Confusing Value Proposition with Incentive Is Bad

Sometimes, I envy scientists. Their words have meaning. Oxygen is oxygen is oxygen. One biologist doesn’t use it one way, while a chemist uses it in a different way. In the marketing industry, we’re not so lucky. Many marketers and writers latch onto an industry buzzword, and all of a sudden everything is AI and machine learning. Or everything is a value proposition. Let me give you an example I came upon recently in a marketing industry publication: Luxury apparel e-retailer [brand name removed] has a clear value proposition: it donates 20% of the proceeds of every purchase to benefit educating girls around the world through one of three charitable organizations. I think it’s wonderful this e-commerce company is engaged in cause marketing and making donations to worthy causes. But I would argue that is not a value proposition. That is an incentive. Here’s why that distinction is so vital. Incentive = the Bacon of Marketing Tactics Here’s a quick cooking tip. If you’re a lousy cook, just throw bacon on it and almost anything will taste better. You can have a plain kale salad. Add bacon and — boom — it instantly tastes better. I call incentives the bacon of marketing tactics, because many marketers turn to them when they aren’t able to communicate a product’s value proposition. Under pressure to perform? Have to make your numbers this quarter? This week? Today? Incentive, incentive, incentive. While it helps you meet an immediate goal, incentives are not necessarily good for your (company’s) health — just like bacon. Take automotive companies, for example. Looking at the website for Ford today, you can get $5,000 cash back, plus a $1,250 Ford Credit bonus, if you buy a 2019 Ford Edge SEL SUV. In other words, they are paying you to buy their product. This is a challenging business model to pull off, because it can really hurt your margins. As Keith Naughton reported in the Bloomberg article “Ford Cuts Profit Outlook on Higher Incentive, Warranty Costs”: “The automaker’s third-quarter profit margin in the all-important North American market, which accounts for more than two-thirds of Ford’s revenue, slipped 0.2 percentage points from a year ago to 8.6%. That stemmed from higher incentive spending needed to move more metal out of its showrooms.” (emphasis is mine) Another challenge, when you bet your business on incentives, is they can be easily replicated by the competition. They aren’t a true competitive advantage. Take the example I used at the beginning of this article. What happens when the competition decides to donate 25% to four charitable organizations? Or 30% to five organizations? That said, there is a place for incentive. The MECLABS Conversion Sequence systematizes the elements that increase and decrease the probability of conversion. Incentive is listed as an element that can be used to increase the probability of conversion. But to use it effectively, it should just be that little extra something that helps overcome friction in the buy process. To use another food analogy, it should be the cherry on top of the dessert — not the main course for dinner. Value Proposition = the Main Reason People Buy Your Product Companies are value creation machines. They make shoes and fix roofs and grow organic cauliflower. This is what customers are actually buying. Customers give their value (money) for the value of a product or service. However, the customer never makes a purchase because there is value. The customer only purchases because he or she perceives there is value. This might seem like subtly nuanced wordplay, but it describes the entire reason for marketing’s existence. After all, if customers could accurately understand the value of every product and service in the marketplace, there would be no need for marketing. The role of a business is to create products that have a value proposition and the role of marketing within that business is to communicate a clear value proposition. Going back to the automotive industry, Tesla is a company that sells based on its value proposition. It doesn’t pay people to buy its cars. In fact, it pre-sold 518,000 orders of a car that didn’t even exist yet. Now that is selling based on perceived value. As another example, a counterpoint to the luxury e-tailer story that opened this article, we can look at a comparable company — Warby Parker. The e-tail, and now brick-and-mortar, company has a cause marketing element, as well. For every pair of glasses purchased, a pair of glasses is given to someone in need. Plus, it’s carbon neutral. These are strong incentives to buy its glasses. That extra little bit to tip you from doubt to purchase. A customer might think, “Do I really need yet another pair of eyeglasses? Well, it won’t hurt the environment, because they’re carbon neutral. And someone in need will get a pair, as well. I should go for it.” But the incentives aren’t the main reason customers choose Warby Parker over the competition. The online retailer created a value proposition. It was the only place to get inexpensive eyeglasses that weren’t cheap — they were stylish and well-built. Since its launch, several other eyeglass companies also started to donate a pair of glasses to someone in need when you buy a pair — that’s easily clear from a quick search on Google that turns up Coastal, DIFF Eyewear, Pair Eyewear, FramesDirect.com, and EyeBuyDirect. While it’s clear that other companies have replicated its incentives, have other companies been able to replicate Warby Parker’s value proposition? Many have entered the direct-to-consumer e-commerce eyeglass market the company pioneered, but it’s debatable if any other company has really been able to take its mindshare. Zenni Optical probably owns the mindshare for cheapest direct-to-consumer glasses; and EyeBuyDirect might own the mindshare of higher quality, but still pretty inexpensive eyeglasses. But Warby Parker likely is still the brand leader in many customers’ minds for its unique value proposition — hitting the trifecta of quality and style at a lower cost than most traditional brands. Now That We’re All Clear on the Difference, Amplify the Power of Your Company’s Value Prop If you’re leading with incentive and you think that’s your company’s value proposition, get off of the never-ending incentive treadmill. Another brand is always looking over your shoulder, ready to replicate or beat your incentives in a race to the bottom (of margins and profitability). Now is the time to change, or your business will underperform in the short-term and you won’t be able to establish a long-term competitive advantage. Now is the time to help your business create products and services with true value and to lead your company (or clients) to the clear communication of that value. You can learn more about value proposition in the free video “How to Amplify the Power of Your Value Proposition” (no form fill or squeeze page required to watch).

Marketing Innovation

Confusing Value Proposition with Incentive Is Bad — Here’s Why

Daniel Burstein

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Daniel Burstein