I have been going through a friend’s notes from his favourite classes at NYU’s Stern business school. The notes from Professor Glenn Okun’s classes stand out. There are a lot of insights in there.
One of the things he talks about is value propositions. Okun posits that one cannot create value propositions. They are perceived by the target market.
1) Identify a target market. It must have high-intensity homogeneous preferences. If it doesn’t, it’s too broad. Refine further.
2) Your product or service has attributes, list them. Your target market attaches value to those attributes – that’s the value proposition, created by your target market.
Many people rush ahead without defining the attributes of the product and WHY target markets will perceive value.
I realized that I had learnt this lesson very early on in life (but probably didn’t synthesize it in the same way). I spoke about it at a TEDx event in 2015.
When I was a teenager, a group of friends and I were struck by the entrepreneurial bug. Our summer vacations were going on and we were feeling a little bored. We decided to pool in our pocket money (about two hundred rupees) and host a small carnival in the ground of the neighbourhood that we lived in.
The prime attraction of this carnival was a ring toss game. The player had to stand behind a line and throw a thick ring made out of electric copper wire towards a table that had a lot of different goodies on it. The player could only win an item if the ring completely encircled it. It wasn’t a very easy game.
Because our budget was limited we had purchased about twenty items worth between 2 and 15 rupees each. These were items of various shapes and sizes – a plastic ball, a bar of chocolate, a pack of gums and even a small toy car.
We decided to gift wrap each item so that our players wouldn’t know what the goodies were worth. But they could make an educated guess based on the shape.
A ring toss was worth one rupee. Four tosses were worth three. (We believed in giving discounts.) Some players ended up spending five rupees to win an item worth ten. Others ended up spending over ten rupees and were able to win nothing. Overall, we were doing well.
And then the strangest thing happened. A little kid, who had his eye on what he perceived to be a big chocolate bar, was able to land the ring on it on his very first try. Everyone broke into spontaneous applause. The kid was a champion!
As we handed the gift-wrapped item to the kid, his triumphant expression changed. Something was off about the weight of the item. It was heavier than what a chocolate bar should have been. He unwrapped the item and realized that it was a bar of soap – the costliest item we had purchased for the game.
He began to cry uncontrollably. He felt cheated. He wanted a chocolate – worth only five rupees – and ended up winning a bar of soap – worth fifteen. The math did not add up for us thirteen-year-olds. Why was he so disappointed?
This is why perception matters. We had correctly identified our target market: kids. But not all prizes of our ring-toss game (attributes of our product) were valued by our target market. The kids did not care about the monetary value of the prizes.
PS: We decided to give the kid a chocolate bar instead of the soap. His father wasn’t very happy. Clearly, the bar of soap had more value for him.
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