Overview
A value proposition is a statement which identifies clear, measurable and demonstrable benefits consumers get when buying a particular product or service. It should convince consumers that this product or service is better than others on the market. This proposition can lead to a competitive advantage when consumers pick that particular product or service over other competitors because they perceive greater value. The phrase "value proposition" (VP) is credited to Michael Lanning and Edward Michaels, who first used the term in a 1988 staff paper for the consulting firm McKinsey and co. In the paper, which was titled "a business is a value delivery system", the authors define value proposition as "a clear, simple statement of the benefits, both tangible and intangible, that the company will provide, along with the approximate price it will charge each customer segment for those benefits". In a modern, clear-cut definition, Labeaux defines a value proposition as a statement that clearly identifies what benefits a customer will receive by purchasing a particular product or service from a vendor. According to Hassan, however, there is no specific definition for value proposition. Creating and delivering value proposition is a significant issue that marketing planners need to consider in planning strategies. Value propositions vary across industries and across different market segments within an industry. Capon and Hulbert linked the success of firms in the marketplace to the value provided to customers.Capon, N., & Hulbert, J. (2007). Managing Marketing in the 21st Century: Developing & Implementing the Market Strategy. Wessex, Inc. They introduced a principle of customer value, with customer insights driving the company's marketing activities. Customer value should also drive investment and production decisions, because customers perceive value on the benefits of the product or service they receive. Consequently, as the environment changes, and the customer experience and their desires change, the value they seek changes. As a result, companies are pressured to invest more resources in marketing research; allowing them to gain deep customer insights and, thus, improve value proposition. Consumers are always looking around for the best possible deal at the best quality and how these products or services will contribute to their success. The value proposition is the promise that the business will give the consumer to assure best possible value. The value proposition is a creative statement that depicts the unique selling point. Without this statement you lose an opportunity to tell consumers why they should pick you over competitors. An important goal in a business is to convince customers that they are getting many more benefits. Coming from a customer's perspective, buyers are not only asking how this product is different to one they may already be using, but what value this product or service may have. Customers are looking for answers that may improve or replace products or services. Customers will never buy a product or service if they don't feel like they are receiving the best possible deal. Therefore, the value proposition is important to businesses and their success. The value proposition is to differentiate the brand from competitors. To understand and get an idea about the value proposition it is important to analyze the business through theValue-focused enterprise model
Creating a value-focused enterprise (VFE) requires a fundamental rethink of the way things are organized and managed. This is at the heart of theThe value cycle
Value proposition is by definition what the company offer differs from its competitors and explains why the customers buy from the company. Furthermore, it defines the relationship between: the performance attributes of products or services, the fulfillment of the needs of particular customers and the total cost. Osterwalder and Pigneur state that the value proposition must be studied through its entire value life cycle.Osterwalder, A. & Pigneur, Y. (2003), "Modeling Value Propositions in e-business", ICEC '03 Proceedings of the 5th international conference on Electronic Commerce, pp 429-436 Value elements can be created in each of the five stages of the value life cycle. These stages are: value creation, value appropriation, value consumption, value renewal and value transfer: # Value creation: The value creation can be best described as a set of interdependent activities that add value for the customers to the company products and services. The traditional view of the value creation process doesn't allow customers to take part in feeling the value. Marketing and research and development are mainly responsible for adding value at this stage based on historic data and observation. However, in modern times, the customers of several companies are included in this stage. Nowadays the stage of value creation is the essential point of any business. Creating value for customers helps the company to sell its products or services, while at the same time it makes the investors happy. Moreover, as the value for the customers increases, the revenues together with the stock prices of the company increase. This guarantees the future access to capital that can be used for future investments and creating even greater value for the customers. ## There are three main components in value creation network: ### Key partners: The companies use the resources, knowledge and capabilities of their partners. The most important partners that a company can have are the owners, employees, suppliers, the government, education institutions, etc. ### Key activities are the activities that needed to be done in order to create a value proposition for the customers from the available resources. It shows all of the crucial activities and links between the company and its partners that are necessary to create value for the customers. ###* Key activities can be divided as: ###* Internal key activities are the activities that are made inside the organisation ###* External key activities are the relations between the organisation and its partners ### Key resources are the main assets that are needed in the process of adding value to the product or process for the customers. # Value appropriation: value can be created in this stage by developing, improving and facilitating customers' buying experience. This can be done in two steps. The first step is improving how transactions are made. In this step, companies are trying to facilitate buying for customers. An example for this can be Amazon.com's one click buying which allows customers to make a purchase using one click. Facilitating purchases of expensive goods can include innovative price negotiation mechanisms, contract management, convenient billing and payment or attractive financing mechanisms. The second step is improving fulfillment. For some companies, this step is very important and they adjust their whole value proposition to fulfillment. # Value consumption: This is core to the value proposition. At this stage, customers see and feel the value through the actual use of the product or the service. Value is maximized when value proposition's aspects match the customer's needs. # Value renewal: In some cases, it is possible to renew value during or after its consumption when value is used up, becomes obsolescent, is dysfunctional or when it expires. Value renewal also includes steadily updating value, where by adding new features to existing value preposition customer value is increased. # Value transfer: At the last stage of the value cycle, there is a possibility that a customer transfers the acquired value after its consumption. Reason for this might be loss of value in value proposition, or because transfer of value will result in higher benefits for the customer.Value status
Perceived value and willingness to pay are correlated. Customers are willing to pay in several circumstances, a few examples being; when they are faced with different offers, when they are in a partnership with the supplier, when the need to buy is urgent, when there aren't any substitutes, and when there is a high positive relationship between the value perceived and the price. Companies must choose the best pricing strategy to deliver value for both the customer and corporate perception. Capon & Hulbert introduced some factors that a firm must consider before making pricing decisions. Some of these factors include: # Perceived substitutes: differentiation on offers and prices compared to competitors. # Unique value: customers weigh the benefits and features of the product and perceive these benefits as a unique value provided solely by the organization. # Price/Quality: firms should consider that customers will seek to have a positive price/quality relationship for a product to make a purchase decision. Zeithaml studied three consumer defined values: Low price, Quality and value for money, and Features. The study concluded that perceived value is the customer's overall assessment of the utility of a product based on perceptions of what is received and what is given. Some Customers may see value in cheap prices, and other may see value in volume obtained. The startup literature acknowledges that value is created from providing a solution to a problem. But in The Value Mix, de Ternay argues that value is above all perceived and therefore creating value also depends on addressing human emotions.Innovation
It is believed by Lindic and Marques that value proposition is a significant catalyst for customer focused innovation. Kambil and Baragheh claim innovation is a phenomenon that requires a multidisciplinary approach for analysis due to its sheer complexity. Fields such as strategic management, organisational science, and information systems marketing are central to this analysis. Lindic used the example of Amazon.com; the transformation from an online bookstore to one of the world's most important online shopping services. Amazon.com has evolved through diversification from their struggling brand prior to the internet bubble burst in 2000, allowing for a great example for analysis and explanation of the potential innovation resulting from value proposition. Amazon also represents the so-called new economy yet at the same time it shares many characteristics with traditional companies. In fact, offline activities represent 70 percent of its core business. As a result, we are able to identify innovations which are common in both traditional and new economy companies. included features like the possibility to search among books based on not only book titles, but also keywords spread throughout the content, reducing the consumers time and energy for finding their desired item. Another was the patented “one-click” feature, allowing customers to efficiently purchase goods without having to repeatedly submit their payment and shipping information. All of these minor adjustments over time were the result of developing value proposition, ultimately leading to the success that Amazon.com is today. Lindic has developed a PERFA framework to evaluate this concept of value proposition in regards to innovation. Meticulously matching innovations' effects on customers with existing definitions found in the existing literature led to the following five elements that altogether represent a complete overview of all value propositions generated by innovations at Amazon.com. These are Performance (P), Ease of use (E), Reliability (R), Flexibility (F), and affectivity (A). Bonner states that the performances of innovations or new goods or services offered to customers is a result of a superior company's offering in terms of quality, technical performance, features and ability to meet customer needs and demands. This perspective emphasises innovation as a generator of performance in a customer-oriented way. Ease of use refers to the degree to which a person believes that using a particular system or product will be effort-free (e.g. the ease of search and acquisition, usability, personalisation, service, and support). All else being equal, a feature or application perceived as easier to use than another is more likely to be accepted by users, according to Wang. In Tornatzky and Klein's meta-analysis of the relationship between the characteristics of an innovation and its adoption, they found compatibility, relative advantage, and complexity have the most consistent significant relationships across a broad range of innovation types. Complexity is defined as “the degree to which an innovation is perceived as relatively difficult to understand and use”. Therefore, the easier it is to use an innovative application or feature, the more likely it is to be accepted by the user. Consequently, ease of use reduces the cost included in the value proposition equation and increases its value. Reliability is defined as “the ability to perform the promised service dependably and accurately” according to Pitt. Raaij and Pruyn similarly perceive reliability as the ability of a product to deliver according to its specifications. Innovation may, therefore, add to the value proposition for customers by performing in accordance with the standard set for products and services. Flexibility is perceived as necessary in order to maintain the fit of an organisation and a changing environment. It describes a firm's ability to reallocate and reconfigure its organisational resources, processes and strategies as a response to environmental changes. In other words, flexibility is materialised through the dynamic capabilities of a company which enable it to integrate, build and reconfigure internal and external competencies in order to face rapidly changing environments. Affectivity addresses the feelings or emotions associated with working with a company or using its products and services. Atken states it is highly correlated with a sense of belonging to a certain group or class. It is also correlated with the concept of co-branding, where a brand or company may be associated with the attributes of the product or benefits derived from it. Such a brand generates emotions and feelings among its customers. Kambil argues that the value proposition concept is too vague to be useful for innovation; however, Lindic and Marques' research indicates that if systematically decomposed, the value proposition holds a vital role in the innovation process.Kambil, A., Ginsberg, A. and Bloch, M. (1996), "Re-inventing value propositions", Working Paper IS-96-21Strategy and marketing
Businesses can use the value proposition to not only target customers, but partners, employees and suppliers. The creative statement should be able to persuade other businesses to create an alliance, which will be helpful in the long run. Joining up with another business can be a very powerful strategy. When businesses align their strengths seem to stand out, and their weaknesses become less noticeable. This makes their products and services stand out to consumers. Creating an alliance with another firm can increase a businesses brand awareness; create a larger customer base, new insights on products and access to new technologies to improve how the business runs. This strategy creates a competitive advantage over other competitors. The value proposition should be able to influence new employees or motivate existing employees to support the businesses goals and plans. Employees can improve the business client base and build a stronger relationship. Treating employees well, by offering bonuses or special deals they are more likely to take on more responsibility and promote the business they work for. This alliance within the business can promote products or services throughSee also
* Customer value proposition * Employee value proposition *Footnotes
References
* * * * *Kambil, A., Ginsberg, A. and Bloch, M. (1996), "Re-inventing value propositions", Working Paper IS-96-21