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|
- DLP vs Plasma TV - DLP TVs offer significant advantages versus plasma TVs, in that DLP TVs contain a bulb which illuminates the screen and is replaceable for approximately $250 (US). This gives the DLP TV a longer lifespan and therefore makes it a more cost effective purchase than plasma for consumers.
- iPhone vs. Palm Pre - The Apple iPhone was introduced in 2007 and was almost immediately successful. As time passed the added value of the iPhone was equalled and exceeded as other smartphones came to market. For example, the Palm Pre was introduced with the ability to perform multiple tasks concurrently while the iPhone was only able to run a single application at a time; giving the Palm Pre a significant advantage over the iPhone. In 2010, Apple countered this with a new version of their operating system, iOS 4, which added multitasking.
- iPod vs. other MP3 players - As early as 1996 MP3 players were available to the public for purchase. For the first few years the only real value, aside from price comparisons, were the amount of music they could store. This all changed when Apple Inc. burst on the scene with the iPod and iTunes; the software paired with its new MP3 player to manage music through a computer program to organize and rename the music on consumer computers. This software did not add cost to the iPod itself and was listed as a free add-on. This is a perfect example of a customer value added proposition. The customer is given added value through the software iTunes because it is free of additional cost to the customer. The combination of its intuitive and easy to use interface along with the customer value added proposition of iTunes explains why the iPod in all of its forms has maintained a dominant market position.
- Audi vs. other luxury brands - Audi's introduction of the Quattro drive system in 1980 has led to its becoming almost synonymous with the use of all-wheel drive for high-performance vehicles. The Quattro all-wheel drive system sets Audi apart from major competitors in terms of perceived customer value added, as although other luxury car manufacturers such as BMW, Mercedes and Jaguar also offer all-wheel drive systems, these are not as widely encountered and heavily marketed as Audi's.
- BMW vs. other luxury car manufacturers - BMW, "the ultimate driving machine", is a key value proposition for BMW (Bavarian Motor Works). They build luxury cars for those who can afford them. When other luxury companies started making vehicles in direct competition to BMWs, BMW had to differentiate itself once again. In North America it did this via a customer value added proposition through their "No Cost Maintenance" program; a "No Cost Maintenance" plan comes with the purchase of a new BMW vehicle and provides the owner with no cost maintenance for the first 4 years/50,000 miles of use. Audi, Lexus and Mercedes do not offer a comparable program.
- Corvette ZR1 vs. other super-cars - Chevrolet's Corvette ZR1 entered the market as a sports car with supercar performance, with faster lap times of the fastest cars in the world around the Nürburgring; it established new records for quarter mile times. The ZR1's customer value added proposition is its price; the US market Corvette ZR1 price of $110,000 compared to the $150,000+ cost of cars it was outperforming, such as Ferrari, Porsche, Lamborghini, and Aston Martin (but only in a straight line, thus not really making it a supercar as per standard definitions). Corvette used its reduced cost and superior performance as its value added proposition.
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