The value proposition concept means many things. 🤯

October 5, 2021

Reaching a common understanding on what this concept refers to.

After several years involved in the world of innovation and launching new businesses, we have realized that we often misuse the concept of value proposition. Why is that? It is a hackneyed concept, too broad and excessively interpretable. Here we tell you our thoughts and learnings.

The concept of value proposition is attributed to Michael Lanning and Edward Michaels, who in 1988 used the concept for the first time in a McKinsey paper entitled “A business is a value delivery system”.

Exhibit 1 – “A business Value Delivery System”. McKinsey & CO, 1988

Throughout the article, they developed the concept of value delivery (the combination of profit and price) as the key element to achieve a differential competitive advantage in launching businesses.

In an interview with Michael Lanning in 2019, he explains how after 10 years in strategy consulting (McKinsey and P&G), he felt the need to create a theory in business strategy more focused on the end customer.

Thus, he defines the value proposition as: a clear, simple statement of the benefits, both tangible and intangible, that the company will provide, along with the approximate price it will charge each customer segment for those benefits.

But they did not stop there. Throughout the paper, they even list the key elements that a value proposition should have:

✅ Benefits explicit, specific, clearly stated
✅ Price explicitly stated
✅ Target customer clearly identified
✅ Clear how this value proposition is superior for target segment
✅ Evidence of adequate demand
✅ Evidence of acceptable returns
✅ Viable in light of competitors’ value proposition
✅ Achievable with feasible changes in current business system
✅ The best of several value propositions considered for this company
✅ Clear and simple

Since then, many companies, entrepreneurs, consultants, professors… have been using the concept of value proposition in strategic meetings, business schools, presentations to investors, etc.

So…what seems to be the problem? Well…we are not using the concept properly.

And why is that? Because, in practice, the value proposition means many things. On many occasions we refer to the value proposition from a strategic point of view, other times we confuse the term with the product offering, sometimes we combine the portfolio of services/products for different customer segments.

But almost always we stay in the abstract. Steve Blank (🙌 🙌 🙌 🙌 🙌) proposes the following outline for building a value proposition:

“We help [X] to [Y] by [Z]”

Taking this structure, we could build a value proposition (a priori, correct) like the one shown below:

“We help tenants to enjoy the process of finding a new home by balancing the relationship with landlords.”

☝ What’s the problem with the value proposition above? 

That we have no idea what we are offering!🙄

At Byld, we have been thinking for several months about how to define the concept of value proposition for our projects (Spoiler: we are still not clear). Sometimes, we talk to corporations that have “an idea” and want us to help them build it. When we start scratching, they have defined a phrase similar to the one above (“We help tenants to enjoy the process of finding a new home by balancing the relationship with landlords“), without any definition of how. That, in our opinion, is not a business concept, and requires more grounding before considering launching the company. In other words, as the value proposition to start validating is not really identified, the process of building the business will be constantly paralyzed by an uncertainty that we can and want to avoid.

Over the years, there have been many who have tried to land the concept, creating tools such as the Value Proposition Canvas (which requires defining the product and service offering for each customer segment).

Exhibit 2 – Value Proposition Canvas – Business Model Generation

We recently came across an analysis of the concept and applications of the term value proposition (for freaks like us, you can read it here 😏 ) which, in our opinion, although very dense and theoretical, is quite accurate and interesting. In the article, the concept of value proposition is differentiated from value presentation, and shows the differences between value propositions, focused on a business level vs. value propositions from the point of view of the portfolio of products / services offered to different customer segments.

But it is still a mess.

 

So…What?

As anticipated throughout the article, we do not want to formulate “a universal definition” of what value proposition means. Let’s leave that to the theoreticians. What we like to do is to build 💪. That is why we have defined within our methodological framework those elements that we consider key and that must be taken into account when defining the concept of Value Proposition in all Byld projects. Some concepts of this framework are:

BVP (Business Value Proposition)

Describes the business value proposition. It is a high-level definition, has a strategic impact, is closely related to the vision and should be revisited often.

VP (Value Proposition)

Describes, in detail, the value proposition of the business. It is much closer to the “universal” concept of Value Proposition and requires a higher level of detail. There can (and should) be different VP’s for each customer segment, and the most recommended digestion tool is the Value Proposition Canvas. It is composed of: Products / Services, Gains Creators and Pain Relievers in relation to each customer segment.

PSO (Product/Service Offering)

Describes the set of products and/or services that we offer to our different customers satisfying the different VP’s and aligned with the BVP.

Changes in the product/service

Through which we deliver value to our customer/s may alter the PV/s, but should not alter the BVP.

 ◽ Iterate any feature / functionality of our product / service:

 😕 Should not alter the PV.  

 ⛔ May not alter the BVP.

 ◽ Alter our product / service:

 😕 Should not (but may) alter the PV.

 😕 May alter the BVP.

Altering or acting on the  VP

This may have a strategic impact, but it does not force a change in the company’s direction. This is a type of decision that a startup has to be open to make as a consequence of a constant process of learning and understanding the customer. During the experimentation and validation of a business, we have to be agile and flexible to iterate, as our key metric at this stage is validated learning.

Altering or impacting the BVP

This is a 100% strategic decision, and requires a change in the company’s direction. If this happens, it is very likely that we are pivoting, which demands much more structural reflection and alignment.

Inability to build a business

It is not possible to start building a business without defining the VPs.

Have a complete alignment in the BVP and the starting VPs

This is crucial in order to face the validation of a business concept.

It is critical that we and our partners are 100% aligned with this culture.

We must all be open to iterate and change both our PSO and our VPs (if experimentation and validation proves so).

🔹🔹🔹

To sum up, defining the ‘value proposition’ of a business is key, since, like the vision and mission of the company, it is an element that impacts all levels of the organization and all activities, both at the strategic level and in the day-to-day mud.

At Byld, we fight and roll up our sleeves day after day to build businesses supported by a robust methodology that we constantly feed (thanks to our own validated learning). As we always say, it’s not rocket science, but it works 😉

Stay tuned, we’ll tell you everything in a Blynk! ✨