Define Value Proposition

Value proposition which is an essential element of an elevator pitch, should be simple and easy to remember. It should emphasize both the benefits the customer will receive and the price the customer will be charged as compared to the competition. An important goal of a value proposition is to convince the customer that he will be getting many more benefits than he is being asked to pay for. To create an effective value proposition, an organization should first determine exactly what benefits a customer wants and how much the customer is willing to pay for them. The phrase “value proposition” 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 entitled “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.

Marketing managers are faced with new dynamics in having to create strategies to build, retain and grow their brand leadership in the market using new ground rules. In the face of changing technology, increasing competition, increasing expectations of the customers and the internet media contributing to online marketing in a big way, the challenge for Marketing managers to build a marketing strategy taking into account all the above factors makes their job a lot more tougher than what it used to be in the yester years.

It is also the right time now, for the Marketing managers and managements to re-think of their focus and internal culture to bring about a change in a new direction. Companies need to focus on building a culture that promotes innovation in product and service offering and in cultivating this as an integral part of the Organizational culture. The survival of the organizations today depend upon their ability to understand the markets, the customer, identify their niche value proposition and in striving to keep ahead of customer expectations through building superior value proposition to the customer.

To understand the meaning of building superior value proposition, we would first need to understand the concept of what is a value proposition in the eyes of a customer. Different customers have different expectations from the product or service that they wish to buy and accordingly they look for different value criteria that match their expectations. Brand reputation, product performance guarantee, quality and service is taken for granted and is the basic necessity for the brand to be available in the market. Value proposition in the eyes of the customer refers to his perception of the benefits that he is deriving from the product as compared to the cost that he is paying. The customer should be able to perceive a higher value in buying your product as compared to the cost that he is paying and the benefit should also be superior to what is offered by the competition. Most customers perceive the entire transaction of time and cost spent in pre-sales activities as well as the cost of buying, delivery, installation, maintenance and after sales service as a part of the total value proposition. Apart from these, there are several other factors including perceived brand reputation, product features, expert advice and guidance provided as well as the customer responsiveness of the Organization including the speed of delivery etc also figure in the value proposition.

Understanding the customer expectation helps Organizations position their value proposition and aim to satisfy the niche customer segment as well as to build loyalty amongst the customers. This is the principle that has been adapted by most companies who stand out in their chosen value proposition and command leadership in the market. Apple chooses to build on its superior product innovation capability and commands a huge loyalty across the globe. It is not uncommon to see people queuing up in front of the Apple stores well ahead of a new release of Apple Phones. Ask any Apple customer, they will tell you that an Apple Fan is a lifetime fan and cannot think of looking at any other brand. Apple doesn’t come cheap. They are priced highest in the category. However their value proposition is based on superior product features, technology and the architecture which they continue to innovate and enhance the value all the time.

define Value Proposition