Editor’s note: This article is an update on modelH, the dynamic co-creation forum created by Kevin Riley and Associates, Innovation Excellence, and Batterii where healthcare innovators from around the world are building a foundation for new business models in healthcare. Their goal is to co-create an open-source business model canvas that applies specifically to the US healthcare system.
Learnings on Value Propositions
We just wrapped up our fifth business building block sprint on Value Propositions, which was done in concert with the sprint on Jobs-to-be-done (JTBD). A value proposition is a fundamental part of any business strategy. As explained by Kaplan and Norton, “strategy is based on a differentiated customer value proposition. Satisfying customers is the source of sustainable value creation.” The question before us was, how do we treat the identification and evaluation of Value Propositions in our healthcare business model canvas?
In summary, the sprint for Project 1.5 on Value Propositions completed 2 objectives:
· What to ask on the canvas for the Value Propositions
· How to create healthcare value Propositions
1. Questions on Value Propositions for the Business Model Canvas
We defined the questions that should be added to our business model canvas for helping practitioners define their Value Propositions.
We began with the questions that were asked in Osterwalder’s 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 the following questions for 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 address in the Value Proposition?
- How much time does it takes 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?
2. How to create healthcare Value Propositions
We broke our Value Proposition learnings into three buckets:
A. Building a general Value Proposition
B. Building a universal Value Proposition (as defined in Michael Porter’s model of healthcare value)
C. Understanding how your product fits into your customer’s value drivers
A. Building a General Healthcare Value Proposition
Most products and services are thought of in 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.
Step 1: 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. 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.
Step 2: Increase your understanding of that value position
Step 2 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 Intimacy (as defined by Treacy and Wiersema, 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.
Step 3: Develop your product market fit iteratively
Finally, using 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 Fit. 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 (MVP) 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.
B. 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 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 Canvas 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 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 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, though 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 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 an Externality (usually the Government in the form of CMS or the FDA) requires it.
C. 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.
- Health Direct
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.
- Health Related
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.
- Health Relevant
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?
We are in the final stages of finishing up a project sprint on Key Behaviors — those activities that the Customer Segment must do in order to complete their Jobs-To-Be-Done and realize your Value Proposition.
Interested in what we are doing? Step up to the plate and get involved.
Our community continues to grow and actively participate in this journey. Don’t fret if you do not feel you can contribute to the current project sprint – stay with us and stay active and you will find a manner and place to contribute your experiences, skills and ideas. We still have a long way to go and we need you all.
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image credit: Kevin Riley & Associates, modelH Business Model Canvas for Healthcare, drawings by Mike Werner
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Kevin Riley is an entrepreneur, healthcare executive, and business model innovator who works with start-ups and legacy companies alike, across the healthcare industry. Kevin founded and was CEO of a national health care retail company, has played leadership roles for national retail health start-ups, and served as the first Chief Innovation Officer of a major insurance plan. In 2006 he started Kevin Riley & Associates Health Model Innovation to help companies with the convergence of health care and the consumer.