Customer value proposition

See also: value proposition

In the field of marketing, a customer value proposition consists of the sum total of benefits which a vendor promises that a customer will receive in return for the customer's associated payment (or other value-transfer).

A customer value proposition is a business or marketing statement that describes why a consumer should buy a product or use a service. It is a value proposition that is specifically targeted towards potential customers rather than other constituent groups such as employees, partners or suppliers. It is a clearly defined statement that should convince customers that one particular product or service will add more value or better solve a problem than other similar offerings.

Why is the development of your customer value proposition important? A good customer value proposition will not only help give convincing reasons as to why a customer should buy your product, but it will also help you set your product apart from your competitors' product. Gaining you customers’ attention and approval will help in generating faster, more profitable sales and will help you increase your market share. Understanding your customers’ needs will give you clarity as to what and how your organization is going to do for your clients. It is also a tool that helps promote your brand. A brand is the perception of your product or service that will stay in the minds of targeted consumers. You want a strong and positive brand association with what is being offered or sold.

In order to meet its purpose a customer value proposition needs to be clear, concise, and compelling. To develop a strong customer value proposition, organizations need to have a thorough knowledge of their customer base. By identifying customer needs through market research and analysis, firms develop clear and concise value propositions that reflect those needs and the tangible results that customers get from using the firm's products or services. Strong value propositions are also expressed from the customer’s point of view and talk about the experiences and benefits that they will have when using your product . To write a strong customer value proposition one could follow these steps:

1. Know your targeted customers, their needs and desires.
2. Talk to current customers and understand your product's value through their perspective.
3. Know your competition. What can you offer that they are not? Review their value proposition and see how strong it is. Do they send a better message to the potential customers?
4. Research great customer value propositions to learn from other's successes and failures.
5. Brainstorm with others in the company to come up with a value proposition that states your product clearly and accurately and brings brand recognition to your company .

Target Audiences

• End user - The satisfaction of the end user is the goal of every business. Customer satisfaction is achieved when superior customer value is delivered. Businesses stay afloat because they satisfy their customer’s needs which results in the consumer purchasing their product of service. Generally, the two items that sway a consumer’s purchase are the difference in price and the difference in quality between two competing products or services. Depending upon the product, the end user might what a product that is more affordable if it has a short life-cycle. If the product can last for several years, e.g. a car, then the end user may want exceptional quality. Since customer value proposition is the sum of the benefits a particular product or service provides, knowing the consumer and their needs is crucial for success. Knowing what customers need before the consumer knows they need it, will lead to a successful business.
• Manufacturer/Distributor - In a business to business transaction, customer value proposition still exists. However, the company needs to satisfy another company’s needs. The company that is buying the product or service has options just like the end user. Price and quality are the two main concerns when purchasing the product or service; however the manufacturer must buy the product that allows them to best satisfy their consumers’ needs. This added dimension allows for companies to appeal to the manufacturers need on multiple levels. The company must also know another level of needs. The manufacturer has certain needs to fill as well as the consumer’s needs are directly related to the manufacturer’s needs. If the company that is selling to the manufacturer knows the needs of their consumers, then they can convey why their products are superior to their competitors.

Types of CVP

1. 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, the least amount of work to construct.
2. Favorable Points of Difference - The second type of value proposition explicitly recognizes that the customer has an alternative 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. Furthermore, a product or service may have several points of difference, complicating the supplier’s understanding of which ones deliver the greatest value. Without a detailed understanding of the 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.
3. Resonating Focus - Although the favorable points of difference value proposition is preferable to an all benefits proposition for companies crafting a consumer 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 such a customer value proposition by making their offerings superior on the few elements that matter most to target customers, 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 one or two 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

Examples

• IPod vs. Other MP3 Players - Everyone knows about MP3 players and uses them but what differentiates the iPod from the rest? It is the customer value proposition put forth by the proprietary software, iTunes, that comes with the iPod which pushes it out in front of the other MP3 players on the market. This software which adds no cost as far as the customer is concerned is a huge benefit over other MP3 Players which do not come with software. ITunes is very easy to use and automatically updates your iPod when the user plugs it into their computer. It allows for a multitude of options and setting for the individuals iPod concerning playlists, music selection, and downloading music, even how it updates is selectable. While it is not as open sourced as some other MP3 Players on the market, the iPod is easily one of the easiest and most intuitive MP3 players one can buy. Between its Intuitive and easy to use interface and the customer value added proposition of iTunes, it is easy to see why the iPod in any of its forms dominates the market.

• BMW vs. Other Luxury Car Manufacturers - BMW, the ultimate driving machine. This is the theme for BMW or Bavarian Motor Works. They build luxury cars for those who can afford them. However, there are other companies which also produce luxury vehicles for the same group of people. How does BMW maintain an advantage over its competitors, Audi, Mercedes, and Jaguar? BMW employs customer value added proposition through its “No Cost Maintenance” plans that come with the purchase of a new BMW vehicle. This means that all the maintenance for the first 40,000 miles on the car is on the dealer. Neither Audi or Mercedes offer anything like this.

• Corvette ZR1 vs. Other Supercars - Corvette recently released the Corvette ZR1. This sports car with supercar performance hit the market with a slam. It shattered lap times of some of the fastest cars in the world around the Nurburgring. It destroyed ¼ mile times. It raped other cars in reviews on track and on the street. Its customer value added proposition, its price. It only costs 110,000 dollars compared to the 150,000+ cost of cars it was beating. It is beating Ferraris, Porsches, Lamborghini’s, and Aston Martins at their own game and for half the price. This is an example of how corvette has offered the customer a value proposition. It has targeted the price is its proposition for customers.

• Audi vs. Other Luxury Brands - Audi and all wheel drive have become almost synonymous since the inception of their Quattro drive in 1980 on the Audi Quattro. The Quattro all wheel drive system is what sets Audi apart from its competitors. Quattro is Audi’s customer value added proposition. Other luxury car manufacturers, BMW, Mercedes, Jaguar, all have all wheel drive systems, but none have it standard like Audi does. They all charge extra to make all the wheels on their cars spin. Because Audi does not charge for this feature, and it remains competitive within the price ranges of luxury vehicles, Audi has a customer value added proposition that all people consider before shelling out extra cash for what comes standard on the Audi.

• iPhone vs. Palm Pre - The Apple iPhone hit the market in 2007 and made waves when it did. However as the years went on the added value of the iPhone came to an end as other smart phones like the Palm Pre came to the market and could perform multiple tasks at once while the iPhone was stuck only running one application at a time. This is where the Palm Pre has is customer value added proposition. It can run not one, not two, but multiple applications all at the same time where the iPhone and come competitors cannot. This difference make the customer considered its added value over its competitors. This is a customer value added proposition.

See also

• Business model
• Customer relationship management
• Customer

External links

• How to craft a lean, mean Value Proposition for your Startup (Methodologist)