the Value Proposition and explain what you offer to your target customers. For example, you could formulate your value proposition like this: we provide small businesses with an HR management tool to reduce job applicantions’ processing times.

If you want to deep-dive into the guts of value proposition design, I recommend you to read the book “Value Proposition Design”, also co-authored by Alex Osterwalder.

Now think about this: the job of your value proposition is to present a benefit to your customers so appealing, that they will pay as much as possible, as soon as possible.

When designing your value proposition, you will typically do root-cause analysis (RCA) in numerous iterations until you find the biggest pain point of your target customer and, based on that, build a product or service to palliate that pain. Therefore, when in B2B, your question before designing a value proposition should always be: what’s the biggest pain point for businesses so that they pay me as much as possible, as soon as possible?

Here comes the interesting part. There happens to be a very common “problem” (→ goal) among every business organization, which is to maximize the shareholders’ value. That means all businesses, with no distinction, see everything in the light of return on investment (ROI). Every hire, every decision, every tool they purchase, is measured in terms of how much will it maximize the gross margin.

This is great news for you as a value proposition designer, because it simplifies your job to just presenting your value proposition in terms of ROI for your customer, which to them it means either:

1. They are going to make more money thanks to your product
2. They are going to save costs thanks to your product

Example #1 😎

A virtual reality (VR) company is developing a new headset to be launched at the next CES, in Las Vegas. They need to develop a software component that will make the VR headset secure before they release it to the market. However, they would need to hire 10 highly paid engineers to develop (and test) the component in time. On the other hand, your company offers a similar component which would need just a few modifications before it can be integrated into their headset.

In this example, your value proposition would be worked around cost difference. So, you can calculate how much would the VR company spend in building the software internally, and then offer them your component for a lower price. Let’s suppose the total cost for your customer is 10 engineers X $10k/month X 8 months of development = $800K. Therefore, your pricing strategy has to allow to sell that software component way under $800K, in order to justify their investment.

Example #2 ☁️

Google will launch a new phone that has a built-in functionality for backing up the user data onto Google Drive, Google’s paid cloud service. On the other hand, your company has a backup software for Android phones that is way more capable than Google’s built-in one. It can back-up high resolution photos, videos, and even social media content, which is a great deal for users.

In this case, instead of focusing your value proposition around “features”, which is basically telling Google “your product sucks, ours is better, please replace it”, you will focus on how much more money Google is going to make. Let’s say your backup tool will generate, e.g., 3.5 times more data which will be stored in the cloud. At the same time, Google Drive prices go in tiers ($1,99/month for 100GB, $9,99/month for 1TB, and $99,99/month for 10TB) and they only make growth when they get new users or existing users to exceed their capacity and need to buy the next tier.

Here, your technology can make Google convert users to the next tier 3.5x faster than they currently do. So, let’s say Google was making $3.4 billion with the current strategy and grows $560 million every year from Google Drive conversions. If you can make Google grow e.g., $780 million per year, that’s a $220 million difference. You can now use that calculation to base your pricing, be it a one-time license, a year license or a shared-revenue business model.

Conclusion

When it comes to B2B markets, there is only one thing that sells: money. Either you make your customers make more money or save costs (ROI). However, it is not only about just closing a deal. If you want to keep your customers around and increase their life-time value (LTV), you’ll need to design your value proposition around Customer Success. With Customer Success, you can convey the feeling that you know their business and are here to help them grow together.

Stay tuned for the second part of this article, where I’ll deal with the LTV issue with the help of Customer Success.

To be continued…