Your Value Proposition at the Center

A value proposition is a statement which identifies clear, measurable and demonstrable benefits consumers get when buying a particular product or service.

Wikipedia, retrieved 2024

Having crafted a coherent strategy to create value you are almost ready to start planning. But to effectively execute any plans all the parts making up the business must work together to give effect to your strategy. You must design and build an effective business model.

The Business Model Canvas, first developed by the Swiss economic theorist, Alexander Osterwalder, is a great model to use. This chapter is in large part based on his work.

The Business Model Canvas is comprised of nine individual components divided into three distinct parts. At the center of a business model lies the business’ value proposition. As business leader you must clearly formulate and effectively communicate your value proposition to all stakeholders. The value proposition is an outflow of your business strategy and is the basis on which the remaining parts are built.

The second part of the model is the revenue side of the business consisting of four components, namely:

·         Customer Segments,

·         Customer Relationships,

·         Channels, and

·         Revenue Streams

The third and last part of the model is the cost side of the business consisting of four components, namely:

·         Key Activities,

·         Key Resources,

·         Key Partners, and

·         The Cost Structure

Formulation of a Value Proposition

To effectively formulate your business’ value proposition, use the Value Proposition Canvas, a sub-section of the Business Model Canvas, separating two of the nine components, namely:

·         The Value Proposition, and

·         Customer Segments

The main objective is to ensure customer “Fit”. In other words, matching the product or services to the customer’s need or wants.

Start by developing a Customer Profile where you consider the following:

·         What “Job” or “Task” must the customer do?

Here you can think of a “problem” that the customer must solve. Or a need that the customer wants fulfilled.

 Example: A retail shop – The shop owner must maximize the use of available time for trading to sell products to walk-in-customers.

 ·         What “Gain” or “Benefit” is the customer trying to get?

Describe the outcome or benefits the customer seeks to derive from a solution to their problem.

Example: A retail shop – The store owner wants to trade without interruption by presenting its products in a well-lit, safe and comfortable environment to prospective customers.

 ·         What “Pains” or “Sacrifices” or “Risks” do the customer face? 

Think of the pains, costs, or risks the customer associates with the need or problem. Customers often present pains as objectives to a sales proposition.

Example: A retail shop – The store owner is a price taker when it comes to electricity costs. Rising energy prices and frequent power cuts interrupt trading putting pressure on profits. Consequently, store owners must invest large amounts of capital in power storage and back-up systems to mitigate the effect of energy prices and power interruptions.  

Now map out and design your Value Proposition by considering the following:

·         Your Product or Services

Define the bundle of products or services designed to solve the customer problem or meet the customer need.

Example: A retail shop – A Customized Power Storage & Back Up System to ensure energy savings and uninterrupted power supply provided to the retail shop by way of a capital lease over a medium loan term at a finance rate linked to the Prime Interest Rate with no requirement for an initial deposit. 

·         Gain Creators

Explicitly describe how your product or service creates benefits related to the customer’s need or problem.

Example: A retail shop – The store owner can continue trading despite power interruptions and at the same time save on energy costs.

·         Pain Relievers

Explicitly describe how your product or service relieves the pains, costs, or risks the customer associates with the problem or need.

Example: A retail shop – Maximum value can be derived from every minute of trading time since the business has uninterrupted power supply. The business acquires a Power Storage & Back Up System without an initial capital outlay, and with an affordable monthly installment cashflow is not heavily impacted.

Conclusion

A business’ Value Proposition lies at the heart of its mission. It’s the reason for the business’ existence. The Value Proposition is at the center of the Business Model Canvas around which the remainder of the components making up the business is designed and assembled.