What Is a Value Proposition?

Individual buyers and organizational buyers both evaluate products and services to see if they provide desired benefits. For example, when you’re exploring your vacation options, you want to know the benefits of each destination and the value you will get by going to each place. Before you (or a firm) can develop a strategy or create a strategic plan, you first have to develop a value proposition. A value propositionA statement that summarizes the key benefits or value for target customers. It explains why customers should buy a product, why stakeholders should donate, or why prospective employees may want to work for an organization. is a thirty-second “elevator speech” stating the specific benefits a product or service offering provides a buyer. It shows why the product or service is superior to competing offers.

The following is an example of a value proposition developed by a sales consulting firm: “Our clients grow their business, large or small, typically by a minimum of 30–50% over the previous year. They accomplish this without working 80 hour weeks and sacrificing their personal lives.”Laura Lake, “Develop Your Value Proposition,” http://marketing.about.com/od/marketingplanandstrategy/a/valueprop.htm (accessed December 7, 2009).

Note that although a value proposition will hopefully lead to profits for a firm, when the firm presents its value proposition to its customers, it doesn’t mention its own profits. That’s because the goal is to focus on the external market, or what customers want.

Figure 2.1

Like any other company, Beaches, an all-inclusive chain of resorts for families, must explain what its value proposition is to customers. In other words, why does a Beaches resort provide more value to vacationing families than do other resorts?

Source: Wikimedia Commons.

Firms typically identify different target marketsThe group of customers toward which an organization directs its marketing efforts., or groups of customers, they want to reach when they are developing their value propositions. Target markets will be discussed in more detail in Chapter 5 "Market Segmenting, Targeting, and Positioning". For now, be aware that companies sometimes develop different value propositions for different target markets. The value proposition tells each group of customers why they should buy a product or service, vacation to a particular destination, donate to an organization, and so forth.

Once the benefits of a product or service are clear, the firm must develop strategies that support the value proposition. The value proposition serves as a guide for this process. In the case of our sales consulting firm, the strategies it develops must help clients improve their sales by 30–50 percent. Likewise, if a company’s value proposition states that the firm is the largest retailer in the region with the most stores and best product selection, opening stores or increasing the firm’s inventory might be a key part of the company’s strategy.

Individuals and students should also develop their own personal value propositions. Tell companies why they should hire you or why a graduate school should accept you. Show the value you bring to the situation. A value proposition will help you in different situations. Think about if you were to ask your parents for money to go on an overseas trip or study abroad program. You would need to explain to them the benefits and value of going abroad. Perhaps studying abroad will make you better prepared to find a good job. This, in turn, could help you more quickly repay any college money you might owe your parents—something that they might very much value.