Value proposition

A value proposition is a promise of value to be delivered and acknowledged and a belief from the customer that value will be delivered and experienced. A value proposition can apply to an entire organization, or parts thereof, or customer accounts, or products or services.

Creating a value proposition is a part of business strategy. Kaplan and Norton say "Strategy is based on a differentiated customer value proposition. Satisfying customers is the source of sustainable value creation."^[1]

Developing a value proposition is based on a review and analysis of the benefits, costs and value that an organization can deliver to its customers, prospective customers, and other constituent groups within and outside the organization. It is also a positioning of value, where Value = Benefits - Cost (cost includes economic risk).^[2]

Models

One model, the Value Proposition Builder for creating a value proposition states six stages to the analysis:^[3]

1. Market: for which market is the value proposition being created?
2. Value experience or customer experience: what does the market value most? The effectiveness of the value proposition depends on gathering real customer, prospect or employee feedback.
3. Offering: which products or services are being offered?
4. Benefits: what are the benefits the market will derive from the product or service?
5. Alternatives and differentiation: what alternative options does the market have to the product or service?
6. Proof: what evidence is there to substantiate your value proposition?

Neil Rackham believes that a value proposition statement should consist of four main parts: capability, impact, proof, and cost [that is, the price a customer is expected to pay] .^[4]

Organizations do not directly communicate the outputs of the value proposition creation process (i.e., the value proposition statement and template) to external audiences;^[5] value proposition statements are internal documents, used by organizations as a blueprint to ensure that all the messages they communicate, inside and outside the organization, are consistent. Some of the ways that organizations use value propositions include in marketing communications material or in sales proposals.^[6]

Strategy and marketing

Organizations can use value propositions to position value to a range of constituents such as:

• Customers: to explain why a customer should buy from a supplier (see customer value proposition).
• Partners: to persuade them to forge a strategic alliance or joint venture.
• Internal departments: to influence the outcome of business decisions. For example, an IT department may use a value proposition to convince its board to support funding its projects.
• Employees: to "sell" the company when recruiting new people, or for retaining and motivating existing employees. This is sometimes called the HR or employee value proposition.
• Suppliers: to explain why a supplier should want to be a supplier to an organization or customer.

See also

• Customer value proposition
• Employee value proposition

Footnotes

References

• Cindy Barnes; Helen Blake; David Pinder (3 October 2009). Creating & delivering your value proposition: managing customer experience for profit. Kogan Page Publishers. ISBN 978-0-7494-5512-5. Retrieved 21 September 2011. 
• Robert S. Kaplan; David P. Norton (1 February 2004). Strategy maps: converting intangible assets into tangible outcomes. Harvard Business Press. ISBN 978-1-59139-134-0. Retrieved 21 September 2011.