Value proposition
Encyclopedia
A value proposition is a promise of value
to be delivered and a belief from the customer of value
that will be 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."
Developing a value proposition is based on a review
and analysis
of the benefits
, cost
s 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 risk
).
Neil Rackham
believes that a value proposition statement should consist of four main parts: capability, impact, proof, and cost.
Organizations do not directly communicate the outputs of the value proposition creation process (i.e., the value proposition statement and template) to external audiences; 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.
Value (economics)
An economic value is the worth of a good or service as determined by the market.The economic value of a good or service has puzzled economists since the beginning of the discipline. First, economists tried to estimate the value of a good to an individual alone, and extend that definition to goods...
to be delivered and a belief from the customer of value
Value (economics)
An economic value is the worth of a good or service as determined by the market.The economic value of a good or service has puzzled economists since the beginning of the discipline. First, economists tried to estimate the value of a good to an individual alone, and extend that definition to goods...
that will be 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
Strategy
Strategy, a word of military origin, refers to a plan of action designed to achieve a particular goal. In military usage strategy is distinct from tactics, which are concerned with the conduct of an engagement, while strategy is concerned with how different engagements are linked...
. Kaplan
Robert S. Kaplan
Robert S. Kaplan is Baker Foundation Professor at Harvard Business School, United States, and co-creator, together with David P. Norton, of the balanced scorecard, a means of linking a company's current actions to its long-term goals...
and Norton say "Strategy is based on a differentiated customer value proposition. Satisfying customers is the source of sustainable value creation."
Developing a value proposition is based on a review
Review
A review is an evaluation of a publication, a product or a service, such as a movie , video game, musical composition , book ; a piece of hardware like a car, home appliance, or computer; or an event or performance, such as a live music concert, a play, musical theater show or dance show...
and analysis
Analysis
Analysis is the process of breaking a complex topic or substance into smaller parts to gain a better understanding of it. The technique has been applied in the study of mathematics and logic since before Aristotle , though analysis as a formal concept is a relatively recent development.The word is...
of the benefits
Cost-benefit analysis
Cost–benefit analysis , sometimes called benefit–cost analysis , is a systematic process for calculating and comparing benefits and costs of a project for two purposes: to determine if it is a sound investment , to see how it compares with alternate projects...
, cost
Economic cost
The economic cost of a decision depends on both the cost of the alternative chosen and the benefit that the best alternative would have provided if chosen. Economic cost differs from accounting cost because it includes opportunity cost....
s and value
Value (economics)
An economic value is the worth of a good or service as determined by the market.The economic value of a good or service has puzzled economists since the beginning of the discipline. First, economists tried to estimate the value of a good to an individual alone, and extend that definition to goods...
that an organization
Organization
An organization is a social group which distributes tasks for a collective goal. The word itself is derived from the Greek word organon, itself derived from the better-known word ergon - as we know `organ` - and it means a compartment for a particular job.There are a variety of legal types of...
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
Value (economics)
An economic value is the worth of a good or service as determined by the market.The economic value of a good or service has puzzled economists since the beginning of the discipline. First, economists tried to estimate the value of a good to an individual alone, and extend that definition to goods...
= Benefits
Cost-benefit analysis
Cost–benefit analysis , sometimes called benefit–cost analysis , is a systematic process for calculating and comparing benefits and costs of a project for two purposes: to determine if it is a sound investment , to see how it compares with alternate projects...
- Cost
Cost
In production, research, retail, and accounting, a cost is the value of money that has been used up to produce something, and hence is not available for use anymore. In business, the cost may be one of acquisition, in which case the amount of money expended to acquire it is counted as cost. In this...
(cost includes risk
Risk
Risk is the potential that a chosen action or activity will lead to a loss . The notion implies that a choice having an influence on the outcome exists . Potential losses themselves may also be called "risks"...
).
Models
One model, the Value Proposition Builder for creating a value proposition states six stages to the analysis:- MarketMarketA market is one of many varieties of systems, institutions, procedures, social relations and infrastructures whereby parties engage in exchange. While parties may exchange goods and services by barter, most markets rely on sellers offering their goods or services in exchange for money from buyers...
: for which market is the value proposition being created? - Value experience or customer experienceCustomer experienceCustomer experience is the sum of all experiences a customer has with a supplier of goods or services, over the duration of their relationship with that supplier. From awareness, discovery, attraction, interaction, purchase, use, cultivation and advocacy...
: what does the market value most? The effectiveness of the value proposition depends on gathering real customer, prospect or employee feedback. - Offering: which products or services are being offered?
- Benefits: what are the benefits the market will derive from the product or service?
- Alternatives and differentiation: what alternative options does the market have to the product or service?
- Proof: what evidence is there to substantiate your value proposition?
Neil Rackham
Neil Rackham
Neil Rackham is a speaker and writer on sales and marketing. Three of his books have been on the New York Times best seller list and his works have been translated into over 50 languages.- Biography :...
believes that a value proposition statement should consist of four main parts: capability, impact, proof, and cost.
Organizations do not directly communicate the outputs of the value proposition creation process (i.e., the value proposition statement and template) to external audiences; value proposition statements are internal documents, used by organizations as a blueprint
Blueprint
A blueprint is a type of paper-based reproduction usually of a technical drawing, documenting an architecture or an engineering design. More generally, the term "blueprint" has come to be used to refer to any detailed plan....
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
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...
communications material or in sales proposals.
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 propositionCustomer value propositionIn marketing, a customer value proposition consists of the sum total of benefits which a vendor promises a customer will receive in return for the customer's associated payment ....
). - PartnersBusiness partnerBusiness partner is a term used to denote a commercial entity with which another commercial entity has some form of alliance. This relationship may be a highly contractual, exclusive bond in which both entities commit not to ally with third parties...
: to persuade them to forge a strategic alliance or joint venture. - Internal departments: to influence the outcome of business decisions. For example, an ITInformation technologyInformation technology is the acquisition, processing, storage and dissemination of vocal, pictorial, textual and numerical information by a microelectronics-based combination of computing and telecommunications...
department may use a value proposition to convince its boardBoard of directorsA board of directors is a body of elected or appointed members who jointly oversee the activities of a company or organization. Other names include board of governors, board of managers, board of regents, board of trustees, and board of visitors...
to support funding its projects. - Employees: to "sell" the company when recruitingRecruitmentRecruitment refers to the process of attracting, screening, and selecting qualified people for a job. For some components of the recruitment process, mid- and large-size organizations often retain professional recruiters or outsource some of the process to recruitment agencies.The recruitment...
new people, or for retaining and motivating existing employees. This is sometimes called the HRHuman resourcesHuman resources is a term used to describe the individuals who make up the workforce of an organization, although it is also applied in labor economics to, for example, business sectors or even whole nations...
or employee value propositionEmployee value propositionEmployee Value Proposition is a term used to denote the balance of the rewards and benefits that are received by employees in return for their performance at the workplace....
. - Suppliers: to explain why a supplier should want to be a supplier to an organization or customer.