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Tying Together the Value Proposition: Distinctive Competence, Sustainable Competitive Advantage, and Positioning

Now that we have explored segmentation and differentiation and established their relationship to the strategic concepts of distinctive competence and sustainable competitive advantage, we can return to the unique value proposition. The unique value proposition is the public face that is put on the target market and positioning decisions that were based on the venture’s distinctive competence and sustainable competitive advantage. We can now determine the answer to “What am I selling to whom and why will they buy” based on the decisions discussed previously. Be careful, however—these decisions are not easily changed. It typically takes more effort to change a value proposition than to attempt to establish a new one in a vacuum. To change a value proposition is more than changing a slogan. It means undoing a market perception that has been established based on how a venture executes and replacing it with another.

For entrepreneurial companies, deciding on the value proposition—the intertwined positioning, distinctive competence, and sustained competitive advantage decisions—is the most important strategic decision made before beginning a new business or revitalizing an older business. Take the time to do it right. If the market doesn’t value what they perceive to be the distinctive competence of your firm versus the competition (another way of defining differentiation), then the positioning will not be successful. If the positioning is not successful, the value proposition will fail to attract customers. Furthermore, because it is difficult to change perception, the perceived distinctive competence should be sustainable over time. Thus, it is crucial to get the positioning reasonably close to right before going public the first time. Figure 1-2 shows the logic of our recommended decision-making process of getting the strategy right before the tactics.

Figure 1-2

Figure 1-2 Market-driven strategy

By now, this logic should be clear to you. The venture must first assess and creatively identify potential and existing competencies that can be possible sources for sustainable competitive advantage. This assessment needs to be integrated with how the market might perceive the product offerings that may result from the competencies versus how the potential customers might perceive the competition. This assessment needs to be continually re-evaluated as competition and perceptions and consumer needs and wants will change over time. Only after the positioning and the value proposition have been determined, should the tactical marketing elements in the bottom of the figure be decided and executed. Pricing is the only marketing mix decision that should ideally be determined at the same time as the positioning and value proposition. We show in Chapter 3, “Entrepreneurial Pricing: An Often Misused Way to Garner Extraordinary Profits,” that pricing is intimately related to and leveraged by the positioning decisions. Customers are willing to pay more for product/service offerings that are perceived as adding more value than the competition’s.

In Chapters 2 and 3, we also explore cost-effective ways of getting market reaction to positioning options before spending a lot of resources.

Victoria’s Secret and L Brands—Excellent Integration of Positioning, Segmentation, and Distinctive Competencies7

The original Victoria’s Secret store and catalog was in Palo Alto, California. In 1982, when L Brands (formerly Limited Brands) founder, Les Wexner, first saw this store, it was very sleazy stuff. However, after seeing the store, Les got the idea to reinvent underwear as lingerie and make underwear emotional—have underwear make you feel good. Les was influenced by how he thought European women viewed underwear much differently than American women. A brilliant idea early on was to use supermodels as part of the public relations (PR) and advertising for Victoria’s Secret (VS).

L Brands bought the first VS store for $1 million in 1982. By 1995, they had a catalog, 300 retail stores, and an $800 million business. The catalog was the greatest revenue contributor. In 1995, VS products were perceived by women and men as suited mainly for Saturday night and special occasions. In 1995, VS marketers identified an opportunity for a much-expanded positioning for VS—addressing “everyday” needs while maintaining the “special” image. They began the transformation of VS by segmenting by usage occasion. Their first products in the repositioned lines were everyday cotton, but positioned and designed as “sexy.” There was a lot of uncertainty in L Brands management about whether it was possible to have women perceive cotton as lingerie. The risk was that cotton underwear might be perceived as comparable to Hanes as opposed to being perceived as sexy lingerie. This was a big communication challenge.

All the elements of the marketing mix needed to be changed to support the new positioning. VS had never advertised before and had only used their catalog as an advertising vehicle. The catalog was low in reach and high in frequency—not suited for getting new people into the brand on a large scale or for changing the perception of the product. Thus, large-scale TV advertising and PR were appropriate, using their successful supermodel icons as part of the repositioning. The supermodels were the embodiment of the emotion of the new VS positioning. The VS supermodel fashion shows on the Internet were extremely effective at reinforcing their positioning. So many people came to their website that they overwhelmed the Internet servers.

In 1995, before the repositioning, VS bras were priced two for $15, and VS was a merchant-driven business. It needed to be made into a fashion business. By 2006, the average price for a VS item had more than doubled, and their revenue had risen by a factor of over four due to the repositioning. One key to the success of the repositioning was that the VS bras were not only sexy, but they were extremely comfortable. The consumer didn’t have to compromise between feeling sexy and feeling comfortable. The loyalty levels for VS doubled with the new bras. Increasing loyalty makes the long-term value of a customer larger, thus justifying larger expenses for obtaining new customers—a nice virtuous circle for VS.

The VS stores were an integral element of the repositioning. The in-store experience is designed to be much different from other stores—it is designed to make customers feel special, intimate, and personal. There is much more pampering.

VS has evolved subbrands over time, segmented by lifestyle:

  • Provocative—“Very Sexy”
  • Romantic—“Angels”
  • Girly—“Such a Flirt”
  • Clean and simple—“Body by Victoria”
  • Younger-flirty-modern—“Pink”

VS has succeeded in doing what Starbucks has also done—changing how people view a commodity—by changing VS into a relatively inexpensive way for women to feel good about themselves. Chapters 2, 3, 6, and 7 go into more depth as to how VS and L Brands were able to use entrepreneurial marketing strategy and tactics to accomplish making VS the crown jewel of L Brands.

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