What is a Value Proposition?
Companies have three levers to act upon when trying to influence customers’ willingness to buy their products. They can choose the customer segments they will target, the needs they will offer to serve for those customers (i.e. through the design of their products and the benefits they offer), and the price at which their products will be offered to those customers.
The decisions you make with respect to that triad of factors (customers, products
The goal of a value proposition, is to create a “perception” of value in the minds of your target consumers, which influences how much they will be willing to pay to get the benefits of your products.
Because value is a relative term, you can see how a single product can have multiple value propositions based on the type of customers it is being promoted to.
For example, you may promote solar energy to global-warming activists as a way to reduce global emissions, and then offer the same energy to homeowners as a way to reduce their electric bill. Same product, different customer value propositions.
Value Proposition versus Positioning Statements
Many classic business frameworks define a Value Proposition as some kind of statement outlining the benefits of the product. Things like “Get whiter teeth”, or “Faster downloads”.
In reality, that’s a simplified definition that doesn’t really exploit the value that a more serious effort could have for strategy.
In our view, a good value proposition must be the result of thorough research to “prove” the superior benefits of a solution with respect to its competing alternatives in measurable (e.g. monetary) terms.
You then use the results of that research to make strategic decisions about product development, marketing and sales (i.e. the product’s value proposition for its different customer segments), and from that information you can also create messaging campaigns and a series of brand positioning statements to use in marketing and promotion.
But the value proposition itself must be an internal appreciation of the company’s approach to a particular market, which evaluates consumer choices and proposes a marketing strategy to make customers buy, and for that reason it is not something to be shared with the external world.
See Strategic Positioning for more information.
Sun Wu’s Strategy for Executives can now be downloaded for free here.
James C. Anderson; Nirmalya Kumar; James A. Narus. Value Merchants: Demonstrating and Documenting Superior Value in Business Markets.
Magretta, Joan. Understanding Michael Porter: The Essential Guide to Competition and Strategy. Harvard Business Review Press. Kindle Edition.