Value proposition

A value proposition is a promise of value to be delivered, communicated, and acknowledged. It is

also a belief from the customer about how value (benefit) will be delivered, experienced and
acquired.

A value proposition can apply to an entire organization, or parts thereof, or customer accounts, or
products or services.

Creating a value proposition is a part of business strategy. Kaplan and Norton say "Strategy is based
on a differentiated customer value proposition. Satisfying customers is the source of sustainable
value creation."[1]

Developing a value proposition is based on a review and analysis of the benefits, costs, and value
that an organization can deliver to its customers, prospective customers, and other constituent
groups within and outside the organization. It is also a positioning of value, where Value = Benefits -
Cost (cost includes economic risk).

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
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, 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.[3]

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.[4] 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.[5] 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.