Being able to show customers your value is one of the most powerful things you can do for your business. This is especially true when you’re going to market with a new product or solution. When prospects see the value of your new offering for their needs, your sales team will have an easier time closing the deal – with less negotiation and a lower rate of discounts.
The most important piece to this puzzle is ensuring that your target customer sees the value of your solution relative to its price. To achieve this, you need to start with a value hypothesis, which is simply an educated assumption about the value of your solution for your target customer and what your target customer is willing to pay for that value. You’ll articulate, test, and validate this hypothesis – and ultimately use this hypothesis to determine the product-market fit and optimize your customer value proposition.
A value hypothesis is an assumption about the value of your offerings and what your customers are willing to pay for that value. By definition, a hypothesis is an “educated guess” that you must then validate by testing said hypothesis with your target customer. A value hypothesis helps you systematically understand your customer’s needs so you can align your product or service with those needs. From there, you can communicate the value in a way customers and potential customers can truly understand.
A value hypothesis should not be a wild guess. A solid value hypothesis should start with a baseline understanding of who your target customer is, what you think they care about, and the value you believe they would gain from your solution.
From there, you will validate, test, and refine the value hypothesis as you gain more understanding of your customer. As a result, the following process can be considered a cycle of continuous improvement as you learn more about your customers and refine and expand your offerings.
To get started, take stock of what you already know about your target customer. What are their demographics, interests, and behaviors? What are their biggest pain points–both as an organization and as an individual stakeholder? What are their goals? What milestones and metrics matter most to them?
One way to gather this type of information is by conducting a customer value analysis. A customer value analysis refers to the process of identifying the key drivers of customer value. This will help you create a strong value hypothesis based on your target customer’s needs and expectations.
Once you understand your customer’s biggest pain points and motivators, you can begin to define your value around those driving factors. This involves mapping out the ways that you believe your solution relieves your customer’s biggest pain points and achieves the goals that matter most to them. Here again, remember that value isn’t created in a vacuum – it should always be informed by and co-created with your target customer. To learn more, see Co-Defining Customer Value.
Now that you have aligned your solution to your customer’s goals and challenges, it’s time to articulate your value hypothesis. This should be a clear, concise statement that explains your assumptions and the value you expect your product or service will provide to the customer. Most importantly, your value hypothesis must be something you can test and prove.
For example, if you are a SaaS platform that automates bookkeeping for small-to-medium businesses (SMBs), one example of a value hypothesis might be, “SMBs are willing to pay $100 per month to purchase our bookkeeping software to complete tasks faster and reduce errors with automated workflows.” This hypothesis is a concrete and quantifiable statement that you can test to determine whether your product is a good fit for your target market–and what they’re willing to pay for that value.
The next step is to test and validate your value hypothesis. There are many ways to do this, but in the example above, you might start by surveying SMBs about their bookkeeping needs and ask them what they’d be willing to pay for a solution like yours. If the response aligns with your hypothesis, this is a good indication that your product is a good fit for the market, the value is clear, and it is priced right.
If there’s a significant mismatch in the response versus your expectation, you’ll need to take a closer look at why your solution isn’t resonating with your audience. In many cases, the problem is that your target customer does not believe the price and value are in alignment. In other cases, it might simply be the wrong audience for your solution.
Once you have tested and validated your value hypothesis, you can use what you learned to optimize your go-to-market strategy. Depending on the findings, this might involve changing your pricing, modifying your product offering, enhancing the customer experience, targeting a different audience, or simply refining your customer value proposition.
To get started with value-based selling, we invite you to get in touch with our team of experts. We are here, ready to help. Not ready to chat yet? See 5 Ways Value Selling is Reshaping the Sales Landscape.