Value proposition. Most marketers would have heard of the term and would even have created value propositions; however, having interacted with many marketing people, I find that while they are aware of the concept of value proposition, many only have a hazy idea of what it is. In case you are someone who is not clear about value propositions, here goes!

A good strategy begins with a compelling and distinctive value proposition. A value proposition is a statement that clearly communicates the benefits that your product or service offers customers. What should be noted is that just mentioning the features of your product or service would not qualify as a good value proposition – the value proposition must focus on the benefits that the target consumers really want and would truly value. What should also be noted is that the value proposition looks outwards, at the demand side of the business.

According to Michael Porter, a value proposition must answer three fundamental questions:

• Which customers are you going to serve?
• Which needs are you going to meet?
• What relative price will provide acceptable value for customers and acceptable profitability for the company?

You could follow the following steps to arrive at your company or brand’s value proposition:

• Who are your customers? Which of these will you concentrate on?
• What benefits does your product offer? Which of these fulfill the needs of your targetted customer?
• Who are the competitors? Are there any competitors who are offering benefits similar to yours?
• Creating the value proposition. Once you have a clear understanding of the first three steps, you could look at creating a value proposition that is distinctive. Differentiation is very critical in developing your value proposition.

Most of us think that creating a value proposition is the be all and end all of strategy. But as Porter pointed out, the value proposition only looks at the customer, the demand side. To have a distinctive strategy, it is important to look at the supply side as well – to create a value chain, an activities chain, that delivers the value proposition in a distinctive manner. Only when the value proposition AND the value chain are distinctive do we get a compelling strategy.

Many marketers find that creating a differentiated value proposition is not as easy as it sounds. Okay, here’s a way of looking at your offering in a totally different way: in their book – Blue Ocean Strategy – W. Chan Kim and Renée Mauborgne outlined four questions that you should ask yourself to create a radically different value proposition:

1. Which attributes that are taken for granted can be eliminated?
2. Which attributes should be reduced to below industry standards?
3. Which attributes should be increased to above industry standards?
4. Which new attributes should be created that the industry has never offered?

By looking at your offering in this manner, you could end up developing a value proposition that is like none other in the market place.
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