Business-model-canvas- value proposition

© Entrepreneurial Insights based on the concept of Alex Osterwalder

In this article, we will explore, 1) what is a value proposition, 2) elements of the value proposition, 3) designing  a value proposition, and 4) a case study.

WHAT IS A VALUE PROPOSITION?

In simple terms, a value proposition makes a case for why a customer should pick one product over another, citing the unique value the product provides over its contenders.

The Business Model Canvas value proposition provides a unique combination of products and services which provide value to the customer by resulting in the solution of a problem the customer is facing or providing value to the customer. This is the point of intersection between the product you make and the reason behind the customer’s impulse to buy it.  A product can have a single value proposition or multiple value propositions.

Most start-ups fail to define their value proposition before they launch their products. This is because entrepreneurs tend to give too much credence to the ‘idea’ they have and run with it as opposed to exploring how this idea would actually perform in the market.

It is important for a product to solve a problem in a unique way. The problem could be unworkable, unavoidable, urgent or underserved. On the other end of the spectrum, the need for your product or service could be blatant, critical, aspirational or latent. A blatant need, as the word suggests, is one openly voiced and expressed by the customer. A latent need, conversely, is one which the customer himself may not be aware of having. A critical need is an immediate need that the customer MUST have fulfilled.

ELEMENTS OF THE VALUE PROPOSITION

Newness

Some value propositions are based on the newness or novelty factor that they provide. This element usually comes into play for technology-intensive products.

The telecommunications industry was spawned through the newness element. Originally the market for cellphones was very small but once the technology became more mainstream the market for the product expanded exponentially with increasingly advanced cellphones and smartphones being created to take advantage of the telecommunications technology.

Performance

Better performance has been the hallmark of many product offerings over the years with most industries managing to thrive for decades on improved performance versions of the same products. Intel doubles the speed of its chip every year, resulting in faster computers able to support much more sophisticated software.

Customization

The modern consumer believes in self-expression and individualism. They expect the products they use to be an extension of their personality and a medium through which they can communicate their values and priorities to the world. Providing the option to tailor the product to the consumer’s preferences adds value for the customer. In recent times products have gained heavily on market share through utilizing concepts such as mass customization or customer co-creation. Where traditionally customization has resulted in prohibitively expensive products, today this option provides the opportunity for customers to put their personal stamp on a product while still providing economies of scale.

Nike lets its customers customize their shoes through NikeID on their website. A consumer can go online and create a completely original design with their preferred color palette, placement, color and size of the swoosh etc for their shoes. They can see what the end product will look like visually, play around with different permutations till they reach a result that suits their tastes and then order the final product when they are ready.

Getting the job done

When a product helps a consumer or business reach the end goal, its value proposition is getting the job done. Rolls Royce is best known for the cars they make but one of their major value propositions is getting the job done through the jet engines they manufacture and service for Boeing as well as providing financing through leasing.

A product whose value proposition is ‘getting the job done’ enhances the customer’s productivity and helps the customer to focus on more relevant details.

Design

Most clothing labels rake in a higher price tag because of the superior design they have. Prada charges top dollar for something as simple as a T-shirt because of the strength of its designs.

Brand/ Status

Design and brand/status can be clustered together because their appeal is quite similar. Just as people will show loyalty to a brand because of its design, people will also show loyalty to a design because of the perceived status the brand name itself lends to the owner or user.

Almost everyone today owns and wears a watch on a regular basis but the brand of the watch could vary from your local watchmaker/ jeweler to the iconic brand Rolex. A Rolex is more than just a watch though, it is a statement that the wearer has money and status, since even a simple Rolex is exorbitantly expensive compared to regular brands.

Ultimately a brand/ status intensive product will help the customer look and feel in control, important and part of the in-crowd.

Price

One of the most common elements a value proposition is based on is price. There are many companies that enter into the market with the premise that they are providing a product or service which is cheaper than the existing options in the market. However, organizations competing on price, or in some cases, even offering free services, usually have different business models to sustain the organization.

One example is the spate of ‘no frills’ airlines that sprung up like Southwest airlines. Southwest offered fares equivalent to a bus-ride, however, in a complete about face from the traditional airline, they did away with all the extra services which formed the pomp and show traditional airlines charged a premium for. In doing so, Southwest opened air travel up to a section of the market which had been previously untapped; the common man.

Cost Reduction

Products and services catered towards enhancing customer experience by reducing the cost a customer would ultimately incur cater to the cost reduction value proposition.

Technology has played a great role in helping consumers reduce costs. One such example is Salesforce.com which allows customers to use a customer relationship management software for a fee, voiding the need for the customer to buy the software, hardware and install and run it, each action associated with a significant cost.

Risk Reduction

The less risk associated with purchasing a product or service, the more value a customer derives from it. A reduction of the risk associated with a purchase provides peace of mind to a consumer. One example of this is the one year service warranty received when buying a used car. In the buyer’s mind, the risk of buying a second hand vehicle is diminished by the comfort of having the warranty.

Essentially a product whose value proposition is Risk Reduction aims to make people feel safer, whether real or imagined safety, as well as guarantees a solution to a problem he/ she is facing for a time bound period.

Accessibility

Another key ingredient for an effective and robust value proposition is making a previously inaccessible product or service available to a consumer segment. Innovative technologies and variations in business models have both led to offering accessibility to unserviced customers. NetJets is a wonderful example of providing accessibility. The company allows individuals and corporations to have access to private jets, which has traditionally been cost prohibitive and therefore unavailable to many who did not have the cash reserves to afford this luxury.

Convenience/ Usability

Providing consumers with a product that increases their convenience or is characterized by ease of use is a very strong value proposition and one on which some companies have built empires and legends around. One example of this type of value proposition is Apple which through its iconic iPod provided consumers with a convenient way to listen to music and by pairing it with iTunes, increased the convenience factor significantly; since now users could easily search, download and play songs, all through one medium!

DESIGNING A VALUE PROPOSITION

value proposition

© Entrepreneurial Insights based on the concept of Alex Osterwalder

When designing a value proposition we often use traditional tools and models instead of thinking outside the box or taking into consideration how much technology, businesses and consumers have evolved. Ultimately, we need to understand whether what an organization delivers actually matters or is it relevant to a customer’s needs.

A value proposition can be more effectively designed by utilizing a value proposition canvas, which is essentially an equation of three key ingredients. First, the entrepreneur needs to understand the customer in its entirety by creating a customer profile through analyzing customer jobs, their pains and their gains. This is followed by a value map which clarifies the products and services offered to the customer, their pain relievers and gain creators. Finally a Fit will be achieved when a match is achieved between the Customer Profile and the Value Map.

Products and Services

It is important in the beginning to do an evaluation of the products and services around which your value proposition is built.

Products can be either tangible or intangible. They can also be characterized as digital or financial. When designing and evaluating your value proposition, it is crucial to get inside the customers head. A useful exercise would be to rank your product and services offerings in order of importance to the consumer. For this, the company needs to understand the appeal of the product. Is it a must-have for the customer because it fulfills a basic need? Or does it serve a functional, social or emotional requirement?

Pain Relievers

Your product or service must solve a problem the customer is facing. In essence it is relieving a chronic pain that the customer goes through on a regular basis and which no other product has been able to alleviate to the same degree. This pain could take the form of emotional stress, higher costs and increased risks

An effective way to evaluate your product is to analyze whether it generates lower usage of customer resources such as time, effort or money; Produces a positive change in the customer’s life by reducing his/ her frustration, monotony or boredom; resolve the challenges customers may face, reduce the chances of negative social stigmas and behaviors, reduce risks, alleviate stress, reduce chances of error, eliminate barriers between the customer and a possible solution etc.

By ranking the intensity with which each of these pains impacts your customer and the frequency of their occurrence, an entrepreneur can build up a detailed analysis of the pain relievers the various products and services in his/ her repertoire represent for customers.

Gain Creators

In this section, an entrepreneur needs to evaluate how the products and services in his portfolio lead to customer gains. An effective metric would be to understand how aspects of your products and services would enhance the customer experience by fulfilling his/ her expectations and wishes and even going beyond to surprise and delight him/ her.

The entrepreneur can analyze whether the product or service results in savings that delight the customer, has results that meet or surpass customer expectations, produce better results than the alternatives the customer is currently using, result in positive social relationships and status, fulfill a customer need and are easy to adopt, among other concerns.

By ranking the intensity with which each of these gains impact your customers and the frequency of their occurrence, an entrepreneur can build up a detailed analysis of the gain creators the various products and services in his/ her repertoire represent for customers.

Steps for using the Framework

In short, following are the main steps for using the framework effectively and efficiently;

  1. Jot down all the products and services in your portfolio which combine to make up your value proposition
  2. Describe how your value proposition contributes to eliminate your target customer’s pain points. Separate sticky notes should be used for each pain reliever
  3. Describe how your value proposition contributes a positive result for your target customer. Separate sticky notes should be used for each gain creator.
  4. Ultimately all three elements; products and services, pain relievers and gain creators should be ranked according to their relative importance to the target customer.

Best practices & Common mistakes when using the Framework

Best Practices

  1. List only the combination of products and services that directly provide value to the relevant customer segment.
  2. Pain reliever and gain creators list characteristics of your products and services that are of relevance to the target customers.
  3. Products and services will be of value to customers only if they match the target segment’s profile, pains and gains
  4. It is imperative for an entrepreneur to understand that no product or service will be able to meet all the pains and gains in a customer’s profile. Instead the entrepreneur needs to prioritize which pains and gains their product and service should match.

Common Mistakes

  1. Mention all the products and services in your portfolio regardless of the specific customer segment they target.
  2. Categorize your products and services as either pain relievers or gain creators.
  3. Add additional pain relievers and gain creators even if they don’t match the pains or gains in your target segment’s profile
  4. Try to resolve all pains or gains of the target segment.

CASE STUDY

Evernote is an online company aiming to provide mobile professionals with the capability to take notes while they are on the move.

The main webpage provides a detailed overview of how the product and its various features can help its target market store organize and interpret a seemingly random hodgepodge of information and data. The website makes the features of the service as well as the overall experience come alive for the consumers, helping them understand how they can benefit by using the service.

The trifecta of the service features, the advantages of using Evernote and the overall customer experience are matched exactly to the customers wants, needs and fears. The company has also created further bifurcation of its customer segment so that each page is tailored to a specific kind of customer with the inherent benefits the customer can reap mentioned as well, creating a rudimentary level of customization.

The website’s value proposition is a quick and simple tool that syncs easily with other platforms so sharing ideas is convenient.

Products and Services

  • One workspace for all
  • Write everyday
  • Work together
  • Gather research
  • Find everything fast
  • Share your ideas
  • Stay in sync

Pain Relievers

  • Removes the need to carry notebooks, consolidated notes or other forms of data around
  • Removes the need for complicated slides during meetings
  • Single place to save online material available on a topic of interest
  • Economically accessible for individuals without requiring a heavy investment in hardware or software

Gain Creators

  • Provides a common working space for a team to share ideas and information
  • Provides access to freelancers, and individuals to a free service where his or her notes are backed up and available to him at a moment’s notice,
  • Cost effective for individuals who can use the service for free
  • Provides tools that help customers effectively and efficiently plan and execute projects.

Share your thoughts and experience

E-mail is already registered on the site. Please use the Login form or enter another.

You entered an incorrect username or password

Sorry, you must be logged in to post a comment.