value proposition (VP) definition

Contributor(s): Rachel Lebeaux

A value proposition (VP) is a statement that clearly identifies what benefits a customer will receive by purchasing a particular product or service from a particular vendor.

A 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, along with the approximate price it will charge each customer segment for those benefits."

This was first published in October 2012

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