8.11 Value Propositions

Value Propositions are the products and services that create value for a specific Customer Segment. They do so by solving a customer problem or satisfying a customer need. This building block is an aggregation or bundle of benefits that a company offers customers.

Some Value Propositions involve innovative technology. Some simply deliver better service. Others are a mix of better goods and service. Indeed there are many different types, some of which can be quantified (price, speed of service) and some of which remain qualitative (design, status, customer experience).

Value Proposition Types

Newness

Some Value Propositions satisfy a new customer need, either because the need was not recognized, or there was no similar offering. Sometimes the newness is technology related. Cell phones, for example, created a new industry around mobile telecommunication. Or social issues become important, as with ethical investment funds.

Performance

Improving a product or service has been a common way of creating customer value. But there can be limits to improvement, or the improvement itself can be unwanted. Increased PC performance in recent years, for example, with faster processors and larger RAM and hard disk storage, have not stimulated a corresponding growth in customer demand.

Customization

More closely tailoring products and services to customer needs in specific Customer Segments also creates value. Companies have recently been able to tie mass customization with customer co-creation, for example, which provides economies of scale without blurring specific customer needs.

Getting the Job Done

Value is created by simply helping a customer get certain necessary jobs done. Rolls-Royce, for instance, not only manufactures but maintains jet engines, the airline companies paying Rolls- Royce a fee for every hour an engine runs.

Design Design

An intangible but important value element in many industries, particularly in the fashion accessory and consumer electronics industries.

Brand/Status

Companies work hard to maintain their brand image, as wearing a Cartier watch or Valentino dress confers status. Choice of trainers is also a mark of group affiliation in the young.

Price

Offering the same product or service at a lower price creates value in price-sensitive Customer Segments. Generally, however, the product or service is entirely redesigned, as in the 'no-frills' easyJet and Southwest airlines, or the low-cost Nano that will make the automobile affordable to large sectors of the Indian Market. Free newspapers, emails, mobile phones, etc. take the process further, and earn their revenues by advertising or premium services.

Cost reduction

Helping customers reduce costs is another way of creating value. Salesforce.com, for instance, leases a hosted Customer Relationship Management (CRM) application, which relieves companies of the expense and trouble of buying, installing and managing the software themselves.

Risk reduction

Reduced risks also creates value: hence the warranty or service-level guarantee in many goods and services.

Accessibility

Extending access to products or services is another way to create value. NetJets popularized the concept of fractional private jet ownership. Mutual funds make it possible for those with modest wealth to build diversified investment portfolios.

Convenience/Usability

Things made easier or more convenient to use also creates value for customers. Apple came to dominate the market when the iPod and associated iTunes, Apple offered unprecedented ease in searching, buying, downloading, and listening to digital music.

Relevant Case Studies

Amazon retails books and other products at competitive prices, all with purchaser reviews.

Netscape made the first browser and opened up the Internet.

Nespresso developed coffee machines for the mass market.

Netflix provides on-demand Internet streaming video.

Microsoft developed Visual Basic for fast and accurate program coding.

Eneco moved from being a fixed cost gas supplier to providing a service for commercial greenhouses.

Nitendo offered its wii game controller.

By trial testing, Harold Ingleton identified new value propositions for his customers.

GlaxoSmithKline repositioned its Ropinirole drug for treatment of Parkinson's disease as an effective treatment for Restless Leg Sydrome.

Questions

1. What is a value proposition?
2. Briefly describe eleven types of value proposition.
3. Briefly illustrate the importance of value propositions with three case studies.
4. What topics of ebusiness relate to value propositions?

Sources and Further Reading

1. Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers by Alexander Osterwalder and Yves Pigneur. Wiley 2010.