Exercise 1: Value Proposition

Value Propositions are brief descriptions of your organization and the value it provides, and
articulate why the target customer/beneficiary will “choose to buy” or “consume” your product
or service offering(s) over other alternatives.  (Note: the alternative may be “non-consumption”).

Instructions: Application | Exercise 1 | Exercise 2 | Exercise 3

Submit: Exercise 1 | Exercise 2 | Exercise 3

Reminder: Please register on Social Edge in order participate.

 

Exercise 1:  Value Proposition

Value Propositions are brief descriptions of your organization and the value it provides, and
articulate why the target customer/beneficiary will “choose to buy” or “consume” your product
or service offering(s) over other alternatives.  (Note: the alternative may be “non-consumption”).

Task Overview:

The purpose of Exercise 1 is to define the value that you create for your beneficiaries (compared
to the alternatives).  The value proposition should be derivable from (or identical to) the mission
statement.

In Exercise 2, you will describe the characteristics of your beneficiaries and why your value
proposition is “right: for these beneficiaries.  In Exercise 3 you will define the key income and
expense drivers that you use to sustain and scale your value proposition.

Background Resources:

Reference on value proposition: J. Gregory Dees, Jed Emerson, and Peter Economy, Strategic
Tools for Social Entrepreneurs: Enhancing the Performance of Your Enterprising Nonprofit,
New York, John Wiley, 2002, Chapters 1 & 2.

What is the definition of a Value Proposition?

A concise statement which articulates why the target beneficiary will “choose to buy” or
“consume” your product/ service offering over other alternatives in the market. (Often the
biggest hurdle is competing against “non-consumption”). The Value Proposition is the distilled
essence of the organization’s mission/strategy.

Effectiveness of Value Proposition

  Targeted beneficiaries recognize that this message is for them
 Understandable (by beneficiaries, as well as employees, and donors)
 Important relevant to salient aspect of the beneficiaries’ context & culture
 Credible: can be supported by evidence
 Deliverable by the organization and employees and beneficiaries can say it easily and
with integrity
 Differentiated:  “competitors” (non consumption or alternatives) cannot easily make the
same claim
 Sustainable advantage: “competitors” cannot catch-up quickly

Is it clear why your product/services is better than alternatives?   Is it clear that “non
consumption” is a less beneficial alternative?

Evidence Makes Value Propositions Come Alive

 Experience
o demos, test drives, pilots, references
 Experts
o academic, consultants, analysts, gurus
 Examples
o Diagrams, pictures, customer PR
 Statistics & quantification makes evidence stronger
 Analogies help make evidence understandable
 Irrefutable facts are the best evidence ... “water flows downhill”

 
EXERCISE 1:

1a. Create a Value Proposition for your organization in a sentence such as:

[Name of organization] provides [products/services], which are [statement of key

differentiators], for [target beneficiaries], and thereby creates [statement of social
value/impact], unlike [competition].

1b. Provide evidence for your value proposition.

Over the past xx years, we have helped xxxx beneficiaries, creating (list of) benefits for
each, compared to (the alternative)

Example:  The Aravind Eye Care System Value Proposition

For more information on Aravind Eye Care System, please see:

 C.K. Prahalad, The Fortune at the Bottom of the Pyramid: Eradicating Poverty through
Profits, Philadelphia: Wharton School Publishing, 2005.
  V. Kasturi Rangan, The Aravind Eye Hospital, Mandurai, India:  In Service for Sight,
Harvard Business School Case Stud, 9-593-098, January, 2007.

1a. Aravind Eye Care Value Proposition:

For the millions of people in India with cataract blindness, the Aravind Eye Care System
profitability provides diagnosis, treatment, and post-operative care, which is 100% safe, has a
greater than 95% chance of cure, is less than 1/5 of the cost of comparable care, and is free for
those who cannot afford to pay. Unlike government run hospitals, Aravind provides high-quality
cataract surgery in a professional and ethical manner, serving all patients with dignity. Unlike
those who do not receive quality surgery, patients are able to return to productive lives.

1b. Aravind Eye Care Evidence of Value Proposition.

Over the past 33 years,  Aravind Eye Care has successfully performed cataract surgery on over
2.4 million patients in India, with nearly 60% of the surgeries performed for free, and all of the
surgeries performed for less cost and with higher accuracy (fewer adverse events) than
alternative hospitals.

Exercise 2: Target Market Statement

The Target Market Statement describes the size and characteristics of beneficiaries of the
organization (those individuals or groups that the organization’s is intended to serve). The
exercise has 3 parts:  1) defining the total available market (all those beneficiaries who could
possibly use your product/services), 2) defining the total addressable market (those beneficiaries
you are currently targeting), and 3) defining a market segmentation table which identifies the
characteristics of your beneficiaries that are relevant to the beneficiaries’ decision to use your
product/services

Instructions: Application | Exercise 1 | Exercise 2 | Exercise 3

Submit: Exercise 1 | Exercise 2 | Exercise 3

Reminder: Please register on Social Edge in order participate.

Task Overview:
Your task is to identify the precise group of beneficiaries that you want to serve. We refer to this
“group” as a “target market,” borrowing from traditional business terminology. You will need to
identify the beneficiaries (“customers)” in the target market for whom your products/services
create value.  Remember that there may be a distinction between those who will use your product
or service (direct beneficiaries), and those who will pay-for or assist-with creating the product or
service (indirect beneficiaries). 

You will need to be able to identify the attributes (needs) of your beneficiaries that make your
product or service valuable to them. These attributes, if specific and descriptive, will identify a
category of potential adopters (consumers) of your products or services that view them as
compelling relative to these needs and relative to alternatives for meeting the needs.

To develop your target market statement, you will proceed with three steps.

2.1 Estimate the total number of possible direct beneficiaries for your organization, i.e., how
many people could benefit from the value proposition.  You can use geographic boundaries (e.g.
continent, nation, state) to segment this number.  This is the Total Available Market.

2.2 Identify the segment of the Total Available Market that you are currently targeting.  This is
the group of potential beneficiaries you can reach with the organizational resources (financial
and human) that you have (or will have) available.  Identify why these potential beneficiaries
will “consume” your product or service, rather than an alternative (including “non-
consumption”).  This is the Total Addressable Market.

2.3  Segment, or divide, your customers into different categories. These categories can be
anything that will help you to understand specific characteristics of your beneficiaries, how to
reach them, and what kind of communication and messaging will convince them to buy your
product, adopt your service, or join your community. Some examples of categories are age,
education level, income level, location, size of family, or group affiliation (such as an industry or
village organization).  This is your Target Market Segmentation.

Once you have an idea of the segments that exist in your market, you can begin developing a
more in-depth characterization of differentiating attributes and needs of your beneficiaries.  One
approach to developing a deeper understanding of these segments is to interview potential
beneficiaries to determine their attributes.  You may decide to focus your “marketing” efforts on
one segment, multiple segments, or use the segmentation to develop multiple marketing
messages. You may even decide to have different (or slightly different) products or services for
each target market segment. 

Background Resources:
Reference on market segmentation:

 J. Gregory Dees, Jed Emerson, and Peter Economy, Strategic Tools for Social
Entrepreneurs: Enhancing the Performance of Your Enterprising Nonprofit, New York,
John Wiley, 2002, Chapter 2.

 Arthur DeThomas Ph.D. and Stephanie Derammelaere, How to Write a Convincing

Business Plan, Third Edition, New York: Barron’s Educational Services, 2008., chapters
6 and 7.
What is market segmentation?

 Market segmentation is not a strategy. It is a creative and analytical process that precedes
the development of strategy.
 First, an enterprise needs to be creative in conceiving alternative approaches to “Market
Segmentation.”
 Second, the enterprise must then be analytical in selecting the best approach or attributes
on which to segment the market

Why Segment?

 To define the distinct attributes of groups that help to determine their adoption and
consumption patterns.
 To define and enhance the effectiveness of  communication and marketing to the various
groups or segments
 To facilitate or enable predictable results based on outreach to a specific group
 To assess the magnitude of adoption hurdles.

The basis for segmentation:

Type of Variable Attributes

Descriptor Variables Demographics
Socio-Economics
Psychological Variables Attitudes Life Style
Interests Personality
Opinions
Product/Patronage Purchase Occasion
Characteristics Use Occasion
(Situation Specificity) Usage Rate
Brand Loyalty
Benefits Sought
Mix Element Sensitivity

What are the criteria for effective segmentation?

Criteria:

 Substantial
 Accessible
 Measurable
 Worthwhile
 Identifiable
 Competitively advantageous
  Heterogeneous

The process of setting a target market or beneficiary group

Segment the Beneficiaries 1. Identify segmentation variables and segment the market
(Market) 2. Develop profiles of resulting segments
Target the Beneficiaries (Market) 3. Evaluate the attractiveness of each segment
4. Select the target segment(s)
Product or Service Positioning 5. Identify possible positioning concepts for each target
segment
6. Select, develop, and signal the chosen positioning concept

EXERCISE 2 (3 parts):

2.1 Create an estimate of the Total Available Market which: 1) divides (segments) the
potential beneficiaries for your product into major categories (segments) using geography (or
other major categorization), 2) estimates the size (number of beneficiaries in each segment, and
3) specifies the key product/service needs of segment.

Example: Aravind Eye Care System: Total Available Market: Cataract Blindness
 

Cataract Blindness Segment Size Needs

Worldwide 22.5M sight (20/40), safety, access
Developing Countries (B.O.P.) 19M sight, safety, access, plus low cost
India 14M sight, safety, access, plus low cost

                                 
2.2 Create a Total Addressable Market Statement, which identifies the characteristics and
size of that segment of the Total Available Market that you currently are targeting, and describes:

 Description:
 Characteristics:
 Needs:
 How needs met:
 Estimate of size:
 Basis for the estimation:
 The positioning of the product/service (compared to alternatives, including “non-
consumption):

Example of a Total Available Market Statement:  Aravind Eye Care System:

 Description: masses of poor people in India, who have lost their eyesight due to cataract.
  Characteristics: Poor people who have lost their eyesight due to cataracts
 Needs: Ability to see, regain independence and ability to earn income.
 How needs met: Free for poor (subsidized by paying beneficiaries), extra capsular
surgery with intraocular lens.
 Estimate the Size: 1992—30 million blind in the world. Almost 20 million reside in India
and 2 million are added annually. Blindness rate in the developing world is 1.5% versus
up to .25% in industrialized countries. Cataract is the major cause of blindness in
developing countries. Comprise 75% of all cases. 80% are age related occurring in people
over 45 years.
 Basis for the estimation: World Health Organization
 Market Positioning:
 

Alternative Characteristics Size Positioning

Standard Surgery Skilled labor intensive, Travel to state 1.2M/yr Subsidized
Aravind hospitals (public/private)
Safe High success rate
Cost:  $1.5K
Non-Consumption No cost, loss of sight/ productivity 10M Default
(no surgery)
Aravind Efficient Process 200K/yr Low cost, accessible,
Local clinics/hospitals, Safe high success rate,
Cost: $300 60% are free

2.3 Create a Market Segmentation Table identifying different groups, by distinctive attributes.
For each segment describe why your solution will gain adoption or why it will not. For each
Segment describe why your solution will gain adoption or why it will not. Template:  

Market Segment Analysis Template

  Segment Compelling Reason for Reasons for Non-adoption of Product or
Definition Adoption Service
1.      
2.      

Example: Market Segmentation Table - Aravind Eye Care System

  Segment Definition Compelling Reason for Reasons for Non-adoption of
Adoption Product or Service
1. Ability to pay: 1. Return to productive 1. still have vision, however
life diminished
Cataract Blind People above 2. Low cost 2. cannot leave family
 poverty income level  3. Safe, accurate 3. fear of surgery
    procedure
2. No ability to pay: 1. Return to productive 1. Lack of knowledge of service
life 2.  cannot afford food and
Cataract Blind People below 2. Free transportation to hospital
poverty level 3. Ease of access 3. fear of surgery
4. Safe, accurate 4. no one to accompany
procedure 5. family opposition

Exercise 3: Business Model

The Business Model for an organization describes the key income and expense drivers for the
organization, and the critical success factors (key assumptions) related to the financial
sustainability of the organization.

Instructions: Application | Exercise 1 | Exercise 2 | Exercise 3

Submit: Exercise 1 | Exercise 2 | Exercise 3

Reminder: Please register on Social Edge in order participate.

Task Overview:
In this third and final exercise you will identify the key income (revenue) “drivers” that
“monetize” (fund) your value proposition.   It is useful if at least a portion of the funds that you
need to operate or scale will be based on income for products or services provided (“earned
income”) because earned income reduces your dependence on contributed income (grants and/or
fund raising). It is imperative that the earned income be a by-product of producing the products
and/or services for your beneficiaries and not be an additional defocusing initiative that would
distract you from your primary purpose.  Note that the earned income may not come from the
direct beneficiaries, but rather from an indirect beneficiary (e.g., a government or NGO) that
pays for the products or services based on their effective delivery.  In addition to the key income
drivers, you also will identify the key expense (cost) drivers that are necessary to create these
income streams. The income and expense drivers are often described using “fishbone diagrams”
which list the key income and expense drivers and the % (of totals) for each driver (income and
expense. Note that income drivers and expense drivers often are based on price and quantity. For
example, the income from cataract surgeries depends on the number of paying beneficiaries and
the amount each pays, while the expenses for the surgeries depend on the total number of
surgeries and the costs for each.

After identifying the income and expense drivers, you will identify the Critical Success Factors
(Assumptions) that are necessary to sustain the income drivers and control the expense drivers.

Background Resources:

Reference on business models: Richard G. Hammermesh, Paul W. Marshall, and Taz Pirohamed,
“Note on Business Model Analysis for the Entrepreneur,” Harvard Business School Report 9-
802-048, January 22, 2002.

Business Models

 The Nature of the Venture’s “Cash Engine”

o Translating a social benefit venture concept into…
 One where Revenue is > Expenses
 Knowing how much CASH it will take to achieve

The summation of the core business decisions and trade-offs employed by a venture to
earn a “surplus”

 Income (revenue) drivers (earned and contributed), and the key variables influencing
each (e.g. numbers, amounts)
 Expense (cost) drivers  (for each income driver)
 Critical Success Factors
o The most important elements of business model relative to achieving a surplus of
income over expenses AND meeting the needs of the target market
(beneficiaries).

Potential Sources of Income for Sustainability and Growth

 Contributed Income Model

o Donors make (regular) contributions to fund product/service delivery (e.g. annual
fund drive or web-based solicitation of contributions)
o Can include grants (note that grants are generally consider like “investments”
rather than sustainable income)
 Third-party Earned Income Model:
o Indirect beneficiaries (those who benefit from the market creation  or the impacts
of the products or services) provide the income
o e.g. A government agency or NGO pays to rebuild houses after an earthquake
 Fee Based Income Model
o Unit Sales of any product or service
o Fee per use or output
 Micro-financed or Deferred Payment Model
o e. g. Cell phone services in developing countries
 o Development and marketing of software products that leverage success in the
current direct market to segments of developed country markets
o e.g. Internet and cell phone based mass transit schedules, crop planting and
cultivation best practices
 Subscription Model
o Fees to join service
o Internet Service
 Ability to Pay Model  (Tiered-pricing Model)
o Those that can afford to pay subsidize service delivery those that cannot
o Different prices (and possibly products/services) for different market segments
 Market Place Models
o A direct (or indirect) sales channel products or services
o An “eBay” type market for products and services
o Organizing the direct market  provide access to other target markets
o These models then facilitate related advertising and affiliate revenue models
 Franchising/Licensing Model
o Enable other organizations to provide your services in different markets or
regions, in some cases, the national or regional governments
 Cause Related Marketing Model
o Pay for the good or service to create market or to gain brand/company awareness
o Pay per use or output
o e.g. Participation through local market distribution in leading edge programs like
Grameenphone or Hewlett-Packard's "e-inclusion" (e.g., digital photo
entrepreneurs)

Examples of Earned Income Models

Model Type Description Example

Volume or unit Price per product unit Sale of LED lights
Subscription Fee for content or membership Fee to join Co-op
(member) fee
Advertising Sale of advertising space or time Advertising on sides of
revenue ambulances, or in free
clinics
Transaction fee Fee per transaction or activity Fee for training course
revenue
Licensing Fee for Intellectual Property (specifications of a Fees for manufacturing
revenue product and/or service) licenses
Franchising Fees for Intellectual Property (specifications of Franchise outlets for
revenue products, services, and processes), plus fees for health care products
“Brand” (name and marketing), plus fees for supplies
that meet specifications
Examples of Contributed Income Models

Model Type Description Example

Donations Gifts from indirect beneficiaries Food Bank
Indirect Indirect beneficiary pays for products or services Factory pays for day-care for
beneficiary because of effective value creation children of workers
Out-source Government  or NGO outsources products or Providing free prostheses to
services (in their budget) amputees

Examples of Blended Income Models

Model Blend Example

Type
Blended Fees for products and services Fees health care and
earned medicines
Hybrid Contributed and earned income drivers Grants for research to develop
products plus sales
Learn and Fees for training/education plus fees from products IT trainees earn money for
earn or services created by   trainees/students data processing services

Critical Success Factors

A business model critical success factor is an assumption or operational competency that must be
true for the income and expense drivers to sustainable support the value proposition for an
increasing number of beneficiaries.  The success of the business model in supporting the value
proposition for the target market segmentation depends on the critical success factors remaining
true.
  

Example:  Aravind Critical Success Factors

 Low-cost workflow for eye care system

 Successful training of all staff
 Maintain > 40% paying clients
 Re-invested surplus in staff training, improved processes, and new technology
 Motivate staff through work environment and competitive compensation
 Use partnerships for in-field diagnosis and for new technology development
Exercise:
3.1. Identify the key income drivers for your organization.  (Hint: from the background
resources, which income models could be applied for your  products/services?)  Describe these
using an Income (revenue) Fishbone Diagram for your organization. (An editable blank
fishbone diagram is included below.)

3.2. Identify the key expense drivers that will be required to obtain this income.  (Hint: what
are the costs for product/service development, sales and marketing, and administration). 
Describe these using an Expense (cost) Fishbone Diagram for your organization. (An
editable blank fishbone diagram is include below.)

3.3 List the (3-7) critical success factors (or key assumptions) which are the bases for your
income and expense drivers.