Understanding the Value Proposition Building Block
Here are the questions asked on the Osterwalder model:
- What value do we deliver to the customer?
- Which one of our customer’s problems are we helping to solve?
- What bundles of products and services are we offering to each Customer Segment?
We added these question specific to our healthcare model.
- What compels a purchase decision by the Buyer?
- What aspects of the User’s life do you deliver value?
- Which jobs, pains, and gains need to be addressed in the Value Proposition?
- How much time does it take for the Value Proposition to be delivered?
- What social value(s) is met (if any) while delivering the Value Proposition?
- What bundles of products and services are offered in the Value Proposition?
- How can the Value Proposition be personalized based on the Customer Segments need(s)?
- What Intermediaries derive value from our Value Proposition?
- How does the business model gain insights from Customer Segment interactions?
- What Key Behaviors are required for the Buyer & User to realize the Value Proposition?
- What Experiences are required for the Buyer & User to realize the Value Proposition?
- What Key Influencers are required for the Buyer & User to realize the Value Proposition?
How to Create Healthcare Value Propositions
Creating a Value Proposition for your healthcare business model can be generally accomplished through the 3 steps addressed in Part 1. Creating a “shared valued” Value Proposition (as defined in Porter’s1 model of healthcare value) is much tougher and is addressed in Part 2. Understanding how your Value Proposition’s products and service fit into your customer’s value drivers is addressed in Part 3.
Building a General Healthcare Value Proposition
Most products and services are thought of in the terms of the “Benefits” and “Features” they possess. Good business models have to think past this inwardly facing view and instead look to the value they create. To do this, take a look at the 3 steps to develop a meaningful Value Proposition.
1st – Establish a Position of Value with Someone Specific
First, your business model must establish a position of value with a specific Customer Segment. This means reaching a point at which a clearly identified Buyer and/or End User is aware that your business is offering them something that is valuable, relevant, and complementary to their specific health JTBD (jobs-to-be-done). This position of value serves as a point of initial engagement with your Customer Segment, as well as forming the basis for all ongoing interactions. The aim of understanding your Customer Segment is to focus on what matters most to them while making a healthcare related purchase decisions. These “key matters” are called Value Drivers. Keep in mind that Value Drivers are both known and unknown to the healthcare consumer. In the simplest terms, healthcare consumers are looking for solutions that meet their JTBD based on alignment with their Value Drivers. So to build a good product or service, ensure your product’s Value Proposition meets your ideal customer’s Value Drivers.
2nd – Increase Your Understanding of that Value Position
Second, involves a commitment to “ever-increasing” your understanding of the Customer Segment(s) you engage. This understanding of both Buyer and/or User is critical to Customer Intimacy2, which is characterized by occupying no more than a few high-value customer niches and being obsessive about understanding those customers in detail. Market Leaders with this focus excel at customer attention and customer service – examples include the family doctor and the personal trainer. A business model must also create the insight needed to turn a prospect into an actual customer who is willing to share personal and health information in a two-way exchange. This exchange is vital for any healthcare business model and places the business in the position to monetization the relationship.
3rd – Develop Your Product Market Fit Iteratively
Third, based on your Customer Segment understanding, identify the Value Propositions (products and service) with the greatest potential for alignment with the JTBD of your Buyers and/or Users. This is what Marc Andreessen calls Product Market Fit3. This third step implies continually shaping your business model’s solutions to fit an increasingly refined definition of your Customer Segment. This requires marketing solutions in a manner consistent with each customer’s stated preferences and again capturing the important health and behavior data in a two-way exchange. To do this, use a Minimum Viable Product (MVP4) approach to defining your Value Proposition. It is also important to note that your Value Proposition must extend past just your Customer Segments, and be applicable to your Intermediaries and Key Partners.
Building a Universal Healthcare Value Proposition
For healthcare business models, the secret to creating the “best” Value Proposition lies in marrying the collective value derived by all stakeholders in such a way that a virtuous cycle is created. Across the value chain of healthcare, there are four key stakeholders: patients, providers, payers, and purveyors. The patient is the User of the Value Proposition, who also may or may not be the Buyer of it. Providers are those Key Partners that provision some form of care delivery to the User. The payer is the Buyer in part or total for Value Proposition to be delivered to the User (patient). And purveyors are those Key Partners that perform some vital function in the design and/or delivery of that care for the User through Key Partners (Providers and Payers).
Keep this concept in perspective – the party who consumes the product of healthcare (the “patient”) is usually not the one who pays for it, or at least not most of it. The party that pays for it (the “payer”) is best served when it is not used, and is therefore motivated to push for less of it. Furthermore, the parties that deliver it (the “provider”), and the parties that support its delivery (the “purveyor”), are not aligned to place realistic boundaries on its cost, thus forcing the system into bankruptcy. Due to this divided nature, the healthcare ecosystem is overrun with inefficiencies and creates dis-incentives between stakeholders so that each maximizes their own value, often at the expense of the others. Your business model must avoid this trap.
If the JTBD (job-to-be-done) building block defines what utility a User is looking for, a consolidated Value Proposition defines the shared value that exists between the four key stakeholders. Because of this complex interrelation, the standard pains and gains model in Osterwalder’s Value Proposition Canvas5 doesn’t really work well. Users have their own defined value based on their JTBD. So how do you define value for the patient, provider, payer, and purveyor regardless of which is your actual User or Buyer?
As it relates to the Patients, there are three key components for a Value Proposition:
- Utility: Patient-Buyers, like all consumers, will justify a purchase because you solve their particular JTBD.
- Influence: Patient-Buyers will also justify a purchase because they are persuaded to it through Key Influencers, such as their providers or purveyors.
- Need: Patient-Buyers will also justify a purchase because a Key Partner in the process of their healthcare decision-making has required your solution as part of their own Value Proposition.
As it relates to the Providers, there are four key components for a Value Proposition:
- Utility: Provider-Buyers, like all consumers, will justify a purchase because you solved their particular JTBD.
- Reduce Costs: Provider-Buyers will also justify a purchase because your solution reduces their healthcare provisioning costs – either directly or from productivity increases.
- Increase Revenue: Provider-Buyers will justify a purchase because your solution increases their revenues by increasing the volume of patients throughout. This allows for more higher priced services, or increased customer (patient) loyalty. Moreover, the new Accountable Care organizations can actually result in increased revenue for a Provider-Buyer as they reduce costs.
- Need: Provider-Buyers will also justify a purchase because in the creation of their own Value Proposition an Externality (usually the Government in the form of CMS or state licensing agencies) requires it.
As it relates to the Payers, there are four key components for a Value Proposition:
- Utility: Payer-Buyers, like all consumers and some government and business buyers, will justify a purchase because it solves their particular JTBD.
- Reducing Costs: Payer-Buyers, like health insurers and employers, will justify a purchase because your solution reduces their healthcare converge costs – either directly or from productivity increases.
- Increasing Revenue: Payer-Buyers, like health insurers or growing third-party partners, will justify a purchase because your solution increases their revenues through the volume of sales, a price increase, and/or increased customer loyalty.
- Need: Patient-Buyers will also justify a purchase because in the creation of their own Value Proposition and an Externality (usually the Government in the form of CMS or state insurance regulators) requires it.
As it relates to the Purveyors, there are three key components for a Value Proposition:
- Reducing Costs: Purveyor-Buyers, like pharmaceutical and durable medical equipment companies, will justify a purchase because your solution reduces their costs – either directly, through cheaper access to Patients, Providers, or Payers, or from productivity increases.
- Increasing Revenue: Purveyor-Buyers, like pharmaceutical and diagnostic companies, will justify a purchase because your solution increases their revenues through the volume of sales, a price increase, and/or increased customer loyalty.
- Need: Purveyor-Buyers will also justify a purchase because in the creation of their own Value Proposition and an Externality (usually the Government in the form of CMS or the FDA) requires it.
Understanding How Your Product Fits into Your Customer’s Value Drivers
Most products and services are thought of in the terms of the “Benefits” and “Features” they possess. Good business models have to think past this inwardly facing view and instead look to the value they create.
To do this, take a look at the current set of products, services, and information that make up your Value Proposition. Do the Benefits provided by your product Features add to your Value Proposition? Do the services you provide augment your product Features? Does the information used to support usage of your products and services speak to the Value Proposition or something else? How many of your product Features and Benefits are really important to your Customer Segments? How many are inconsequential? How many are actually creating a negative impact?
The goods and services that comprise a Value Proposition can be broken down into 3 classifications: Health Direct, Health Related, and Health Relevant. Within these classifications, the goods and services will either be considered In-Context, or Opportunistic.
Products and services that directly affect a person’s health can be thought of as Health Direct. Some simple examples include immunizations and vaccinations. Some more complex examples are those items prescribed by a doctor to solve the JTBD of a particular health issue such as drugs, therapies, and durable medical equipment.
Products and services that are used to maintain or improve overall health, but not necessarily address a particular medical JTBD (condition) can be thought of as Health Related. Some examples include “wellness” products like screenings, massage, personal training, and supplements.
Products and services that are health and wellness related, but can be bought for usage in other areas, are considered Health Relevant. An example is a pair of running shoes bought for their aesthetic value more than their connection to personal training, but can be used for that purpose as well.
Products and services that can be recommended as part of a specific JTBD are considered In-context of that JTBD. This is consistent with the Value Proposition generation model described above. For example, that same pair of running shoes are in-context with the JTBD of getting regular exercise as part of a Doctor-prescribed Key Behavior for a User with high cholesterol.
Products and services that are not part of a specific JTBD (Health Direct, Related, or Relevant) but are still valuable to a User’s total health (as described the in the wellbeing model above) can be considered Opportunistic. For example, a User with a JTBD of financial security would be interested in the In-context product of ID Theft Protection. It would be reasonable and relevant to approach this same User with the Opportunistic product of Social Media Reputation Management though the underlying connection between financial security and personal information security.
Take the time to incorporate these approaches into the Value Proposition block in your business model canvas. Regardless if your business model is aimed at Patients, Providers, Payers, and or Purveyors, creating a Value Proposition from a shared sense of value will go a long way to ensuring your business idea has sustainability.
What is Next?
Next up we are going to look at the Key Behaviors needed from the User and Buyer to ensure the Value Proposition is effectively received.
- Click here to learn more: http://bit.ly/modelH-keyresources
To your health,
The Team at imagine.GO
1 What Is Value in Health Care? Michael E. Porter, Ph.D. N Engl J Med 2010; 363:2477-2481December 23, 2010DOI: 10.1056/NEJMp1011024, available on http://www.nejm.org/doi/full/10.1056/NEJMp1011024
2 The Discipline of Market Leaders: Choose Your Customers, Narrow Your Focus, Dominate Your Market by Michael Treacy and Fred Wiersema Customer Intimacy
3 The PMARCA Guide To Startups Part 4: The only thing that matters by Marc Andreessen, originally published on his blog, blog.pmarca.com, available on http://pmarchive.com/guide_to_startups_part4.html
4 The Lean Startup Methodology by Eric Reis, available on http://theleanstartup.com/#principles
5 The Value Proposition Designer Canvas by Alex Osterwalder, available on http://businessmodelalchemist.com/business-model-alchemist/2012/08/achieve-product-market-fit-with-our-brand-new-value-proposition-designer.html