Definition

value proposition

A value proposition is a statement that clearly identifies the benefits a company's products and services will deliver to its customers.

A well-crafted value proposition will differentiate the company and/or its specific product or service in the marketplace and among a target market or target audience.

A company should view its value proposition statement as an opportunity to tell customers why the company, its product or its service is the best one to buy. It summarizes why the company can best meet the customer's needs or best solve the customer's problems.

The value proposition should do this in a concise, easy-to-understand format that customers will remember.

As such, a value proposition should be seen as a way to win customers, gain their loyalty, position the company in the market, boost sales and ultimately confer a competitive advantage.

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 & Co. In the paper, "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."

Importance of value proposition

A value proposition serves as both a marketing statement and a sales pitch, but it is more expansive than simply a slogan, catchphrase or positioning statement.

A company should craft its value proposition to a target audience, and it should craft a proposition statement that speaks to the value or values that target audience seeks to get from the company. For example, a value proposition aimed at customers that want reliability should speak to the reliability of the product or service, while a proposition statement aimed at customers who value functionality should highlight the product's qualities in that regard.

Because a value proposition is intended to differentiate a company or product for customers, it should be crafted to be memorable and work in multiple locations, from the company website to promotional materials to tradeshow pamphlets.

How to create a great value proposition: Core elements

A company should seek to create a unique value proposition that its target market can understand quickly and intuitively.

Although each company's value proposition should be unique, value propositions generally share several of the same key elements. They usually have a headline (often just a single brief phrase or sentence) that communicates the benefits or value it will deliver to customers. This headline should be visually bold, and its message or even its exact words should be memorable.

Text that follows the headline should offer further explanations on how the company and/or its products and services deliver the promised benefits, as well as how it does so better or more uniquely than its competitors. The design of this text can vary, from a paragraph format to list form. Well-designed value propositions also include engaging visual elements that reinforce the message.

However, value propositions should not contain jargon, buzzwords or abstract concepts that leave the target audience confused or unable to quickly take away the key benefits they're being promised in the value proposition statement.

Moreover, a company should test proposed value propositions among its target demographic to determine whether they successfully convey the intended messages. It also should measure the impact of its value propositions along key metrics, such as conversion rate, to determine whether it is generating the desired market advantage.

Employee value proposition

In addition to using a value proposition statement to differentiate the company, or its products and services, to customers, companies should consider creating value propositions to attract and retain employees, according to Richard Mosley, global vice president of strategy at Universum.

In a 2016 article on talent management published in the Harvard Business Review, "How the Best Global Employers Convince Workers to join and Stay," Mosley argued that to attract top-notch talent, employers need to be able to state what distinguishes their company culture and employment from their competitors. "One way to clarify what makes you different is to create an 'Employee Value Proposition,' which sets out the qualities that make you special to your employees," Mosley stated. He described how "Adidas defines 'six beliefs and qualities' ... that differentiates them from competitors like Nike."

This was last updated in December 2018

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