Customer value proposition
Encyclopedia
In marketing
, a customer value proposition (CVP) consists of the sum total of benefits which a vendor promises a customer
will receive in return for the customer's associated payment (or other value-transfer).
A customer value proposition is a business
or marketing
statement that describes why a customer should buy a product
or use a service. It is specifically targeted towards potential customers rather than other constituent groups such as employees, partners or suppliers. It is a clearly defined statement that is designed to convince customers that one particular product or service will add more value or better solve a problem than others in its competitive set..
. Understanding customer needs is important because it helps promote the product. A brand
is the perception of a product or service that is designed to stay in the minds of targeted consumers.
and analysis, firms develop clear and concise value propositions that reflect those needs and the tangible results that customers can reasonably expect from using the firm's products or services. Strong value propositions are also expressed from the customer’s perspective and talk about the experiences and benefits that they will have when using the product.
and quality. Finding the correct balance between these two attributes usually leads to a successful product. If a company is able to produce the same quality product as its direct competition but sell it for less, this provides a price value to the consumer. Similarly, if a company is able to produce a superior quality product for the same or a slightly higher but acceptable price, the value to the consumer is added through the quality of the product. A product must offer value through price and/or quality in order to be successful.
Marketing
Marketing is the process used to determine what products or services may be of interest to customers, and the strategy to use in sales, communications and business development. It generates the strategy that underlies sales techniques, business communication, and business developments...
, a customer value proposition (CVP) consists of the sum total of benefits which a vendor promises a customer
Customer
A customer is usually used to refer to a current or potential buyer or user of the products of an individual or organization, called the supplier, seller, or vendor. This is typically through purchasing or renting goods or services...
will receive in return for the customer's associated payment (or other value-transfer).
A customer value proposition is a business
Business
A business is an organization engaged in the trade of goods, services, or both to consumers. Businesses are predominant in capitalist economies, where most of them are privately owned and administered to earn profit to increase the wealth of their owners. Businesses may also be not-for-profit...
or marketing
Marketing
Marketing is the process used to determine what products or services may be of interest to customers, and the strategy to use in sales, communications and business development. It generates the strategy that underlies sales techniques, business communication, and business developments...
statement that describes why a customer should buy a product
Product (business)
In general, the product is defined as a "thing produced by labor or effort" or the "result of an act or a process", and stems from the verb produce, from the Latin prōdūce ' lead or bring forth'. Since 1575, the word "product" has referred to anything produced...
or use a service. It is specifically targeted towards potential customers rather than other constituent groups such as employees, partners or suppliers. It is a clearly defined statement that is designed to convince customers that one particular product or service will add more value or better solve a problem than others in its competitive set..
Why CVPs are important
A good customer value proposition will provide convincing reasons why a customer should buy a product, and also differentiate your product from competitors. Gaining a customers attention and approval will help in build sales faster and more profitable, as well as work to increase market shareMarket share
Market share is the percentage of a market accounted for by a specific entity. In a survey of nearly 200 senior marketing managers, 67 percent responded that they found the "dollar market share" metric very useful, while 61% found "unit market share" very useful.Marketers need to be able to...
. Understanding customer needs is important because it helps promote the product. A brand
Brand
The American Marketing Association defines a brand as a "Name, term, design, symbol, or any other feature that identifies one seller's good or service as distinct from those of other sellers."...
is the perception of a product or service that is designed to stay in the minds of targeted consumers.
Creating a strong CVP
In order to achieve objectives, a customer value proposition needs to be clear, concise and compelling. In order to develop a strong customer value proposition, organizations need to have a thorough knowledge of their potential/current customer base. By identifying customer needs through market researchMarket research
Market research is any organized effort to gather information about markets or customers. It is a very important component of business strategy...
and analysis, firms develop clear and concise value propositions that reflect those needs and the tangible results that customers can reasonably expect from using the firm's products or services. Strong value propositions are also expressed from the customer’s perspective and talk about the experiences and benefits that they will have when using the product.
Competitive Advantage
A product with a successful consumer value proposition is directly linked to a products actual and sustained performance versus competition. The two main attributes that allow consumers to differentiate among products are pricePrice
-Definition:In ordinary usage, price is the quantity of payment or compensation given by one party to another in return for goods or services.In modern economies, prices are generally expressed in units of some form of currency...
and quality. Finding the correct balance between these two attributes usually leads to a successful product. If a company is able to produce the same quality product as its direct competition but sell it for less, this provides a price value to the consumer. Similarly, if a company is able to produce a superior quality product for the same or a slightly higher but acceptable price, the value to the consumer is added through the quality of the product. A product must offer value through price and/or quality in order to be successful.
Target Audiences
- End user - The initial and ongoing satisfaction of the end user is the goal of every business. Customer satisfaction is achieved when superior customer value is delivered. Establishing a lasting business relationship will lead to future sales. Price and quality are the most important factors in a consumer purchase.
- Manufacturer/Distributor – When the sales target is not the end user, but a manufacturer or distributorDistributorA distributor is a device in the ignition system of an internal combustion engine that routes high voltage from the ignition coil to the spark plugs in the correct firing order. The first reliable battery operated ignition was developed by Dayton Engineering Laboratories Co. and introduced in the...
of a product, the most important factor is conveying superiority of one product over another. There may be other factors besides price and quality that would affect a customer’s decision and communicating those as well is essential.
Types of CVP
- All Benefits - Most managers when asked to construct a customer value proposition, simply list all the benefits they believe that their offering might deliver to target customers. The more they can think of the better. This approach requires the least knowledge about customers and competitors and, thus, results in a weaker marketplace effort.
- Favorable Points of Difference - The second type of value proposition explicitly recognizes that the customer has alternatives and focuses on how to differentiate one product or service from another. Knowing that an element of an offering is a point of difference relative to the next best alternative does not, however, convey the value of this difference to target customers. A product or service may have several points of difference, complicating the customer's understanding of which ones deliver the greatest value. Without a detailed understanding of customer’s requirements and preferences, and what it is worth to fulfill them, suppliers may stress points of difference that deliver relatively little value to the target customer.
- Resonating Focus - The favorable points of difference value proposition is preferable to an all benefits proposition for companies crafting a customer value proposition. The resonating focus value proposition should be the gold standard. This approach acknowledges that the managers who make purchase decisions have major, ever-increasing levels of responsibility and often are pressed for time. They want to do business with suppliers that fully grasp critical issues in their business and deliver a customer value proposition that’s simple yet powerfully captivating. Suppliers can provide a customer value proposition by making their offerings superior on the few attributes that are most important to target customers in demonstrating and documenting the value of this superior performance, and communicating it in a way that conveys a sophisticated understanding of the customer’s business priorities.
| Value Proposition | All Benefits | Favorable Points of Difference | Resonating Focus |
|---|---|---|---|
| Consists of: | All benefits customers receive from a market offering | All favorable points of difference a market offering has relative to the next best alternative | The key points of difference(and, perhaps, a point of parity) whose improvement will deliver the greatest value to the customer for the foreseeable future |
| Answers the customer question: | “Why should our firm purchase your offering?” | “Why should our firm purchase your offering instead of your competitor’s?” | “What is most worthwhile for our firm to keep in mind about your offering?” |
| Requires: | Knowledge of own market offering | Knowledge of own market offering and next best alternative | Knowledge of how own market offering delivers superior value to customers, compared with next best alternative |
| Has the potential pitfall | Benefit assertion | Value Presumption | Requires customer value research |
Examples
- iPod vs. Other MP3 Players - As early as 1996 MP3 players were available to the public for purchase. For the first few years the only real value aside from price comparisons were the amount of music they could store. This all changed when Apple Inc. burst on the scene with the iPodIPodiPod is a line of portable media players created and marketed by Apple Inc. The product line-up currently consists of the hard drive-based iPod Classic, the touchscreen iPod Touch, the compact iPod Nano, and the ultra-compact iPod Shuffle...
and iTunesITunesiTunes is a media player computer program, used for playing, downloading, and organizing digital music and video files on desktop computers. It can also manage contents on iPod, iPhone, iPod Touch and iPad....
, the software paired with its new MP3 player to manage the music through a computer program to organize and rename the music on consumer computers. This software did not add cost to the iPod itself and was listed as a free add-on. This is a perfect example of a customer value added proposition. The customer is given added value through the software iTunes because it is free of additional cost to the customer. The combination of its intuitive and easy to use interface along with the customer value added proposition of iTunes, it is easy to see why the iPod in all of its forms dominated and still dominates the market.
- BMW vs. Other Luxury Car Manufacturers - BMWBMWBayerische Motoren Werke AG is a German automobile, motorcycle and engine manufacturing company founded in 1916. It also owns and produces the Mini marque, and is the parent company of Rolls-Royce Motor Cars. BMW produces motorcycles under BMW Motorrad and Husqvarna brands...
, "the ultimate driving machine". This is a key value proposition for BMW or Bavarian Motor Works. They build luxury cars for those who can afford them. When other luxury companies started making vehicles in direct competition to BMWs, BMW had to differentiate itself once again. In North America it did this via a customer value added proposition through their “No Cost Maintenance” program. The “No Cost Maintenance” plan comes with the purchase of a new BMW vehicle and provides the owner with no cost maintenance for the first 4 years/50,000 miles of use. Neither AudiAudiAudi AG is a German automobile manufacturer, from supermini to crossover SUVs in various body styles and price ranges that are marketed under the Audi brand , positioned as the premium brand within the Volkswagen Group....
, LexusLexusis the luxury vehicle division of Japanese automaker Toyota Motor Corporation. First introduced in 1989 in the United States, Lexus is now sold globally and has become Japan's largest-selling make of premium cars. The Lexus marque is marketed in over 70 countries and territories worldwide, and has...
nor MercedesMercedes-BenzMercedes-Benz is a German manufacturer of automobiles, buses, coaches, and trucks. Mercedes-Benz is a division of its parent company, Daimler AG...
offer a comparable program.
- Corvette ZR1 vs. Other Supercars - Chevrolet's Corvette ZR1 entered the market with great success, as a sports car with supercar performance, which shattered lap times of the fastest cars in the world around the NurburgringNürburgringThe Nürburgring is a motorsport complex around the village of Nürburg, Germany. It features a modern Grand Prix race track built in 1984, and a much longer old North loop track which was built in the 1920s around the village and medieval castle of Nürburg in the Eifel mountains. It is located about...
. It established new records for quarter mile times. Its customer value added proposition is its price. The US market Corvette ZR1 price of $110,000 compared very favorably to the $150,000+ cost of cars it was outperforming. It is beating FerrariFerrariFerrari S.p.A. is an Italian sports car manufacturer based in Maranello, Italy. Founded by Enzo Ferrari in 1929, as Scuderia Ferrari, the company sponsored drivers and manufactured race cars before moving into production of street-legal vehicles as Ferrari S.p.A. in 1947...
, PorschePorschePorsche Automobil Holding SE, usually shortened to Porsche SE a Societas Europaea or European Public Company, is a German based holding company with investments in the automotive industry....
, LamborghiniLamborghiniAutomobili Lamborghini S.p.A., commonly referred to as Lamborghini , is an Italian car manufacturer. The company was founded by manufacturing magnate Ferruccio Lamborghini in 1963, with the objective of producing a refined grand touring car to compete with established offerings from marques like...
, and Aston MartinAston MartinAston Martin Lagonda Limited is a British manufacturer of luxury sports cars, based in Gaydon, Warwickshire. The company name is derived from the name of one of the company's founders, Lionel Martin, and from the Aston Hill speed hillclimb near Aston Clinton in Buckinghamshire...
in head to head competition for a significantly lower purchase price. This is an example of how Corvette offered value to the customer. Corvette used its reduced cost and superior performance as its value added proposition.
- Audi vs. Other Luxury Brands - Audi's introduction of the Quattro drive system in 1980 has led to it becoming almost synonymous with the use of all-wheel drive for high-performance vehicles. The Quattro all-wheel drive system sets Audi apart from major competitors in terms of perceived customer value added proposition, as although other luxury car manufacturers such as BMW, Mercedes and JaguarJaguarThe jaguar is a big cat, a feline in the Panthera genus, and is the only Panthera species found in the Americas. The jaguar is the third-largest feline after the tiger and the lion, and the largest in the Western Hemisphere. The jaguar's present range extends from Southern United States and Mexico...
also have all-wheel drive systems available, these are not as widely encountered and heavily marketed as Audi's.
- iPhone vs. Palm Pre - The Apple iPhoneIPhoneThe iPhone is a line of Internet and multimedia-enabled smartphones marketed by Apple Inc. The first iPhone was unveiled by Steve Jobs, then CEO of Apple, on January 9, 2007, and released on June 29, 2007...
was introduced in 2007 and was almost immediately successful. As time passed the added value of the iPhone was equal and exceeded as other smart phones came to market. The Palm PrePalm PreThe Palm Pre is a multimedia smartphone designed and marketed by Palm with a multi-touch screen and a sliding keyboard. The smartphone was the first to use Palm's Linux based mobile operating system, webOS...
was introduced with the ability to perform multiple tasks concurrently while the iPhone was only able to run a single application at a time. The multiapplication capability of the Palm Pre gave it a significant advantage over the iPhone.
- DLP vs Plasma TV - DLP TVs offer significant advantages versus plasma TVs. Specifically DLP tvs contain a bulb which illuminates the screen and is replaceable for approximately $250 (US). This allows for DLP tvs to have a longer lifespan and therefore is a more cost effective purchase than plasma for consumers.
External links
- http://www.investopedia.com/terms/v/valueproposition.asp
- http://marketing.about.com/od/marketingplanandstrategy/a/valueprop.htm
- http://www.springerlink.com/content/bg5036v46592r750/
- http://www.customerlifecycle.us/pdfs%5Cwhitepapers%5CCustomer%20Value%20Propositions%20in%20Business%20Markets.pdf
- http://www.springerlink.com/content/t5776l2219408416/