What is a Value Proposition?
A value proposition is a promise of value stated by a company that summarizes how the benefit of the company’s product or service will be delivered, experienced, and acquired. Essentially, a value proposition specifies what makes the company’s product or service attractive, why a customer should purchase it, and how the value of the product or service is differentiated from similar offerings.
Generally, the value proposition is addressed to the company’s target customers or target market segment. The proposition takes the form of a short, clear, and concise statement of the tangible and intangible benefits that will be delivered to customers. The perfect proposition must quickly transmit the values to potential customers without the need for further explanation. Each proposition must be unique, as it is a method to communicate the differentiation points of a company to the target customers.
The value proposition must not be confused with slogans and catchphrases, as the latter two may not clearly convey the benefits of a company and its products.
Importance of a Value Proposition
The development of a value proposition is a vital part of a company’s business strategy. Since the proposition provides a company with a method to influence the decision-making of customers, it is frequently displayed on the company’s marketing materials, such as a website.
The value proposition is a powerful tool to drive sales and build a customer base. Additionally, a perfect and compelling value proposition can advance the effectiveness of the company’s marketing strategies. Generally, it is regarded as the most effective and wide-reaching marketing activity.
How to Create a Value Proposition
As we’ve already determined, the perfectly tailored value proposition can become a huge success factor for a company. However, the creation of a powerful proposition is a challenging yet rewarding task for every business. Below, we have listed some tips that will help you to create an effective one:
1. Know your customers
Before creating your value proposition, you must analyze the market and potential customers. Identify your target customers and target market segment to understand their desired benefits.
2. Understand your costs and benefits
Identify and assess the benefits delivered by your company and its products or services, along with the costs incurred to provide them. It is important to do this because the value to your customers is essentially the difference between the benefits and costs of your product or service.
3. Don’t forget about your competitors
After the analysis of target customers and your own company, evaluate the competitive landscape in the market. Determine the strengths and weaknesses of your major competitors and identify ways you can differentiate your business from them.
4. Be clear and concise
Don’t forget that an effective value proposition is clear and concise. Your target customers must quickly grasp the message you want to convey. It should not exceed two or three sentences.
5. Design is king!
Make your proposition visible and appealing on all marketing materials (e.g., website). Remember that if you have created a powerful value proposition, but no one can see it, the effect of the proposition will be zero!
CFI offers the Financial Modeling & Valuation Analyst (FMVA)™ certification program for those looking to take their careers to the next level. To keep learning and advancing your career, the following CFI resources will be helpful: