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A value proposition in business and marketing, is a statement summarizing the customer segment, competitor targets and the core differentiation of one's product from the offerings of competitors. In Crossing the Chasm, Geoffrey Moore writes, "Positioning is the single largest influence on the buying decision". Value propositions are often used in a business model and business plan to describe value added.
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Geoffrey Moore's value proposition should answer the questions: "Why should I buy this product or service?" as well as "Why should I do anything at all". It is a clear and specific statement about the tangible benefits of an offering. Simply the best.
Here is a template for creating a value proposition, which may be referred to as a positioning statement. Note the first portion of the value proposition asserts the value of the offering and the second sentence asserts the positioning of that value.
First Sentence:
- For (target customer)
- who (statement of the need or opportunity),
- the (product/service name) is a (product/service category)
- that (statement of benefit).
Second Sentence:
- Unlike (primary competitive alternative),
- our product (statement of primary differentiation).
Anyone in business, politics, or public service should be able to answer the question, What’s your value proposition?
Some of the dynamics and concepts in crafting a cogent value proposition are:
- Definition of Terms. The American Heritage Dictionary defines value as Worth in usefulness or importance to the possessor; utility or merit. One definition of proposition is the act of offering or that which is proposed or offered.
- Value, like beauty, is often 'in the eye of the beholder' (e.g., we each place different importance or weight on things). We typically associate the receiving of value as, in a civil case, a preponderance of benefits (i.e., at least 51% benefits and 49% costs), or in a financial sense, benefits minus costs => 0. The terms benefits and costs includes both tangible and intangible factors and thus need to be defined by the person receiving the benefits and paying the costs.
In essence, a value proposition is an offer to some entity or target in which they (the possessor) get more than they give up (in terms of merit or utility), as perceived by them and in relationship to alternatives, including doing nothing (opportunity cost). In terms of form, a value proposition is generally a clear and succinct statement (e.g., 2-4 sentences) that outlines to potential clients and stakeholders of, for example, a company's unique value-creating features.
Value Identification
The principle foundation of developing a unique value proposition rests on identifying and understanding what an individual or group values, which can be both stated and/or implied. For example, a firm may make statements regarding integrity, honesty, and corporate governance, but if their actions conflict with this, the true representation of their values is in what they actually do.
If a customer says price is not important, but they continue to make buying decisions based on price, the actuals should dominate the intents. Questioning a conflict or inconsistency between what targets they value and what they actually do can often help to uncover their real priorities and weights. As in conjoint analysis, value is often evaluated in comparison to other items, criteria and/or features. Identifying and understanding value requires both context and perspective.
For example, a shareholder may view a layoff as a positive event; whereas an employee may view it as arbitrary and political; while a customer may view it as upsetting since they could lose their trusted account manager. As illustrated by the adage: where you stand depends on where you sit, knowing a particular group or individual's perspective is crucial in understanding their specific value drivers.
The essence of the value identification process is to perform a thorough needs analysis which the value proposition targets, whether they are employees, partners or customers.
The needs analysis should remove the value parameters (e.g., timing, magnitude, risk) and the current and anticipated pains and challenges of the individual or group. If your value proposition is analogous to a typical sales campaign, then you need to diagnose the different pains of your targets and understand which one hurts the most and where they can get the "biggest bang for the buck". Additionally, there is a need to understand the risks and side-effects of the solution so it is possible to either prevent or mitigate them and develop, as necessary, the risk-adjusted value proposition.
Value Descriptions
In most value descriptions, there are both qualitative and quantitative components. A finance person (internal or external) may primarily describe value using some sort of Return on Investment (ROI) or Total Cost of Ownership (TCO) framework, whereas a customer may describe value as having greater status or looking better (e.g., focus could be functional, financial or emotional).
Economists often use the willingness to pay process as a way of quantifying what someone would be willing to pay to have "greater status", for example. Each specific value description is a fact that must be understood in formulating the proposition. Once you understand how a group or individual describes value, you will want to craft your language in a way that aligns with their terms and differentiates you from other alternatives. This practice of becoming fluent in a company’s or individual’s language is quite popular in sales, psychology, change management and numerous other areas where you want to be seen as part of the group and on the inside. As a value proposition is a form of persuasive communication, on a social psychological level, we are more easily persuaded by those who are familiar and/or similar to us, and thus using the same language or metrics is one way to establish that rapport (see neuro-linguistic programming for more about this area).
Crafting the Value Prop (Determining Content)
- Internal Analysis
- In looking at the value chain (inbound logistics > operations > outbound logistics > sales and marketing > service), how does your company create value?
- What are your company’s core competencies and how do you differentiate yourself from the competition?
- What capabilities (internal and external—partners, alliances, joint ventures) can you bring to bear to execute against your value promise?
- Why should your value targets accept your particular offer (e.g., safer, better pay, more convenient, lower risk, etc.)?
- External Analysis
- How do your value targets quantify (measure) the value that you deliver (e.g., how do you/they know when it’s a lot or a little)?
- How do you link your value proposition to your target’s needs and pains?
- How do you compare and differentiate the value that you deliver from the value that your competitors deliver (e.g., higher ROI or lower TCO)?
- How do you substantiate your ability to deliver on your value promise (e.g., track record, references, etc.)?
- How can you increase the return or decrease the risk, or both, in creating and delivering higher levels of value?
Conclusion
On the whole, there is no silver bullet when it comes to crafting a relevant, timely and cogent value proposition given the dynamic nature of value, of the marketplace, and of a company’s capability set. However, it is also true that many companies — Volvo, for example—are not going to significantly shift their overall value proposition (i.e., safety at a premium) to the market given its intertwined nature to their brand and their core competencies. In the round, the value proposition concept is a valuable tool to utilize with each important constituency as it forces you to look both internally and externally in crafting a statement that is actionable by you and/or your company, while being credible and compelling to your target audience.
"Value proposition"