Elements of a value proposition

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The value proposition is the reason why customers turn to one company over another. It solves a customer problem or satisfies a customer need. Each value proposition consists of a selected bundle of products and/or services to create value to a specific customer segment.

Values may be quantitative (e.g. price, speed of service) or qualitative (e.g. design, customer experience). The following are examples of some of the elements of a value proposition.

Newness

Some value propositions satisfy an entirely new set of needs, for which there was no similar offering. This is often technology-related, but not always. Cell phones, for instance, created a whole new industry around mobile telecommunication. One non-tech example is the creation of ethical investment funds.

Performance

Improving product or service performance has traditionally been a common way to create value. The computer industry has traditionally relied on this factor by bringing more powerful machines to market. But improved performance has its limits. For example, computers keep getting faster, with more disk space and better graphics, but it hasn’t produced corresponding growth in customer demand.

Customization

Tailoring products and services to the specific needs of individual customers or customer segments creates value. In recent years, the concepts of mass customization and customer co-creation have really taken hold. This approach allows for customized products and services, while still taking advantage of economies of scale – a decrease in costs after an increase in output.

“Getting the job done”

A lot of value can be created simply by helping a customer get certain jobs done. Rolls-Royce understands this very well: its airline customers rely entirely on Rolls-Royce to manufacture and service their jet engines. This arrangement allows customers to focus on running their airlines. In return, the airlines pay Rolls-Royce a fee for every hour an engine runs.

Design

Design is an important element, but difficult to measure. A product may stand out because of superior design. In the fashion and consumer electronics industries, design can be an especially important part of the value proposition. And in today’s always-online world, the importance of photo-worthy design can’t be ignored!

Brand/Status

Customers may find value in the simple act of using and displaying a specific brand. Wearing a Rolex watch signifies wealth. Eco-friendly materials in everything from clothing to reusable water bottles signifies that a customer values the environment. What does your product or service say about your customer?

Price

Offering similar value at a lower price is a common way to satisfy the needs of price-sensitive customer segments. But low-price value propositions can be important for the rest of your business model too. No-frills airlines such as Southwest, easyJet, and Ryanair have designed entire business models specifically to enable low-cost air travel. Another example of a price-based value proposition can be seen in the Nano, a car designed and manufactured by the Indian conglomerate Tata. Its surprisingly low price made the automobile affordable to a whole new segment of the Indian population.

Increasingly, free offers are starting to permeate various industries. Free offers range from free newspapers to free email, free mobile phone services, and more.

Cost Reduction

Similarly, helping customers reduce costs is an important way to create value. Salesforce.com, for example, sells a hosted Customer Relationship Management (CRM) application. This relieves buyers from the expense and trouble of having to buy, install, and manage CRM software themselves.

Risk Reduction

Customers love being able to reduce risk when purchasing products or services. For a used car buyer, a one-year service guarantee reduces the risk of post-purchase breakdowns and repairs. A service-level guarantee partially reduces the risk undertaken by a purchaser of outsourced IT services.

Accessibility

Can you make products or services available to customers who previously lacked access to them? This can result from business model innovation, new technologies, or a combination of both. NetJets, for instance, popularized the concept of fractional private jet ownership. Using an innovative business model, NetJets offers individuals and corporations access to private jets, a service previously unaffordable to most customers. Mutual funds are another example of value creation through increased accessibility. This made it possible even for those with modest wealth to build diversified investment portfolios.

Convenience/Usability

Making things more convenient or easier to use can create substantial value. With iPod and iTunes, Apple offered customers unprecedented convenience searching, buying, downloading, and listening to digital music.

What combination of elements can you combine to create an outstanding value proposition?

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creating a strong value proposition

Creating a strong value proposition

What makes your business unique and desirable to your target market? If you’re not sure, you won’t be able to tell your customer why they should do business with you. You need a value proposition.

A value proposition is a concise statement that outlines how your products or services deliver value to your customers, and what makes your business unique. It explains how a product solves a pain point, communicates the specifics of its added benefit and states the reason why it’s better than similar products.

Value proposition examples

The more specific you can make your value proposition, the better. Avoid making generic claims that can apply to any business. Strong value propositions deliver clear promises to the customer, like increased revenue, decreased costs, improved health, greater efficiency, or fewer errors. These are the clearly identifiable things that will actually benefit your customers, and the reasons they’ll be drawn to your business.

Examples of effective value propositions are Wal-Mart’s “Everyday low prices,” Slack’s “Make work life simpler, more pleasant and more productive,” and Shopify’s “One platform with all the ecommerce and point of sale features you need to start, run, and grow your business.” These demonstrate the value and benefits these companies promise to offer.

About the Value Proposition Canvas

Strategyzer.com and Swiss business management theorist Alexander Osterwalder developed the Value Proposition Canvas to help business owners create the perfect value proposition. really looking for.

The VPC is a visual method that helps us to systematically understand what customers want, and to create products and services that perfectly match their needs. It collects information about customer needs and requirements which allows for a more effective design of your products and services. This should lead to sales and profitability and much less time wasted on developing ideas that customers may not care for.

Anyone can think of good and creative business ideas, but it’s a good idea to design value for your customers on paper first. By using the Value Proposition Canvas, you identify customer needs, and products and services to meet those needs, in a visual and structured way.

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What is the Value Proposition Canvas?

value proposition canvas

Value proposition is simply a statement we use in business to summarize an expectation of value – why a consumer (or business if your customers are other businesses) should buy your product or service. It’s a promise of value to be delivered. A value proposition is a promise by a company to a customer or segment of the market. It’s an easy-to-understand reason why a customer should purchase a product or service from you. A value proposition should be a clear statement that explains how a product solves a pain point, communicates the specifics of its added benefit and states the reason why it’s better than similar products on the market. The ideal value proposition is concise and appeals to a customer’s strongest decision-making drivers.

About the Value Proposition Canvas

Strategyzer.com and Swiss business management theorist Alexander Osterwalder developed the Value Proposition Canvas, which is intended to guide development of products and services customers are really looking for. It creates a fit between what you’re selling and what customers want.

The Value Proposition Canvas helps us to systematically understand customers . It collects information about their needs and requirements, so you can design of your products and services in a more targeted way. The intended outcome is increased sales and profitability, and less time wasted on developing ideas that customers may not be interested in.

By using the Value Proposition Canvas, you identify customer needs, and come up with products and services to meet those needs, in a visual and structured way.

Want to learn more? Check out our industry-leading online small business course!

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What makes a strong value proposition?

value proposition

A value proposition is a statement we use in business to summarize why a consumer (or business if your customers are other businesses) should buy your product or service. It’s an easy-to-understand statement that explains how a product solves a pain point, communicates the specifics of its added benefit and states the reason why it’s better than similar products on the market. The ideal value proposition is concise and appeals to a customer’s strongest decision-making drivers.

It should always be displayed on your website and in other consumer touch points, or marketing materials. It should also be intuitive and easily understood.

How to write a good value proposition

Value propositions can follow different formats, as long as they’re unique to your company and to your customers. Generally speaking, the value proposition is usually a block of text (a headline, sub-headline and one paragraph of text) with a visual (photo, hero shot, or graphics). There is no one right way to go about it, but we suggest you start with the following formula:

  • Headline. What is the end-benefit you’re offering, in one short sentence? You can mention the product and/or the customer. Build in an attention grabber.
  • Sub-headline or a two to three sentence paragraph. A specific explanation of what you do/offer, for whom and why is it useful.
  • Three bullet points. List the key benefits or features.
  • Visual. Images communicate much faster than words. Show the product, the hero shot or an image reinforcing your main message.

Evaluate your value proposition by checking whether it answers the questions below:

  • What product or service is your company selling?
  • What is the end benefit of using it?
  • Who is your target customer for this product or service?
  • What makes your offering unique and different?
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The business concept: Putting it all together

Creating a clear, strong business concept statement – including a customer definition, value proposition and compelling story, product or service definition, and distribution channel – is the first activity in the development of a formal business model. In an earlier blog post, we shared the service definition for Maria’s Mobile Bike Doctors. Now let’s take a look at her completed business concept statement:

Imagine being able to call for help when your bike breaks down, without having to drag it to the nearest bike shop. Maria’s Mobile Bike Doctors speeds to the aid of stranded cyclists who want fast service, a solid repair and a friendly face. Maria’s Mobile Bike Doctors are well-trained bike experts, so cyclists can be sure their repair is safe and lasting. And they’re fast – we can get anywhere in the city in 35 minutes or less. Maria’s Mobile Bike Doctors takes the stress and hassle out of those pesky bike breakdowns – wherever you are.

Why does Maria’s business concept statement work? It works because it 1) Defines her customers (cyclists); 2) shares a value proposition and compelling story (more convenience, speed of service, reasonable prices); 3) describes the service (qualified bike repair people will fix bikes anywhere); and, 4) implies the distribution of the service is direct to the customer.

Further reading:

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