Customer value proposition
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In marketing, a customer value proposition (CVP) consists of the sum total of benefits which a vendor promises a customer will receive in return for the customer's associated payment (or other value-transfer).
Customer Value Management was started by Ray Kordupleski in the 1980s and discussed in his book, Mastering Customer Value Management. A customer value proposition is a business or marketing statement that describes why a customer should buy a product or use a service. It is specifically targeted towards potential customers rather than other constituent groups such as employees, partners or suppliers. Similar to the unique selling proposition, it is a clearly defined statement that is designed to convince customers that one particular product or service will add more value or better solve a problem than others in its competitive set.
Why CVPs are important
A good customer value proposition will provide convincing reasons why a customer should buy a product, and also differentiate your product from competitors. Gaining a customer's attention and approval will help build sales faster and more profitably, as well as work to increase market share. Understanding customer needs is important because it helps promote the product. A brand is the perception of a product or service that is designed to stay in the minds of targeted consumers.
Creating a strong CVP
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A customer value proposition is a clear, concise and compelling articulation of how the factors that are important to the customer are satisfied by the company. A deep knowledge of the potential / current customer base is invaluable in coming up with a strong CVP. Firms can develop a strong CVP by identifying customer needs through market research and analysis. A strong CVP reflects the tangible results that customers can reasonably expect from using the firm's products or services. Strong value propositions are also expressed from the customer's perspective and talk about the experiences and benefits that they will have when using the product.
A product with a successful consumer value proposition is directly linked to a product's actual and sustained performance versus competition. The two main attributes that allow consumers to differentiate among products are price and quality. Finding the correct balance between these two attributes usually leads to a successful product. If a company is able to produce the same quality product as its direct competition but sell it for less, this provides a price value to the consumer. Similarly, if a company is able to produce a superior quality product for the same or a slightly higher but acceptable price, the value to the consumer is added through the quality of the product. A product must offer value through price and/or quality in order to be successful.
- End user - The initial and ongoing satisfaction of the end user is the goal of every business. Customer satisfaction is achieved when superior customer value is delivered. Establishing a lasting business relationship will lead to future sales. Price and quality are the most important factors in a consumer purchase.
- Manufacturer/Distributor – When the sales target is not the end user, but a manufacturer or distributor of a product, the most important factor is conveying superiority of one product over another. There may be other factors besides price and quality that would affect a customer's decision and communicating those as well is essential.
Types of CVP
- All Benefits - Most managers when asked to construct a customer value proposition, simply list all the benefits they believe that their offering might deliver to target customers. The more they can think of the better. This approach requires the least knowledge about customers and competitors and, thus, results in a weaker marketplace effort.
- Favorable Points of Difference - The second type of value proposition explicitly recognizes that the customer has alternatives and focuses on how to differentiate one product or service from another. Knowing that an element of an offering is a point of difference relative to the next best alternative does not, however, convey the value of this difference to target customers. A product or service may have several points of difference, complicating the customer's understanding of which ones deliver the greatest value. Without a detailed understanding of customer's requirements and preferences, and what it is worth to fulfill them, suppliers may stress points of difference that deliver relatively little value to the target customer.
- Resonating Focus - The favorable points of difference value proposition is preferable to an all benefits proposition for companies crafting a customer value proposition. The resonating focus value proposition should be the gold standard. This approach acknowledges that the managers who make purchase decisions have major, ever-increasing levels of responsibility and often are pressed for time. They want to do business with suppliers that fully grasp critical issues in their business and deliver a customer value proposition that's simple yet powerfully captivating. Suppliers can provide a customer value proposition by making their offerings superior on the few attributes that are most important to target customers in demonstrating and documenting the value of this superior performance, and communicating it in a way that conveys a sophisticated understanding of the customer's business priorities.
|Value Proposition||All Benefits||Favorable Points of Difference||Resonating Focus|
|Consists of:||All benefits customers receive from a market offering||All favorable points of difference a market offering has relative to the next best alternative||The key points of difference(and, perhaps, a point of parity) whose improvement will deliver the greatest value to the customer for the foreseeable future|
|Answers the customer question:||"Why should our firm purchase your offering?"||"Why should our firm purchase your offering instead of your competitor's?"||"What is most worthwhile for our firm to keep in mind about your offering?"|
|Requires:||Knowledge of own market offering||Knowledge of own market offering and next best alternative||Knowledge of how own market offering delivers superior value to customers, compared with next best alternative|
|Has the potential pitfall||Benefit assertion||Value Presumption||Requires customer value research|
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- Investopedia. (2010). Value Proposition. Retrieved 4 22, 2010, from Investopedia: http://www.investopedia.com/terms/v/valueproposition.asp
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- Slater, S. F. (1997). Developing a customer value-based theory of the firm. Journal of the Academy of Marketing Science, 162-167
- Anderson, J. C., Narus, J. A., & Rossum, W. v. (2006) v84(3), p. 90-99. Customer Value Propositions in Business Markets. Harvard Business Review
- Parasuraman, A. (1997). Reflections on gaining competitive advantage through customer value. Journal of the Academy of Marketing Science, 154-161