What is a Value Proposition?

If there’s any common ground among all strategy, innovation, marketing, and new product development practitioners, it’s that we need to have a compelling and differentiated value proposition. But if we’re all aligned as to the importance of a value prop – are we similarly aligned as to what one is? (No, we are not!) So, just what is a value proposition?

Before we can even get started with this discussion, let’s define a “product” broadly to mean more than just a tangible product, but to also mean a product attribute (aka a feature), a service, a business model, etc. A “product” is any solution that helps a customer to get a job done. It’s unwieldy and bothersome to continually say “product, service, or business model”. So, let’s not do that.  

According to the primary reference of our age, Wikipedia, the term “value proposition” is a recent one – originating with a McKinsey publication from 1988 in which a value proposition was defined as a “clear, simple statement of the benefits, both tangible and intangible, that the company will provide.”[i]

In the original definition, the value prop is a description of customer benefits. A good start but not quite good enough. We need the Who, the What, the How, and the How it does it. To remember these elements, remember these initials: WWHH.

• The “Who” – that is, “Who is the customer”? Who do we want to provide benefits for? Who do we want to help to accomplish a job better? This is typically the job executor (person who executes the JTBD). Our term for the “who” will usually be the “customer” or “job executor”. The term “customer” is a bit vague, as it could mean stakeholder or purchase influencer whereas the term “job executor” is precise – the person who executes the job. So, use “job executor” if you can.
• The “What” – the customer’s job to be done (JTBD). Their primary goal, objective, or problem to be solved. We may refer to this as the "job to be done," the “customer job”, the “job”, or the JTBD. Most of the time we will just simply use the term the "job."
• The “How”, that is, how we accomplish the job. The how is the product (please remember how we defined the word “product”). What’s the mechanism to deliver these benefits? How are we going to help them to accomplish a job better? Our term for this is most often the "product."
• The “How it does it” – This describes the performance improvement that the product will address. Our term for this is the PI.

Let’s look at an example. You work for the Acme Pillow Company – and your focus is healthcare. Here’s the value proposition for your new product, the Acme Super Pillow 2000:

The Acme Super Pillow 2000 (the “how” – the product) helps patients recovering from neck surgery (the “who” – the job executor) to obtain a restful night’s sleep (the “what”- the job) by providing sufficient vertical support to minimize stress on the neck (The “How it does it” - the PI).

The PI is a mini-VP itself. It lists a product attribute and the job that it addresses.

But what if the great and powerful Acme Super Pillow does more than just minimize stress on the neck to help patients obtain a restful night’s sleep? In other words, can you have multiple PIs? Yes, you can:

The Acme Super Pillow 2000 helps patients recovering from neck surgery to obtain a restful night’s sleep by 1) providing sufficient vertical support to minimize stress on the neck, by 2) emitting healing vibrations that increase blood flow to the neck and 3) playing nature sounds to minimize mid-sleep wake-ups.

The key thing is that all the PIs must support the primary customer job, which is this case is to “obtain a restful night’s sleep.”

Let’s try another example for the “obtain a restful night’s sleep” job. Imagine that we make nutritional supplements. Here’s our value proposition for an alternate audience:

The Acme Sublingual Magnesium Tablets help business travelers to obtain a restful night’s sleep by minimizing the number of times per night that they wake up.

Here's the value proposition template used for each statement above:

The product (How) helps customers (Who) to better accomplish a job (What) by achieving a performance improvement (How it does it).

Of course, the template is just the beginning. We have a lot of work to do to create a winning value prop. We need customer insights to understand which jobs that customers want to do better. We need to determine what area in which to improve performance. And of course, you must have the technical and creative chops to develop new products to address those needs.

Let’s review the required WWHH elements for a Value Prop:

• The “who” – the job executor, the customer to create value for
• The “what” – the JTBD
• The “how” – the product
• The “how it does it” – the performance improvement

If we have done a good job in selecting a market, if we’ve done sufficient research to understand what to be improved, and if we’ve also done a great job generating a winning concept – then we can take our value prop to the next level: the DVP – the differentiated value proposition.

For the DVP, we add a description of how our VP compares to other alternatives, that is, to the competition. For the DVP, we must add one required element. And if we choose, we have an optional element that we can add as well.

The required element is the reference competitor group (RCG). After all, if our Acme Super Pillow helps patients recovering from neck surgery to obtain a better night’s sleep. The obvious question is, “Better than what?” A regular pillow? A competitor’s pillow? Better than nothing?

Here’s the template for our original value proposition (VP):

The product helps customers to better accomplish a job by achieving a performance improvement.

And here’s the template for our differentiated value proposition (DVP):

The product helps customers to better accomplish a job by achieving a performance improvement as compared to the chosen reference competitor group.  

(Doesn’t that just roll of the tongue? Aren’t templates a joy to read!)

Let’s build a DVP off our earlier example:

The Acme Sublingual Magnesium Tablets helps business travelers to obtain a restful night’s sleep by minimizing the number of times per night that they wake up as compared to a typical multivitamin.

The typical multivitamin is our competition (our RCG) as we have defined it. Alternatively, we could have defined it more broadly as “nutritional supplements” or more narrowly as “magnesium tablets.” We make this selection based upon our chosen positioning.

Now let’s add our optional element. It answers the question “How much?” We call this the Precise Performance Improvement (PPI). Unsurprisingly, this describes in precise terms the degree of improvement:

The Acme Sublingual Magnesium Tablets help business travelers to obtain a restful night’s sleep by minimizing the number of times per night that they wake up by 50% as compared to a typical multivitamin.

And there we have it. By adding the PPI, we provide the degree of performance improvement that our customers will enjoy.

Before putting a bow on this topic, let’s take care of a little business that will help us to better understand the role of VPs and DVPs in use.

First, the DVP is very close to a positioning statement, but there are a few differences to consider before we just copy and paste the DVP into our positioning document. The positioning statement considers broader issues such as:

• What has our brand/product identity been? What do we want it to be?
• What trends are going on with our competitors?
• Strategically, how does this fit into the grand plan?
• How credible is this statement in the mind of our customer? How much distance do we have to make up for them to believe?
• Can we own this position in the minds of our customer?
• Have we left room for growth?
• How memorable would this position be in the minds of our customer?

The positioning statement must consider more than just a particular innovation or new product effort, it must also take into account the broader strategic scenario. However, with this as a caveat, the DVP can often be used as a positioning statement for the product it represents.

For either a DVP or a positioning statement, we must remember that we are crafting these for clarity, not for customer consumption. DVPs and positioning statements provide what we want to communicate but not how that message should be communicated. The process of creating a DVP or a positioning statement is a strategic one – usually executed by product managers and their leadership. The process of communicating the DVP or positioning statement is a tactical one – usually executed by the creative staff, marketing agencies, PR agencies, and business development pros. Once the DVP or positioning statement is delivered to the tactical marketing function, they are charged with determining how this message should be delivered. They have all media at their disposal. Print ads, white papers, videos, and whatnot. Tactical marketing will likely use elements of the DVP or positioning statement, but there is no expectation that they must use the specific language. They are responsible for communicating that message with whatever words and media work best.

Strategic marketing must trust the creative abilities of tactical marketing while holding them accountable for delivery of the correct message. This dance is never perfect but when each partner embraces their role, it’s more graceful. If tactical marketing tries to “lead” by changing the core message, toes are stepped on. Likewise, when strategic marketing tries to provide too much advice about creative decisions – like fonts, colors, chosen music, etc., conflict ensues with suboptimal results. In practice, the best outcomes are obtained when the strategic and tactical folks have worked with each other for a time and can trust each other’s abilities.

Nobody would disagree that the Value Proposition is critical to business growth and success. And yet, we have very little dialogue about what a value proposition is or how to create one. This reading is admittedly not the most interesting as we’re basically describing a template. But it provides something important - key questions to answer:

• Who are our customers?
• What is our product?
• What job do we want to help our customers accomplish?
• How does our product help them?
• How much does it help them?
• What is our competition?

It’s in answering these questions that the fun begins. Probably the best book on this topic is Value Proposition Design by Osterwalder and Pigneur. If you're past that one already, note the books within the Strategic Marketing section of this reading list.

Nunc coepi.