What is a value proposition and how do you create one?

Treacy and Wiersema defined a value proposition as, ‘a specific promise a company makes to its customers to deliver a particular combination of value’.

So to maximise customer value in your products and services and to ensure your business succeeds, you need to develop at least one value proposition.

Treacy and Wiersema defined three generic types of value:

  • Management efficiency/Operational excellence
  • Product leadership
  • Customer intimacy

Note that they do not mention price. They also state, like with Porters generic marketing strategies, you should concentrate on one of the three types of value (as long as you meet the level of adequacy standard in your sector for the other two).

All too often, value is only seen in terms of price.  But maximising value is not simply a plan to cut prices.  That may be the obvious option to creating value but businesses have other options:

  • Increasing the benefits of usage (but the benefits increased must be ones that customers really want).
  • Reducing Effort.  Make things easier for consumers to accomplish e.g. ready meals that can be cooked in a microwave.
  • reduce consumer risk; through offering consumer trial use and providing guarantees.

And it isn’t just target customers who need these value propositions.  Your marketing department needs them to help define the marketing mix. Other staff need them to point out common organisational goals. Your sales force need them to sell your products and services.  Your wholesalers and distributors need value propositions to attract prospects and to build customer retention. Your agencies need them to develop promotional messages. Your investors need them to shore up and grow share value and dividends.

The key to a successful business and to successful marketing is PREFERENCE.  You want consumers to prefer your products to those of your competitors.  Customers are not concerned with the internal schisms and difficulties within a business; they just want to capture as much value as possible and they will go where they perceive the most value.  Customers will only remain brand loyal as long as they see the products of that brand as providing best value.

To ensure that consumers come to your business and not that of competitors, you need to develop difference.

To define that difference, you need to state where the customer can see tangible results from your business by purchasing and using your products and services.

This can be done through developing two value proposition statements:

  1.  An External Value Proposition Statement:  Define where your offer provides customers with greater value than the offer of your competitors.  This should include the consumer choosing to do nothing: i.e. not taking up either your or your competitors offer. It should compare offers in terms of what consumers give up, both in terms of effort and money.
  2. An Internal Value Proposition Statement: This should define customer and competitor targets.  It should define your core differentiation strategy.

In addition to Treacy and Wiersema’s three generic value options, your value proposition should:

  • relate to suppliers, agency staff and others – the stakeholders who ‘sell your value’
  • Integrate and align your internal stakeholders to meet customer needs
  • Inform stakeholders where they fit in the customer value process and how they relate to each other
  • Specify how the organisation creates customer value in a differentiated way to that of competitors.  Your points of differentiation should be specified within the value proposition

A successfully tested value proposition is essential in a differentiated business.  It:

  • Opens the door to more sales
  • Creates strong customer propositions
  • Increases revenues through clear positioning
  • Speeds time to market
  • Decreases wastage
  • Improves operational efficiency
  • Increases market share
  • Decreases employee turnover
  • Improves customer retention.

Of course, you need to develop a hierarchy of value propositions as consumers react to different attributes and they will not view attributes equally.

One way to create value propositions is to create worksheets which answer the following questions:

  1.  Who is the target market for the product or service?
  2. What does your target audience want and need?
  3. What does your product do for your target customer?
  4. How does our offer differ from that of our competitors?
  5. Who is our closest competitor?
  6. Why should consumers prefer our offer?
  7. What is our brand promise to the market?
  8. What are the fundamental attributes required for our offer to be viable?
  9. What is our best route to market?
  10. Do we need critical alliances to get to the market?
  11. What is our pricing strategy?
  12. What is our ‘elevator’ pitch?