Business Model Canvas Block #2: Value Proposition

Allianse Writer

The value proposition is the heart and soul of a business model. It outlines how you can help customers by meeting their needs or desires. More importantly, you also describe why they should buy from your brand.

Value Proposition is the second block of a Business Model Canvas. It comes after defining Customer Segments and precedes Channels.

Table of Contents

What Is a Business Model Value Proposition?

Value propositions serve as the framework of business models. They are, in essence, a declaration meant to deliver these messages to the customers:

  • Relevancy. What the brand stands for and how its products or services solve problems.

  • Quantitative Value. How the company and its products can benefit the targeted customer segments.

  • Differentiation. Why customers should buy products or services of the company, not from others.

A value proposition serves as the basis of marketing strategies. To be successful, customers need to have faith in the products or services offered. They need to believe it will solve their problems better than others.

Why Is Value Proposition Important?

Customizing value propositions come after identifying customer segments. During this process, you must be sure not to make any mistakes. No matter how great the other business model blocks are, a poor value proposition drag down the entire business.

Top Reasons Startups Fail

According to CB Insights, the percentage of startups failing is very high. Among the many factors cited, at least five have links to the value proposition:

  • No market need (35%)

  • Flawed business model (19%)

  • Pricing/cost issues (15%)

  • Product mistimed (10%)

  • Poor product (8%)

Why possible reasons could there be for entrepreneurs to fail? As it turned out, many of them failed because they fixated on the business idea. As such, they were unable to understand the customers. Some of them also never thoroughly tested their value propositions and business models.

The value proposition is, without a doubt, a critical component of a business model. But more than that, customers should be aware and understand why they need to buy a product or service.

It is worth noting that other business blocks play a role in the success of a value proposition. For example, it takes people only milliseconds to make decisions. It is, hence, necessary to consider this fact in creating the other business blocks.

Customer Relationships, in particular, communicate and engage with the customers. Hence, this block should make customers understand why they need to buy the products. And, it should not take them more than a few seconds to make a decision.

What Is Value and What Do Customers Want or Need?

A product that appeals to one customer group may not appeal to another. In this regard, you could say that value is contextual.

Maslow’s Hierarchy of Needs

Abraham Maslow, an American psychologist, published “A Theory of Human Motivation” in 1943. His research showed that motivation drives people to achieve particular needs. Moreover, some of the needs take precedence over others. For this reason, he proposed that humans have a hierarchy of needs.

  • Physiological needs

  • Safety needs

  • Love and belongingness needs

  • Esteem needs

  • Self-actualization needs

From the original five-stage models, Maslow also added three more over the years.

At present, the 8-stage Hierarchy of Needs Model are as follows:

  • Physiological needs

  • Safety needs

  • Belonging needs

  • Self-esteem needs

  • Cognitive needs

  • Aesthetic needs

  • Self-actualization needs

  • Self-transcendence needs

Maslow’s Hierarchy of Needs and Value Proposition

Segmenting customers is a necessity, and that is why it is the first block of a business model. After identifying those market segments, startups can create tailored value propositions.

During this process, startups should consider the needs of the target audience. In some cases, it may even be possible to create separate segments based on the different levels of needs. At any rate, incorporating this theory can help you make a strong value proposition.

JTBD Theory of Value

JTBD is a theory derived by Harvard business professor Clayton Christensen from Anthony Ulwick’s Outcome-Driven Innovation. It comprises tenets that make marketing and innovation more effective and predictable.

Christensen proposed that people “hire” products or services to get a job done. One example is Facebook. People “hire” this platform to keep in touch with family and friends.

In the context of JTBD, a job is not a description of what people are doing. It is also not the solution or steps they are using. Instead, it is the embodiment of what they are trying to accomplish.

9 Fundamental Truths of JTBD

  1. People essentially buy products and services to get a “job” done. Jobs can be problems, tasks, activities they are trying to resolve or complete.

  2. Jobs are functional with emotional and social components. As customers use a product or service, they may want to feel or others to perceive them in a certain way.

  3. A JTBD is stable over time. These are jobs that customers have been accomplishing for a long time. While these jobs do not change, products and services do through innovation.

  4. A JTBD is solution-agnostic. Customers know what job they are trying to do. In this regard, the best solution is not only by enhancing products or services. Instead, it provides an innovative product or service that gets the job done better.

  5. Success comes from using jobs as the basis of the unit of analysis. Yes, it is necessary to know the customers, their circumstances, and other traits. But none is as important as understanding their needs at a granular level. These are the customers’ desired outcomes – a term coined by Ulwich a quarter of a century ago.

  6. A deep understanding of customers’ desired outcomes helps companies create better marketing campaigns. Moreover, it also makes innovation more predictable. Unmet customer needs are opportunities for companies. They can position, improve, or develop new products and services to increase revenue.

  7. Customers not only want products and services that get the job done better. Most also prefer them to be cheaper. Some customers prefer to pay higher costs to achieve their goals better. Others, though, do not mind compromising for the sake of more affordable prices. Thus, it is better to create customer segmentation before creating value propositions.

  8. People prefer products and services that get the job done on a single platform. Cobbling solutions together is, for sure, not ideal as they want it presented to them. In this regard, the value proposition created must be a complete solution.

  9. Customers have more than one way of measuring success when getting a job done. Companies that define their needs as the basis can make innovation more predictable. Across market segments, for instance, companies can create a value proposition for unmet or underserved needs.

3 Dimensions of JTBD

All value propositions must help customers finish their functional jobs. But companies should also consider the other two dimensions – emotional and social.

1. Functional Jobs

Suppose a customer wants to drill a hole in a wall. A company, in this instance, could present its unique selling proposition. Yes, specs matter. But for the customer, the most important thing is the hole. At any rate, the act of “drilling a hole” is the core functional job.

A value proposition should help customers complete a functional job. And, to have a USP, a product or service must help customers do the job better or cheaper.

2. Emotional Dimension

While doing a functional job, customers may feel a certain way. Using the drill as an example, one may feel a degree of trepidation. For instance, the customer may not feel confident or worry the drill bit might break.

Companies should also consider the emotional component of functional jobs in their value proposition. By doing that, they can encourage customers to buy their products or services.

3. Social Dimension

People, by nature, are social creatures. Hence, there is also the social component to a functional job. Going back to the example of the drill, what do customers want after completing the job?

Suppose the intent is to install a hook to hang a picture frame. The customer may also want others in the family to appreciate the job done. Companies that understand this concept can incorporate this dimension in their value proposition and marketing approach. Instead of selling the drill, they could sell the benefits of achieving the desired outcome.

Kotler’s Five Product Level Model

A single value proposition cannot please all customers. The first thing to do using a business model canvas is to identify customer segments. Then, startups can customize their value propositions according to specific groups.

It makes sense to classify value propositions by the needs and wants of customer segments. This way, companies can create different products with minimal differences in configurations. One advantage of this approach is to keep product costs down.

But for many businesses, creating different products is not a viable option. At best, they can design products to be flexible. For example, mobile phone makers tweak specs to cater to price-conscious consumers.

Granted that a startup can tailor a value proposition to a group, one question remains.

Why should customers buy from you?

According to the “father of modern marketing” Philip Kotler, customer attachment to a product has three drivers.

  • Need. Customers do not necessarily have basic requirements.

  • Want. Customers have specific requirements to meet their needs.

  • Demand. Customers in this category have a set of wants and desires and can pay.

Remember that customers select products based on their perception of their value. Only if the use of the product matches or exceeds the perceived value can they feel satisfied.

Kotler further states that customer needs have five levels:

  • Core Benefit. This level describes the fundamental requirements or wants that a product must meet.

  • Generic Product. These are the products that contain only the essentials needed to function. Often, they are low-cost solutions.

  • Expected Product. On this level, customers have expectations that a product must meet.

  • Augmented Product. Products may include extra features or related services. These benefits serve to differentiate a brand from others.

  • Potential Product. Some products like apps transform over time. Augmenting them by introducing new benefits serves to enhance customer loyalty.

Customers, in general, are not interested in brands or products. They are, of course, interested in themselves. Hence, it is necessary to let them know what a brand can offer. More importantly, it is making them feel better and their lives easier.

What Are the Different Elements of Value Propositions?

Value propositions can be quantitative (e.g., lower pricing, faster service). It can also be qualitative (e.g., better customer experience, superior design). At any rate, they generally fall under these categories:

  • Newness. A value proposition can be a new or novel idea. Usually, it is technology companies that use this element. One great example is the iPhone – a product that revolutionized an entire industry. In the context of value creation, Newness is like creating a demand where none existed before.

  • Performance. Companies can create value propositions by improving the performance of products. Processors and many other tech products are an example. Another way to do that is by reinventing products, such as using new ingredients in shampoos.

  • Customization. A growing number of companies today offer exclusive or tailored services. Nike By You is an example. Using this service, customers can personalize footwear and sportswear. Some companies also started incorporating economies of scale, offering mass customization and customer co-creation.

  • Getting the Job Done. Entrepreneurs can conceptualize a business that helps other companies fulfill their value propositions. One of the best examples is Rolls-Royce. Airline companies pay them to use their engines based on hourly usage.

  • Design. Business models may use design as a value proposition. Companies, in this case, can charge a premium because of superior design. Usually, these are products that cost more than the average brand.

  • Brand or Status. People buy products for a variety of reasons. Other than necessity, customers may have a preference for specific brands. Some also purchase products because of perceived status.

  • Price. Some companies based their entire business models on low prices as value propositions. Cheap airlines and automobile makers are an example. These are companies that cater to a specific customer segment with limited budgets.

  • Cost Reduction. Companies can offer products or services that help businesses reduce their cost. One example is the hosted customer relationship management provided by Salesforce. Companies that availed their service spend less than installing and managing the software themselves.

  • Risk Reduction. The likelihood of customers buying a product increases when the associated risks decrease. Based on this principle, some companies may offer a conditional guarantee. For example, used car dealers give buyers a one-year service guarantee.

  • Accessibility. Entrepreneurs can create value by targeting customer segments with easy access to certain products. The creation of mutual funds, for instance, helped investors diversify their portfolios. At any rate, companies can make a product accessible by providing an innovative business model or providing new technology, or both.

  • Convenience or Usability. For most startups, the basis of their value propositions is serving as a better alternative to existing products. Apple, for example, made it easier for customers to buy not only albums but also individual songs. Apple is not responsible for developing digital music. But they brought it to the mainstream market.

Putting a Unique Value Proposition Together

Companies that can create a good value proposition can gain a competitive advantage. One tool that proved helpful is to use a Value Proposition Canvas.

Value Proposition Canvas

A Value Proposition Canvas helps companies position their products and services around a customer’s main problem, want, or need. In effect, this framework ensures a fit between a product or service and the target customer.

Among the many value proposition templates available, the original canvas developed by Alexander Osterwalder remains widely used. He is also the same person who created the Business Model Canvas.

The Value Proposition Canvas contains two components – customer segments and value propositions:

1. Customer Segment Map

This section details the three blocks companies need to define before creating their value proposition.

  • Gains are the benefits that customers expect and need:

    • Easy to use

    • Helps advance career

    • Reduce income volatility

    • Enhance income

    • Improve the likelihood of promotion

    • Promote a sense of fulfillment and dignity

    • Enhance work-life balance

    • Increase quality time with family

  • Pains describe the negative emotions, risks, and experiences while trying to do a job:

    • Not enough income

    • Unstable cashflow

    • Limited access to finance (due to low credit scores)

    • Last-minute scheduling problems at work

    • Feeling underappreciated or left behind by society

    • Limited voice at work

    • Fear of getting fired suddenly

    • Lack of career trajectory

    • Running out of cash before the next payday

    • Limited time with kids

  • Customer Jobs refer to the functional, emotional, and social jobs customers are trying to accomplish:

    • Perform work well

    • Get enough shifts per week

    • Find enjoyable work

    • Move up to jobs with higher pay

    • Find steady sources of income

    • Family subsistence

    • Send kids to school

2. Value Proposition Map

This canvas section contains three blocks that make up a value proposition.

  • Gain Creators describe how a product or service creates customer gains.

    • Regularly collect manager’s quick feedback on work

    • Keep track of concrete skills gained

    • Improve prospects of promotion

    • Improve the chance of better-paid jobs

    • Exposure to other employers

    • Public profile that showcases skills and promotions

  • Pain Relievers describes how a product or service helps customers reduce pains:

    • Improve prospect of higher income (promotion or better job)

    • Better able to foresee getting fired based on lousy performance

    • Regular recognition of good work to increase feelings of appreciation

    • Provide data to have performance conversations with manager or employer

    • Easy for managers to give feedback

  • Products and Services create customer gains while also relieving pains. Incorporating the different theories of value helps companies make a compelling value proposition:

    • Mobile app

    • Website

    • Access to a job posting

    • An automatic public online profile with work track record and skill certification

    • Career or job advice content specific to lower-wage work

Value Propositions Must Fit Target Markets

Before getting down to creating a value proposition for the target market, companies must remember one thing. Customers, in general, are only interested in themselves. One proof of that is in sales. Representatives, for instance, get better results when selling benefits rather than features.

The Customer Segment block of the business model plays a crucial role in creating a great value proposition. Once segmented, companies need to focus on creating value.

Value propositions serve as the framework of business models. They are, in essence, a declaration meant to deliver these messages to the customers:

  • Relevancy. What the brand stands for and how its products or services solve problems.

  • Quantitative Value. How the company and its products benefit customers.

  • Differentiation. Why customers should buy products or services of the company, not from others.

A value proposition serves as the basis of marketing strategies. To be successful, customers need to have faith in the products or services offered. They need to believe it will solve their problems better than others.

A Great Value Proposition Benefits the Target Market

Companies must remember one thing before creating a value proposition. Customers in a target market only care about themselves. In other words, the most important thing for them is getting a job done.

A must proposition must answer these questions:

  • Do you know your customers?

  • What do customers in each target segment care about?

  • What problems or difficulties can you help them solve?

  • Why should the customers buy your products or services?

  • What benefit will customers gain from patronizing your brand?

It is not necessary to share a value proposition with customers. And if that were the case, the products or services developed should still use it as a basis.

The Three Main Components of a Value Proposition are:

  • The target customer segment [Maslow’s Hierarchy of Needs]

  • The problem you are solving for them [JTBD Theory of Value]

  • What sets you apart from other companies [Kotler’s Five Product Level Model]

When you think from the customers’ perspective with a complete understanding of their needs and wants, the value proposition you create will most likely be viable.

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