Value proposition refers to a business or marketing statement that a company uses to summarize why a consumer should buy a product or use a service. This statement convinces a potential consumer that one particular product or service will add more value or better solve a problem than other similar offerings will. Companies use this statement to target customers who will benefit most from using the company’s products, and this helps maintain an economic moat.
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.”
Creating a Successful Value Proposition
A company’s value proposition communicates the number one reason why a product or service is best suited for a customer segment. Therefore, it should always be displayed prominently on a company’s website and in other consumer touch points. It also must be intuitive, so that a customer can read or hear the value proposition and understand the delivered value without further explanation.
A successful value proposition has a bold headline that communicates the delivered benefit to the consumer. The headline should be a single memorable sentence, phrase or even a tagline. A sub-headline is often displayed below the main headline, expanding on the explanation of delivered value and providing a specific example of why the product or service is superior to others the consumer may be considering. The sub-heading can be a short paragraph between two and three sentences, with bullet points below the sub-heading to list the key features or benefits of the product. This allows consumers to scan the value proposition quickly and pick up on the product features. Added visuals increase the ease of communication between business and consumer.
Value propositions can follow different formats, as long as they are unique to the company and to the consumers, it is servicing. However, all effective value propositions are easy to understand and demonstrate specific results from a customer using a product or service. They differentiate a product or service from any competition, avoid overused marketing buzzwords, and communicate value within five seconds.