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Value Proposition Module

Value Proposition
Group 2
What Is Value?
It is essential to recognize that value is not just price. Value is a much richer concept.
Fundamentally, the notion of customer value is fairly basic and relatively simple to
understand; however, implementing this concept can prove to be tremendously
challenging. It is a challenge because customer value is highly dynamic and can change
for a variety of reasons, including the following: the business may change elements that
are important to the customer value calculation, customers’ preferences and
perceptions may change over time, and competitors may change what they offer to
customers. One author states that the challenge is to “understand the ever changing
customer needs and innovate to gratify those needs. ”Sudhakar Balachandran, “The
Customer Centricity Culture: Drivers for Sustainable Profit,” Course Management 21, no.
6 (2007): 12.
What Is a Value Proposition?
Value Proposition
A value proposition is part of a company's overall marketing strategy. The value
proposition provides a declaration of intent or a statement that introduces a company's
brand to consumers by telling them what the company stands for, how it operates, and
why it deserves their business.
A value proposition can be presented as a business or marketing statement that a
company uses to summarize why a consumer should buy a product or use a service.
This statement, if worded compellingly, convinces a potential consumer that one
particular product or service the company offers will add more value or better solve a
problem for them than other similar offerings will.
A value proposition is a statement which identifies clear, measurable and demonstrable
benefits consumers get when buying a particular product or service. It should convince
consumers that this product or service is better than others on the market. This
proposition can lead to a competitive advantage when consumers pick that particular
product or service over other competitors because they perceive greater value.
The phrase "value proposition" (VP) is credited to Michael Lanning and Edward
Michaels, who first used the term in a 1988 staff paper for the consulting firm McKinsey
and co. In the paper, which was titled "a business is a value delivery system", the
authors define value proposition as "a clear, simple statement of the benefits, both
tangible and intangible, that the company will provide, along with the approximate price
it will charge each customer segment for those benefits". In a modern, clear cut
definition, Labeaux defines a value proposition as a statement that clearly identifies
what benefits a customer will receive by purchasing a particular product or service from
a vendor. According to Hassan, however, there is no specific definition for value
A value proposition is a promise of value to be delivered, communicated, and
10 Characteristics of Great Value Proposition
1. Are embedded in great business models
2. Focus on the jobs, pains, and gains that matter most to customers
3. Focus on unsatisfied jobs, unresolved pains, and unrealized gains
4. Target few jobs, pains, and gains, but do so extremely well
5. Go beyond functional jobs and address emotionaland social jobs
6. Align with how customers measure success
7. Focus on jobs, pains, and gains that a lot of people have or that some will pay a
lot of money for
8. Differentiate from competition on jobs, pains, and gains that customers care
9. Outperform competition substantially on at least one dimension
Are difficult to copy
Value Proposition Canvas
The Value Proposition Canvas was initially developed by Dr Alexander Osterwalder as
a framework to ensure that there is a fit between the product and market. It is a detailed
look at the relationship between two parts of the Osterwalder’s broader Business Model
Canvas; customer segments and value propositions. The Value Proposition Canvas can
be used when there is need to refine an existing product or service offering or where a
new offering is being developed from scratch. The Value Proposition Canvas is formed
around two building blocks – customer profile and a company’s value proposition.
Customer Profile
Gains – the benefits which the customer expects and needs, what would delight
customers and the things which may increase likelihood of adopting a value
Pains – the negative experiences, emotions and risks that the customer
experiences in the process of getting the job done.
Customer jobs – the functional, social and emotional tasks customers are trying
to perform, problems they are trying to solve and needs they wish to satisfy.
A customer profile should be created for each customer segment, as each
segment has distinct gains, pains and jobs.
Value Proposition
Gain creators – how the product or service creates customer gains and how it
offers added value to the customer.
Pain relievers – a description of exactly how the product or service alleviates
customer pains.
Products and services – the products and services which create gain and relieve
pain, and which underpin the creation of value for the customer.
Value Proposition: Tell Me Why I Should Buy From You
Kotler – in his book “Kotler on Marketing” – defines a value proposition as an answer to
a key question that your potential customer has: “why should I buy from you?”
According to Kotler, a value proposition is critical to define the context in which the
product needs to be positioned. More importantly to achieve a value proposition the
business must go through four steps:
Brand positioning
Specific positioning
Value positioning
Total value positioning
In explaining brand positioning, Michael Porter highlights how a business should focus
on achieving an advantage either as a product differentiator, a low-cost leader or a
niche player.
According to Kotler, positioning opportunities can be classified as follows:
Attribute positioning
Benefit positioning
Use/application positioning
User positioning
Computer positioning
Category positioning
Quality/price positioning
In choosing a value proposition, Kotler argues that buyers think in terms of “value for
money: or what they get for what they pay.”
Why Use A Value Proposition?
It can be hard coming up with ideas around value and matching those to your customer
segments. In fact, a poor value proposition is one of the contributing factors as to why
startups fail. If you look at startup failure rates they are unbelievably high:
According to an article in FastCompany, “Why Most Venture-Backed Companies Fail,”
75 per cent of venture-backed startups fail.
After four years 56% of small businesses fail.
97% of seed or crowdfunded companies eventually dying or becoming “zombies.”
Many of these reasons link back to how the business model was designed. In particular,
the lack of customer understanding or a poor value proposition.
Many of these reasons link back to how the business model was designed. In particular,
the lack of customer understanding or a poor value proposition.
Top Reasons Startups Fail
Most start-ups fail because they place too much emphasis on the ‘idea’. They fall in love
with their idea more than they fall in love with understanding the customer.
Another reason is that the business model and value proposition wasn’t tested
Why is the value proposition so important? If you have a new product then the first
hurdle is for your target customer to understand why they should buy it. Moreover,
simply understand it and in seconds is a good start.
People make decisions in milliseconds and your value proposition has to be clearly
understood and strong enough to convert potential customers.
As a result, and because of the high failure rates, more businesses are focused on
developing early-stage ways to test both the product/service and the value proposition.
The bottom line is that customers aren’t interested in you or your products – they don’t
spend hours of each day day-dreaming about your product or thinking about your
The harsh reality is customers are only interested in themselves and you only fit it to
their life’s if you are useful.
what you can do for them that makes them feel better.
how you make their lives easier.
make them feel better about themselves.
If you’re going to communicate with customers, you need to first understand their
preferences and requirements, then learn how to speak their language. This is the
foundation of all marketing.
Are benefits and features the same?
Features are the distinctive attributes of a product or service, and inevitably, they get all
the attention. Benefits, in contrast, are the advantages a customer gains from that
product or service. They are what solve a problem and make the customer's life better
in some way.
The definition of a feature is a part of the face, a quality, a special attraction, article or a
major film showing in the theatre. An example of feature is a nose. An example of
feature is freckles. An example of feature is a guest speaker at an event.
What is a Benefit?
Benefits are the outcomes or results that users will (hopefully) experience by using your
product or service – the very reason why a prospective customer becomes an actual
Image via WebEngage Monk
Although it might seem counterintuitive, consumers rarely want to buy things for the
sake of buying them – they want to solve their problems.
To borrow from the example above, a feature of this particular umbrella might be its
unbreakable spokes or wind-resistant construction – the benefit of which is staying dry
even in strong winds that might break lesser umbrellas.
What Is Value?
The Value Pyramid
Maslow Hierarchy of Needs
Maslow’s hierarchy of needs is a motivational theory in psychology comprising a five-tier
model of human needs, often depicted as hierarchical levels within a pyramid.
I’ve included two visual diagrams that neatly summarize a hierarchy of value – one for
B2C and one for B2B. If you are familiar with Maslow’s hierarchy of needs (image
above) you will see many similarities of a value mapped to the different layers.
Broad Value Categories
Performance – improve a task, process or an overall result e.g. sales.
Risk reduction – reduce the level of uncertainty in making a decision or an investment
e.g. money-back guarantee.
Accessibility – provide access to otherwise expensive assets or experiences.
Customization – provide a product or service that is tailored to an individual’s needs.
Convenience – make it easier to do – quicker to get done.
Connectivity – make it easy to connect buyers to sellers e.g. Musical talent to fans
Save money – compare the market and hence find the best price e.g. hotel comparison
Social status – make me look good feel good – enhance how people see me.
Design – make something unique and aesthetically appealing.
Experiences – moments (either individual or shared) that enrich or enhance a person’s
While broad categories are useful I find that most people want specific examples to play
as they design their business model. Using individual elements, and sensing how they
fit in the hierarchy, makes the development of the value proposition much easier.
B2C value pyramid – Bain & Company Inc
B2C Value Elements
Functional Elements
• Avoids Hassles
• Connects
• Informs
• Integrates
• Makes Money
• Organizes
• Quality
• Reduces Cost
• Reduces Effort
• Reduces Risk
• Saves Time
• Sensory Appeal
• Simplifies
• Variety
Emotional Elements
• Attractiveness
• Badge Value
• Design/Aesthetics
• Fun/Entertainment
• Nostalgia
• Provides Access
• Reduces Anxiety
• Rewards Me
• Therapeutic Value
• Wellness
Life-Changing Elements
• Affiliation and Belonging
• Heirloom
• Motivation
• Provides Hope
• Self-Actualization
Social Impact Elements
• Self-Transcendence
B2B value pyramid – Bain
B2B Value Elements
Business to business buying is different in many ways to B2C. Often buying cycles are
longer, products and services more complex, involve more people and are of a much
higher value. For this reason, the principles and elements of value differ.
Table Stakes
• Acceptance Price
• Ethical Standards
• Meeting Specifications
• Regulatory Compliance
Functional Value
• Cost Reduction
• Improved Top Line
• Innovation
• Product Quality
• Scalablity
Ease Of Doing Business Value
Component Quality
Risk Reduction
Decreased Hassles
Reduced Effort
Time Savings
Cultural Fit
• Responsiveness
• Stability
Individual Level
• Design and Aesthetics
• Fun and Perks
• Growth and Development
• Marketability
• Network Expansion
• Reduced Anxiety
• Reputational Assurance
Inspirational Level
• Hope
• Social Responsibility
• Vision
High Value Adding
The term "value-added" describes the economic enhancement a company gives its
products or services before offering them to customers. Value-added helps explain why
companies are able to sell their goods or services for more than they cost to
High value-added activity
is an activity that improves value of products or services to customers. Examples of high
value-added activities include designing products, delivering products, processing
customer orders, and improving product quality.
What is a high value-added good?
As NESTA said, "A high value-added economy focuses on those activities that
generate a large margin between the final price of a good or service and the cost
of the inputs used to produce it, and thus create higher profits for businesses and
higher wages for workers."
What are high value-added products?
highly processed products that are ready for the consumer, such as milk, cheese, wine,
breakfast cereals; high-value unprocessed products that are also often consumerready, such as fresh and dried fruits and vegetables, eggs, and nuts
What are examples of value-added activities?
is an activity that improves value of products or services to customers. Examples of high
value-added activities include designing products, delivering products, processing
customer orders, and improving product quality.
Value-Added Activities are those that transform raw materials (plastic, lithium, copper)
into the finished product (a smartphone) for which the customer is willing to pay. Some
examples include molding, cutting, drilling or assembling parts.
Value-added activities consist of the following four, which have to be worked out in
sequence: (1) risk reduction; (2) quality improvement; (3) timeliness; and (4) capacity
#1 – Risk reduction: making our processes safer and safer (or more and more stable)
Reducing the risks inherent to the processes is the first type of value-added activities.
This means to make our processes safe and stable. What does “safe and stable”
concretely mean, in numbers, in your own environment? The answer can only come
from you. To give a few examples, in a construction site, it might mean to increase the
man-hours without injuries. In a financial institution, it might mean to reduce the number
of wrong payments to customers to nil. In an online store, it might mean to deliver all
products as ordered by the customer, on time. And the list can go on. Anyone who
wants to proactively create value must start by defining what “safe and stable” means
for him or her.
#2 – Quality improvement: making the products coming out of our processes better and
Improving the quality of the products bought by the customers is the second type of
value-added activities. This means to reduce the number of defects coming out of our
processes. As a pre-requisite, what “good” looks like must be defined in numbers in
each specific environment. Here again, the concrete answer in your own world can only
come from you. For example, in a car manufacturing company, it might mean to reduce
the number of cars produced with some defective windows to nil. In a bank or insurance
company, it might mean to reduce the number of customer complaints to nil. For an
airline, it might mean to reduce the number of delayed or rescheduled flights to nil. As
the second step to proactively create value to your customers, define what your defects
are, and what reducing them means to you.
As a result, your customers will recognize the quality of your products (product that
might be a service in the services industry), and become constantly happy buying your
products – as you have achieved stability first.
#3 – Timeliness: delivering our products faster and faster
Reducing the cycle time of our products delivery will make our customers in a happy
mood even before they use the products. A bad product is what makes a customer
unhappy, before eventually turning to the competitors; good service is what makes a
customer come back. So, once the products are consistently good, you can continue
creating value to your customers by reducing the delivery time. This will result in your
customers gaining an ever better experience of your company as a whole, not just for its
products, but also for the way you sell them.
Being able to provide a fast turnaround time also means being able to anticipate
customers’ needs, and give them what they want even before they ask.
#4 – Capacity increase: doing more with less
We have now come to a stage where (1) the outputs of our processes are in control and
we actively monitor our performance; (2) our products are consistently good; and (3) the
service provided to our customers leads them to ask more and more from us. The next
and last step is then to be able to satisfy this growing demand: in other words, it means
being able to do more with fewer resources or our competitors will copy and overtake
our business.Efficiency is crucial in all business operations. However, to achieve
optimal efficiency, several factors must be considered by organizational
leaders. Efficiency is fundamentally a result of the entire work system of a successful
organization, which comprises of productive employees, proper utilization of tools and
equipment, and an effective management approach.
Identifying redundant tasks, counterproductive business processes, and out-of-date
procedures is necessary to achieve efficiency. You and your employees will save a lot
of valuable time and eliminate frustration, while also lowering annual business costs that
are a direct result of inefficiencies you may not have even known you had.
Solutions-Driven Marketing and Selling
Solutions-driven marketing arises from a “needs-based” approach to selling. Such a
strategy of identifying the needs of a customer and then recommending a product to
meet those needs is common in the financial services industry. For instance, needsbased selling is importan to achieving a balanced enrollment in voluntary group
insurance plans, where the goal is to reach beyond those who already understand (and
are most likely to con sume) the benefit. Needs-based selling also is important to the
cross-selling of banking products, where the use of one product (such as maintaining a
high average bal ance in a checking account) might suggest the opportu nity to sell
another product (such as mutual funds). In the context of any complex good or service,
an assess ment of needs will serve to guide customers toward solutions appropriate to
their situations.
In a nutshell, a great unique value proposition should have:
Relevancy – explains how your products and services solve customer problems or how
they improve the customer’s situation.
Quantified value – should show the specific benefits customers will derive from your
products and services.
Unique differentiation – should show customers why they should buy from instead of
your competitors.
Value Proposition Elements
Some value propositions are based on the newness or novelty factor they provide. This
element usually comes into play for technology-intensive products and often fits earlyadopters as a customer segment. As an example, the launches of new iPhones and the
subsequent queues at stores have become an annual event.
Improving the performance of a product has led to many reinventions of products.
Shampoos and facial treatments are a good example of how new ingredients give rise
to new value propositions within the market. However, it is hard to compete on
performance alone unless your product creates a substantial difference in the
Consumers trends and technologies have converged to create a world where
companies now are actively seeking new ways to personalization products and
In a report by Internet Retailing, 69% of consumers want to have a personalized
experience, yet less than 50% of brands are actually delivering.
Nike lets its customers customize their shoes through NikeID on their website. A
consumer can go online and create a completely original design with their preferred
colour palette, placement, colour and size of the swoosh etc for their shoes. They can
see what the end product will look like visually, play around with different permutations
till they reach a result that suits their tastes and then order the final product when they
are ready.
Getting The Job Done
When a product helps a consumer or business reach the end goal, its value proposition
results from how it helped the customer to achieve their goal – or expressed differently
get a job done.
Most clothing labels rake in a higher price tag because of the superior design they have.
Prada charges top dollar for something as simple as a T-shirt because of the strength of
its designs.
Brand/ Status
Design and brand/status can be clustered together because their appeal is quite similar.
Just as people will show loyalty to a brand because of its design, people will also show
loyalty to a design because of the perceived status the brand name offers to the owner.
Price alone is a dangerous proposition to rely on unless it is supported by other
elements. As an example, there are many ‘no frills’ airlines like Southwest airlines.
However, soon other airlines also replicated their offer and in fact, some companies
created secondary brands in the market. Low price value propositions and strategies
need to be supported by efficiency in operations and usually self-service customer
Cost Reduction
Products and services catered towards enhancing customer experience by reducing the
cost a customer would ultimately incur cater to the cost reduction value proposition.
Many price comparison sites open up transparency and easy access to pricing that
otherwise would be hidden. In doing this they offer value by allowing customers to make
savings on third party products or services.
However, if you are a third-party service this places a greater emphasis on using other
variables to create a difference.
Risk Reduction
The less risk associated with purchasing a product or service, the more likely a
customer is to buy it. Risk reduction is an important factor for both B2C and B2B
customers and increases as a factor as the level of investment increases.
Another key ingredient for an effective and robust value proposition is making a
previously inaccessible product or service available to a consumer segment. Innovative
technologies and variations in business models have both led to offering accessibility to
unserviced customers. NetJets is a wonderful example of providing accessibility.
Some value propositions are based on the newness or novelty factor they provide. This
element usually comes into play for technology-intensive products and often fits earlyadopters as a customer segment. As an example, the launches of new iPhones and the
subsequent queues at stores have become an annual event.
The simple version of the concept of customer value is that individuals evaluate the
perceived benefits of some product or service and then compare that with their
perceived cost of acquiring that product or service. If the benefits outweigh the cost, the
product or the service is then seen as attractive (see Figure 2.1 “Perceived Cost versus
Perceived Benefits”). This concept is often expressed as a straightforward equation that
measures the difference between these two values:
Customer Value = Perceived Benefits − Perceived Cost.
Components of Perceived Benefit and Perceived Cost
Activities to Deliver
Components of Perceived Benefit
Quality assurance in product
and services
Measurable quality
Superior product and process
Selection of correct attributes
Support network
Ability to improve product and
Management of value chain
Activities to Deliver
Builds identification with
social, ethnic, or class
Emphasize lifestyle
interaction among people
Market research correctly
identifies customer base(s)
community among customers
Build bonds within groups
Assist in making one feel
good about themselves
Attachment to product or
Produces a change in
how others see the user
Market research understands
psychological dimensions of
customer base(s)
psychological dimensions
Reliability between marketing
message and delivery
Creative personnel
Evoke interest in product
or service
Creative product or process
Interest in learning
Commitment to innovation
suspension of disbelief
Willingness to experiment
Produces meaning in a
specific context
Flexibility (can alter physical
Tied to particular events
Tied to holidays
Components of Perceived Cost
Management commitment to
responsible action
Activities to Deliver
Reduce purchase price
Superior design
Reduce operating costs
Operational efficiency
Cost containment
Reduce opportunity costs
Easy acquisition
Reduce time to search for
product or service
Broad distribution channels
Reduce time to purchase
Web-based information
Reduced learning curve
Superior design
Simplified use
Quality control and assurance
“Comfortable” feeling with
regard to product or
service use
Web-based purchasing option
Superior design
Some researchers express this idea of customer value not as a difference but as a ratio
of these two factors.M. Christopher, “From Brand Value to Customer Value,” Journal of
Marketing Practice: Applied Marketing Science 2, no. 1 (1996): 55. Either way, it needs
to be understood that customers do not evaluate these factors in isolation. They
evaluate them with respect to their expectations and the competition.
Firms that provide greater customer value relative to their competitors should expect to
see higher revenues and superior returns. Robert Buzzell and Bradley Gale, reporting
on one finding in the Profit Impact through Marketing Strategy study, a massive
research project involving 2,800 businesses, showed that firms with superior customer
value outperform their competitors on ROI and market share gains.Robert D. Buzzell
and Bradley T. Gale, The PIMS Principles—Linking Strategy to Performance (New York:
Free Press, 1987), 106.
How Do You Write A Value Positioning Statement?
• Identify all the benefits your product offers.
• Describe what makes these benefits valuable.
• Identify your customer’s main problem.
• Connect this value to your buyer’s problem.
• Differentiate yourself as the preferred provider of this value.
A Value statement is what’s important to your company, what it prioritizes, and how it
conducts itself.
A Value Proposition is a statement that paints a clear picture of what your brand has to
offer. It tells your potential customers:
How your product or service solves/improves problems.
What benefits customers can expect.
Why customers should buy from you over your competitors.
How Do You Create an Effective Value Proposition?
When creating or evaluating a value proposition, it is helpful to step away from the long
lists of features and benefits and deep competitive analysis. Stick to the simple, and
strive for focus and clarity. A value proposition should be clear, compelling, and
• Clear: short and direct; immediately identifies both the offering and the value or
• Compelling: conveys the benefit in a way that motivates the buyer to act.
• Differentiating: sets the offering apart or differentiates it from other offerings.
Here are some examples of value propositions from company websites:
• “Soundtrack your life” (Spotify)
• “Small Business Accounting Software Designed for You, the Non-Accountant”
• “Remember Everything” (Evernote)
• “That Horizon Might Be Closer Than You Think” (Mint)
• “Rides in Minutes” (Lyft)
• “Shorten. Share. Measure.” (Bitly)
One thing Uber most definitely does right, however, is its unique value proposition
Uber’s value proposition, offering uber convenience
Without explicitly saying so, Uber expertly highlights everything that sucks about taking
a traditional taxi and points out how its service is superior. The simple (yet highly
effective) copy above, taken from the Uber homepage, excellently conveys the
simplicity and ease that lies at the heart of what makes it such a tempting service:
One tap and a car comes directly to you
Your driver knows exactly where to go
Payment is completely cashless
Everything about this directly contrasts the typical experience of getting a taxi – no
phone calls to disinterested dispatchers, no painful conversations trying to explain to a
stressed-out cabbie about where you need to be, and no fumbling for change or
worrying you’ve got enough bills in your wallet. Just a fast, efficient way to get where
you’re going. This is reinforced by the aspirational messaging toward the top of the Uber
homepage, which states that “Your day belongs to you.”
At this point, it’s worth comparing Uber’s value proposition with that of rival company
Lyft. The two companies’ offerings are virtually identical, which is what makes a direct
comparison of the two so interesting. Take a look at this information from the Lyft
Lyft’s step-by-step value proposition
Structurally and thematically, Lyft’s homepage is very similar to Uber’s. However,
there’s some key differences here that highlight how Uber’s value proposition is more
clearly positioned.
Firstly, Lyft does score some points for including several step-by-step images of the Lyft
experience, helping visitors visualize what taking a ride with Lyft is like. However, look
at the copy for the first step of the process. It lists the three tiers of Lyft service – Lyft,
Lyft Line, and Lyft Plus – but doesn’t explain the difference between these service tiers,
or tell the prospect why they should choose between them.
Also, while clearly explaining the final stage of the process – paying and rating the
driver – this information implies that there is a final definitive action required by the user,
something Uber does not. Personally, I almost always try to rate my Uber drivers
(bearing in mind the oft-speculated “secret” rating of around 4.6 out of 5 that many
believe serves as the performance benchmark for Uber drivers), but I don’t have to.
Sometimes I’ll forget about it and just get on with my day – it certainly isn’t required, and
nor is manually paying my driver. For a service built on the notion of efficiency and
convenience, this is a big deal.
Now, one could argue that Lyft does a better job of being transparent about what users
can expect, an argument that definitely has merit, especially if you’ve ever been stung
by Uber’s unexpected “surge” pricing. However, for two such similar services, I’d argue
that Uber’s value proposition is more clearly positioned, and certainly more persuasive
than that of Lyft – an important distinction if you’re operating in a crowded market with
several similar competitors.