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Business model canvas; Creating a Value Proposition
© Entrepreneurial Insights based on the concept of Alex
Osterwalder
In this article, we
will explore, 1) what is a value proposition, 2) elements of the
value proposition, 3) designing a value proposition, and 4)
a case study.
WHAT
IS A VALUE PROPOSITION?
In simple terms, a value proposition
makes a case for why a customer should pick one product over another, citing
the unique value the product provides over its contenders.
The Business Model Canvas value proposition provides a unique
combination of products and services which provide value to the customer by
resulting in the solution of a problem the customer is facing or providing
value to the customer. This is the point of intersection between the product
you make and the reason behind the customer’s impulse to buy it. A
product can have a single value proposition or multiple value propositions.
Most start-ups fail to define their value proposition before they launch their products. This is because entrepreneurs tend to give
too much credence to the ‘idea’ they have and run with it as opposed to
exploring how this idea would actually perform in the market.
It is important for a
product to solve a problem in a unique way. The problem could be unworkable,
unavoidable, urgent or underserved. On the other end of the spectrum, the need
for your product or service could be blatant, critical, aspirational or latent.
A blatant need, as the word suggests, is one openly voiced and expressed by the
customer. A latent need, conversely, is one which the customer himself may not
be aware of having. A critical need is an immediate need that the customer MUST
have fulfilled.
ELEMENTS
OF THE VALUE PROPOSITION
Newness
Some value
propositions are based on the newness or novelty factor that they provide. This
element usually comes into play for technology-intensive products.
The telecommunications
industry was spawned through the newness element. Originally the market for
cellphones was very small but once the technology became more mainstream the
market for the product expanded exponentially with increasingly advanced
cellphones and smartphones being created to take advantage of the
telecommunications technology.
Performance
Better performance has
been the hallmark of many product offerings over the years with most industries
managing to thrive for decades on improved performance versions of the same
products. Intel doubles the speed of its chip every year, resulting in faster
computers able to support much more sophisticated software.
Customization
The modern consumer
believes in self-expression and individualism. They expect the products they
use to be an extension of their personality and a medium through which they can
communicate their values and priorities to the world. Providing the option to
tailor the product to the consumer’s preferences adds value for the customer.
In recent times products have gained heavily on market share through utilizing
concepts such as mass customization or customer co-creation. Where
traditionally customization has resulted in prohibitively expensive products,
today this option provides the opportunity for customers to put their personal
stamp on a product while still providing economies of scale.
Nike lets its
customers customize their shoes through NikeID on their website. A consumer can
go online and create a completely original design with their preferred color
palette, placement, color and size of the swoosh etc for their shoes. They can
see what the end product will look like visually, play around with different
permutations till they reach a result that suits their tastes and then order
the final product when they are ready.
Getting the job done
When a product helps a
consumer or business reach the end goal, its value proposition is getting the
job done. Rolls Royce is best known for the cars they make but one of their
major value propositions is getting the job done through the jet engines they
manufacture and service for Boeing as well as providing financing through
leasing.
A product whose value
proposition is ‘getting the job done’ enhances the customer’s productivity and
helps the customer to focus on more relevant details.
Design
Most clothing labels
rake in a higher price tag because of the superior design they have. Prada
charges top dollar for something as simple as a T-shirt because of the strength
of its designs.
Brand/ Status
Design and
brand/status can be clustered together because their appeal is quite similar.
Just as people will show loyalty to a brand because of its design, people will
also show loyalty to a design because of the perceived status the brand name
itself lends to the owner or user.
Almost everyone today
owns and wears a watch on a regular basis but the brand of the watch could vary
from your local watchmaker/ jeweler to the iconic brand Rolex. A Rolex is more
than just a watch though, it is a statement that the wearer has money and
status, since even a simple Rolex is exorbitantly expensive compared to regular
brands.
Ultimately a brand/
status intensive product will help the customer look and feel in control,
important and part of the in-crowd.
Price
One of the most common
elements a value proposition is based on is price. There are many companies that enter into the market with the
premise that they are providing a product or service which is cheaper than the
existing options in the market. However, organizations competing on price, or
in some cases, even offering free services, usually have different business
models to sustain the organization.
One example is the
spate of ‘no frills’ airlines that sprung up like Southwest airlines. Southwest
offered fares equivalent to a bus-ride, however, in a complete about face from
the traditional airline, they did away with all the extra services which formed
the pomp and show traditional airlines charged a premium for. In doing so,
Southwest opened air travel up to a section of the market which had been
previously untapped; the common man.
Cost Reduction
Products and services
catered towards enhancing customer experience by reducing the cost a customer
would ultimately incur cater to the cost reduction value proposition.
Technology has played
a great role in helping consumers reduce costs. One such example is
Salesforce.com which allows customers to use a customer relationship management
software for a fee, voiding the need for the customer to buy the software,
hardware and install and run it, each action associated with a significant
cost.
Risk Reduction
The less risk
associated with purchasing a product or service, the more value a customer
derives from it. A reduction of the risk associated with a purchase provides
peace of mind to a consumer. One example of this is the one year service
warranty received when buying a used car. In the buyer’s mind, the risk of
buying a second hand vehicle is diminished by the comfort of having the
warranty.
Essentially a product
whose value proposition is Risk Reduction aims to make people feel safer,
whether real or imagined safety, as well as guarantees a solution to a problem
he/ she is facing for a time bound period.
Accessibility
Another key ingredient
for an effective and robust value proposition is making a previously
inaccessible product or service available to a consumer segment. Innovative technologies and variations
in business models have both led to offering accessibility to unserviced
customers. NetJets is a wonderful example of providing accessibility. The
company allows individuals and corporations to have access to private jets,
which has traditionally been cost prohibitive and therefore unavailable to many
who did not have the cash reserves to afford this luxury.
Convenience/ Usability
Providing consumers
with a product that increases their convenience or is characterized by ease of
use is a very strong value proposition and one on which some companies have
built empires and legends around. One example of this type of value proposition
is Apple which through its iconic iPod provided consumers with a convenient way
to listen to music and by pairing it with iTunes, increased the convenience
factor significantly; since now users could easily search, download and play
songs, all through one medium!
DESIGNING
A VALUE PROPOSITION
© Entrepreneurial Insights based on the concept of Alex
Osterwalder
When designing a value
proposition we often use traditional tools and models instead of
thinking outside the box or taking into consideration how much technology,
businesses and consumers have evolved. Ultimately, we need to understand
whether what an organization delivers actually matters or is it relevant to a
customer’s needs.
A value proposition
can be more effectively designed by utilizing a value proposition canvas, which
is essentially an equation of three key ingredients. First, the entrepreneur
needs to understand the customer in its entirety by creating a customer profile
through analyzing customer jobs, their pains and their gains. This is followed
by a value map which clarifies the products and services offered to the
customer, their pain relievers and gain creators. Finally a Fit will be achieved when a match is
achieved between the Customer Profile and the Value Map.
Products and Services
It is important in the
beginning to do an evaluation of the products and services around which your
value proposition is built.
Products can be either
tangible or intangible. They can also be characterized as digital or financial.
When designing and evaluating your value proposition, it is crucial to get
inside the customers head. A useful exercise would be to rank your product and
services offerings in order of importance to the consumer. For this, the
company needs to understand the appeal of the product. Is it a must-have for
the customer because it fulfills a basic need? Or does it serve a functional,
social or emotional requirement?
Pain Relievers
Your product or
service must solve a problem the customer is facing. In essence it is relieving
a chronic pain that the customer goes through on a regular basis and which no
other product has been able to alleviate to the same degree. This pain could
take the form of emotional stress, higher costs and increased risks
An effective way to
evaluate your product is to analyze whether it generates lower usage of
customer resources such as time, effort or money; Produces a positive change in
the customer’s life by reducing his/ her frustration, monotony or boredom;
resolve the challenges customers may face, reduce the chances of negative
social stigmas and behaviors, reduce risks, alleviate stress, reduce chances of
error, eliminate barriers between the customer and a possible solution etc.
By ranking the
intensity with which each of these pains impacts your customer and the
frequency of their occurrence, an entrepreneur can build up a detailed analysis
of the pain relievers the various products and services in his/ her repertoire
represent for customers.
Gain Creators
In this section, an
entrepreneur needs to evaluate how the products and services in his portfolio
lead to customer gains. An effective metric would be to understand how aspects
of your products and services would enhance the customer experience by
fulfilling his/ her expectations and wishes and even going beyond to surprise
and delight him/ her.
The entrepreneur can
analyze whether the product or service results in savings that delight the
customer, has results that meet or surpass customer expectations, produce
better results than the alternatives the customer is currently using, result in
positive social relationships and status, fulfill a customer need and are easy
to adopt, among other concerns.
By ranking the
intensity with which each of these gains impact your customers and the
frequency of their occurrence, an entrepreneur can build up a detailed analysis
of the gain creators the various products and services in his/ her repertoire
represent for customers.
Steps for using the
Framework
In short, following
are the main steps for using the framework effectively and efficiently;
1. Jot down all the
products and services in your portfolio which combine to make up your value
proposition
2. Describe how your
value proposition contributes to eliminate your target customer’s pain points.
Separate sticky notes should be used for each pain reliever
3. Describe how your
value proposition contributes a positive result for your target customer.
Separate sticky notes should be used for each gain creator.
4. Ultimately all three
elements; products and services, pain relievers and gain creators should be
ranked according to their relative importance to the target customer.
Best practices &
Common mistakes when using the Framework
Best Practices
1. List only the
combination of products and services that directly provide value to the
relevant customer segment.
2. Pain reliever and gain
creators list characteristics of your products and services that are of
relevance to the target customers.
3. Products and services
will be of value to customers only if they match the target segment’s profile,
pains and gains
4. It is imperative for
an entrepreneur to understand
that no product or service will be able to meet all the pains and gains in a
customer’s profile. Instead the entrepreneur needs to prioritize which pains
and gains their product and service should match.
Common Mistakes
1. Mention all the
products and services in your portfolio regardless of the specific
customer segment they target.
2. Categorize your products
and services as either pain relievers or gain creators.
3. Add additional pain
relievers and gain creators even if they don’t match the pains or gains in your
target segment’s profile
4. Try to resolve all
pains or gains of the target segment.
CASE
STUDY
Evernote is an online
company aiming to provide mobile professionals with the capability to take
notes while they are on the move.
The main webpage
provides a detailed overview of how the product and its various features can
help its target market store organize and interpret a seemingly random
hodgepodge of information and data. The website makes the features of the
service as well as the overall experience come alive for the consumers, helping
them understand how they can benefit by using the service.
The trifecta of the
service features, the advantages of using Evernote and the overall customer
experience are matched exactly to the customers wants, needs and fears. The
company has also created further bifurcation of its customer segment so that
each page is tailored to a specific kind of customer with the inherent benefits
the customer can reap mentioned as well, creating a rudimentary level of
customization.
The website’s value
proposition is a quick and simple tool that syncs easily with other
platforms so sharing ideas is convenient.
Products and Services
·
One workspace for all
·
Write everyday
·
Work together
·
Gather research
·
Find everything fast
·
Share your ideas
·
Stay in sync
Pain Relievers
·
Removes the need to carry notebooks, consolidated notes or other
forms of data around
·
Removes the need for complicated slides during meetings
·
Single place to save online material available on a topic of
interest
·
Economically accessible for individuals without requiring a
heavy investment inhardware or software
Gain Creators
·
Provides a common working space for a team to share ideas and
information
·
Provides access to freelancers, and individuals to a free
service where his or her notes are backed up and available to him at a moment’s
notice,
·
Cost effective for individuals who can use the service for free
·
Provides tools that help customers effectively and efficiently
plan and execute projects.
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