A value proposition is about how you create value for customers. While many entrepreneurial theories draw from customers’ problems and pain points, value can also be created via demand generation, which is about enabling people to identify with your brand, thus generating demand for your products and services.
A value proposition can be defined as the promise of value to be delivered and a belief from the customer that value will be experienced.
Creating a value proposition is a part of a business strategy. Kaplan and Norton say “Strategy is based on a differentiated customer value proposition. Satisfying customers is the source of sustainable value creation.”
- value creation,
- value delivery,
- and value capture.
And they are all related to customers. For that matter an entrepreneur becomes a business designer:
One of the most used, yet most confusing concepts in the business world is “value proposition.” Many believe they know what they’re talking about, yet you’ll be surprised to discover that what they call value proposition is either a value proposition statement or a distorted version of what it is.
The problem with this kind of distortion are multiple:
- Lack of alignments
- Lack of clarity
- Inability to design a proper value proposition
To have a deep understanding of how value proposition works, we’ll look at the prevailing theories of values available to entrepreneurs.
Jobs-To-Be-Done Theory of value
Theodore Levitt said, “people do not want a quarter-inch drill, they want a quarter-inch hole.”
Therefore, this theory focuses on the jobs-to-be-done by the potential customer. A jobs-to-be-done analysis allows switching the focus toward
- The “job” the customer is trying to get done. This is the unit of the analysis
- Groups of people trying to get a job done define the market, rather than focusing on a product, or features of a product
- Customers become job executors
- This implies that you can group customers’ demographics and psychographics based on the struggles they experience in getting the job done
A job is defined as:
A “job” is not a description of what the customer is doing, the solution they are using, or the steps they are taking to get a job done. Rather, the “job” statement embodies what the customer is ultimately trying to accomplish.
According to the jobs-to-be-done theory, which also informs the value proposition canvas, those jobs can be summarized as:
- Functional jobs
- Social jobs
- Emotional jobs
- Supporting jobs
But is this theory all that is when it comes to value proposition? This, of course, is one model available.
Value proposition: tell me why I should buy from you
Kotler – in his book “Kotler on Marketing” – defines a value proposition as to answer a key question for your potential customer: “why should I buy from you?”
According to Kotler, a value proposition is critical as it helps define the context in which the product needs to be positioned. More precisely the value proposition development has to go through four steps:
- Band positioning
- Specific positioning
- Value positioning
- Total value positioning
In the brand positioning, for instance, Michael Porter advised a company should be focused on achieving an advantage either as a product differentiator, a low-cost leader or a niche.
Other frameworks, like the three-way framework from Treacy and Wiersema, proposed the value disciplines, or becoming the product leader, the operational leader, or achieve customer intimacy.
In all those cases, focus is key.
And just to be sure, it isn’t like being competitive in all those aspects can’t be possible. It is that for that to happen, you need such a budget that a few organizations would make it.
The specific positioning is about – in many cases – choosing a single major benefit that ranges across possibilities such as best quality, best performance, least expensive, easiest to use and more.
More precisely, according to Kotler, the specific positioning could be
- 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.”
- More for more
- More for the same
- The same for less
- Less for much less
- More for less
It all starts with a profitable and scalable business model
A value proposition design is critical for the success of a company. Yet it is important to insert it in but to make it work you need to insert it in the context of a scalable and profitable business model.
Thus, before jumping into the value proposition design, you can deeply understand what a business model is and how it works.
Once you understand what a business model is you can start designing it. There are several methodologies to do it, I’d suggest you start with the business model canvas.
As you will notice, while the business model canvas is a great tool at “hindsight” to analyze and understand other organizations’ business models, you might want to use the lean startup canvas to draft your startup business model.
The value proposition canvas
Once you get through those resources you’re ready to dive into the value proposition canvas.
In fact, the value proposition canvas is like a plug-in to the business model canvas.
In fact, the value proposition canvas focuses on two segments of the business model canvas: “value propositions” and “customer segments.”
What is a value proposition? The value proposition is about how you create value for customers.
In short, it describes the benefits customers can expect from your products and service, and how it can help them solve pain points and generate short and long-term gains.
What is a value in the value proposition canvas?
The value proposition is really about understanding your customer’s problems and needs.
In short, this is the primary reason that makes you unique compared to others.
You don’t need a thousand words to communicate your value proposition. You need a line:
In fact, today one of the most critical drivers for DuckDuckGo growth is privacy.
Where Google has built its business model on the data of its users, DuckDuckGo throws that data away to make the search experience as private as possible.
Thus, with a single line, DuckDuckGo is communicating what makes it unique compared to other search engines, what issue can it solve (privacy) and what gains a user has (avoid tracking from Google).
As pointed out on strategyzer.uservoice.com there are several elements of the product or service that help craft a compelling value proposition:
- “Getting the job done.”
- Cost reduction.
- Risk reduction.
Those elements are critical to putting together a value proposition that comprises two main aspects: customer profile and a value map.
The customer profile
A customer profile needs to be understood in the function of the market in which the customer is served.
In other words, it doesn’t make sense to make grandiose plans or assumptions about your customers.
Those need to be tested and validated by looking at three aspects.
Understand what’s important and what’s insignificant about customer jobs
Understanding customer jobs might comprise the set of tasks your customers are trying to perform what problems they are encountering and what needs they’re trying to satisfy.
The aim is to prioritize and find what’s important and what’s insignificant. There are several types of jobs to take into account as explained by strategyzer.uservoice.com:
- Functional jobs.
- Social jobs.
- Emotional jobs.
- Supporting jobs.
Understand what extreme and what’s moderate about customer pains
One of the most valuable aspects of a product or service is its ability to relieve customers from a pain point, a problem they have, the obstacle that prevents them from getting the job done.
Thus, this process is really about understanding customers’ frustrations, problems, and pain points.
The main aim is to understand the intensity of those problems as a sort of thermometer that tells you what issues are extreme and what are moderate.
Understand what’s essential and what’s nice to have by generating customer gains
Those comprise the gains that customers required, expects, and desires within the product or service to make them come back.
Also, there is another critical aspect which is about unexpected gains that can be a powerful lever to hook your customers. Hooking is not about creating tricks that make them stick. But creating so much value that they want to get back to your product and service again and again.
Once profiles the customer it is essential to create a value map.
The value map
Once understood the customer profile, the value map is the tool to fill in the blanks and make the customer profile reflected in the product or service.
In short, the value map allows you to be clear and structured on what specific steps to take to make your customers happy, avoid the pain and what particular features will help.
Thus you want to focus on three aspects:
- Products and services.
- Pain relievers.
- Gain creators.
It’s all about product-market fit!
The goal of the Value Proposition Canvas is about designing the value proposition that can make you reach the so-called product-market fit.
Have you reached it yet? If not, it’s time to design your value proposition with the value proposition canvas.
Beyond value: demand generation and why it matters
The common and most accepted entrepreneurial theories of value, stem from the assumption that value exists. That in many cases that can’t necessarily be generated a new. However, that is not the case.
Extremely successful companies are those able to create a brand that resonates in people’s minds so that even a commodity will be perceived as a status quo, a tool to feel special or to communicate identity.
One example of that is Nike and its ability to use “innovation” as a way to infuse demand generation into its shoes, which otherwise might be well-considered commodities:
This is called demand generation, and it’s at the base of a strong brand, thus a company with a strong business model, where the value proposition is not drawn from existing pains potential customers might experience, but it’s rather created by the brand, and it leverages on psychological clues that help the desired audience feel moved and inspired.
Demand generation isn’t an inexpensive endeavor. Quite the opposite, finding and distributing the message the amplifies the brand requires a lot of experimentation. And once you stumble on that message, ensuring it gets properly distributed might cost real bucks.
For instance, by 2018, Nike spent $3.5 billion in demand generation alone:
As Steve Jobs put it in a speech dated 1997:
To me marketing‘s about values this is a very complicated world it’s a very noisy world and we’re not going to get a chance to get people to remember much about us no company is and so we have to be really clear on what we want them to know about us.
Nike sells a commodity they sell shoes and yet when you think of Nike you feel something different than a shoe company and their ads as you know they don’t ever talk about the product they don’t ever tell you about their soils and why they’re better than Reebok so what Nike is doing in their advertising they honor great athletes and they honor great athletics that’s who they are that’s what theyare about.
Apple is a champion in demand generation. Yes, the company is a tech giant, with billions of dollars spent in R&D. According to LinkedIn the company employees more than thirty-six thousand engineers and almost thirty thousand IT people as of November 2019. And by 2019 it spent over $16 billion in R&D.
At the same time, the company spent over eighteen billion in sales and administrative expenses primarily due to higher spending on marketing and advertising and infrastructure-related costs (FourWeekMBA Analysis from Apple‘s financial statements).
Apple always focused on creating iconic ads campaigns to amplify its brand values:
Amazon value proposition case study
While Jeff Bezos has highlighted over and over again that Amazon is about customer obsession. Don’t be fooled by that. While Amazon does leverage operational efficiency, speed, and convenience, the company’s brand is as important to make sure people trust it enough to prefer that to the local store in the neighborhood.
Value and brand building activities
Alignment between value offered and its storytelling
Value and business model innovation
Breaking down the trade-off between cost and value
Win-win-win value-driven approach
You take an industry, a niche or a microniche and you make it more valuable through your business by crafting a value proposition that aligns the interest of several stakeholders. Thus, a multi-faceted value proposition centered around a product and service can align several interests, and create multi-million if not billion industries.
Google, the search engine, has so far a symbiotic relationship with the billion users worldwide, the millions of publishers that enrich its organic index, and the businesses that pay to be featured within its advertising index.
While Google‘s recent updates worry many publishers as those added features (mostly instant answers) give answers to users without sending back traffic, thus potentially reducing the opportunities for them.
In the last two decades, Google has propelled entire industries, it has enabled the development of multi-billion dollar companies built on top of its free traffic (companies like TripAdvisor, Booking, Airbnb, Quora and more) thus establishing industries that otherwise would have not existed without it, in the first place.
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