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Value Proposition

What is a Value Proposition?

A value proposition is a statement that identifies measurable benefits prospective customers can expect when buying a product or service. When done well, it serves as a competitive differentiator. It motivates potential customers to choose a product or service over others in the marketplace, thus giving organizations a powerful competitive advantage.

A value proposition can apply to an entire organization or entity within an organization (e.g., customer accounts, products, or services).

At its core, a value proposition is all about perceived value. It inspires a customer’s belief in a product or service.

What is the history of a Value Proposition?

The first mention of the term “value proposition” appeared in a 1988 staff paper for the consulting firm McKinsey and Company. The paper’s authors, Michael Lanning and Edward Michaels, defined it 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.”

Today, a strong value proposition has evolved to provide a clear business strategy. It helps align an organization with the messaging to use across all interactions and representations of a product or service.

To develop one, an organization must have both a profound knowledge of prospective customers and also of its products or services.

Learn the Anatomy of a Product Launch ➜

Why is it important?

An organization can have the best product in the world. However, without communication of the value it provides, the product could be doomed to be overlooked and underappreciated.

The product team should be influential in the process of developing a value proposition, with significant input from marketing, customer support, and sales. This mix of product and customer perspectives will ensure that everyone understands which key points to focus on. Product managers (PMs), in particular, should strive to be part of the defining process. This process provides an opportunity for PMs to contribute input about which perceived values are most important.

How to Develop a Strong Value Proposition

Creating a compelling value proposition begins with a keen understanding of benefits, costs, and value that an organization can deliver to customers (i.e., Value = Benefits – Cost).

According to Investopedia, “A value proposition should clearly explain how a product fills a need, communicate the specifics of its added benefit, and state the reason why it’s better than similar products on the market.”

Here are the necessary steps to creating a great value proposition:

  • Identify the key benefits of your product or service.
  • Think about the value these benefits provide to prospective customers.
  • Deepen your customer knowledge to distill your prospective customer’s key problem.
  • Answer this question: How does your product or service solve your customer’s problem?

Pro tip: It’s essential to work the why into the proposition. For example, “why did you want to build your product” or “why did you decide to change a feature?”

Learn how the value proposition connects to your product strategy.
Read The Anatomy of a Product Launch
Related terms: product strategy, customer empathy, roadmap, product tree, customer advisory board.