Value Proposition Design

Designing Your Value Proposition

You and your team work hard creating products and services you believe your customers need and want. You devote time and resources to product development. You define and refine a business plan according to customer-specific data. You debate the pros and cons of different ideas until you reach an agreement.

“Put the value proposition and business model to work to create a shared language of value creation in your organization.”

Unfortunately, this process can veer off the track. Sales and marketing can fall out of the loop, and confusion can unsettle team meetings. You start to worry that your efforts and ideas don’t address the core of what your customers really want.

The “Value Proposition Design” process enables you and your team to analyze and organize customer information to reveal what your clientele does and doesn’t want. Focus your team’s efforts on creating customer value, and don’t sidetrack into designing features or technologies that miss the mark. Test your ideas continually instead of watching them fail at the final launch.

“Manage the messy and nonlinear process of value proposition design and reduce risk by systematically applying adequate tools and processes.”

Put the “Value Proposition Canvas” tool at the center of your value proposition design process. Use it in concert with the “Environment Map,” which will help you define your context, and the “Business Model Canvas,” which will help you identify the activities and processes necessary for creating and delivering profitable offerings. Innovators creating new products or services, and existing organizations improving or adding to a suite of offerings, face different strategic challenges. The value proposition design works for both scenarios.

The Business Model Canvas

The elements of the Business Model Canvas include:

• “Customer segments” – Identify the clusters of people or firms you hope to sell to and create “value for them with a dedicated value proposition.”
• “Value propositions” – This is how you create “value for a customer segment.”
• “Channels” – These communication streams inform customers about your value proposition and brings it to them.
• “Customer relationships” – Consider how you form and keep your client connections.
• “Revenue streams” – A successful value proposition will generate these earnings.
• “Key resources” – Develop the “assets” you need to deliver your value proposition.
• “Key activities” – Take the necessary steps to achieve high performance.
• “Key partnerships” – Your “network of suppliers and partners” contributes “external resources and activities.”
• “Cost structure” – Organize the money you have to pay to “operate a business model.”

The Value Proposition Canvas

A value proposition outlines the “benefits your customers can expect from your products and services.” The Value Proposition Canvas contains the “Customer Profile” and the “Value Map.” The Value Map analyzes your offering in relationship to the needs, or “gains,” it fulfills and the problems, or “pains,” it alleviates for your audiences, as defined by the Customer Profile.

“In today’s hypercompetitive world, customers are surrounded by an ocean of tempting value propositions that all compete for the same limited slots of attention.”

Identify “customer jobs” to determine why people need and use your product or service. Jobs vary depending on context. “Functional jobs” are the products and services that customers use to perform specific tasks, such as mowing the lawn. The term “social jobs” refers to products and services people use to attract positive attention, such as wearing a designer watch. “Personal or emotional jobs” help users feel good, calm or secure. “Supporting jobs” help consumers compare prices and offers, provide feedback to suppliers or stop using a product – such as canceling a magazine subscription.

Customer Pains and Gains

Customer pains are any problems or obstacles people encounter when using a product or service. If a product doesn’t work as promised, proves too expensive, takes too much time or involves a risk, your clients feel let down. Identify all potential customer pains by asking “trigger questions” – what price do they feel is too high? What do they find challenging about using your product?

“What customers do on a daily basis in their real settings often differs from what they believe they do or what they will tell you in an interview, survey or focus group.”

Customer gains are the benefits consumers experience when using your product or service. Assess these benefits on a scale, beginning at the bottom with “required gains.” That means the product works. For example, your mobile phone works when you try to call someone.

Next in importance are “expected gains.” The mobile phone both makes calls and has a nice design. “Desired gains” are benefits beyond the basics, such as a smartphone that synchronizes to your other devices. The highest is “unexpected gains,” products that exceed customer expectations – a smartphone that responds to voice demands.

“Fit between what a company offers and what customers want is the number-one requirement of a successful value proposition.”

To create a Customer Profile of a potential client, write each of the customer’s jobs, pains and gains on a sticky note. Make each item as concise as you possibly can, and include only those that don’t relate specifically to your value proposition. When you arrange the sticky notes in order of importance, that’s your priority map. Create a Customer Profile map for every customer segment that you target. Repeatedly ask “why” to delineate what truly drives your customers.

The Value Map and Fit

To create your Value Map, compile a comprehensive list of your products and services. Describe the pain-relieving attributes of your offerings. These address factors that annoy customers as they use your products. Write each pain reliever on a sticky note. Ask trigger questions to identify improvements that could save time and money, enhance your job performance, wipe out a bug or remove obstacles. Record each gain creator on a separate sticky note. Place all your sticky notes on your Value Map, prioritized in order of value. Prioritizing jobs, pains and gains enables you to identify which value propositions to pursue.

“The testing process allows you to continuously reduce uncertainty and gets you closer to turning your idea into a real business.”

Your ultimate goal is to create value propositions for consumers that tackle important jobs, relieve primary pains and generate desired gains. Achieving this fit is the core goal of Value Proposition Design. The three stages of the fit process are:

1. “Problem-solution fit” – Identify the jobs, pains and gains customers care most about and address them with your value proposition.
2. “Product-market fit” – Analyze how well consumers respond to your value propositions once your offering hits the market.
3. “Business model fit” – Monetize your idea to generate profit.

The 10 Characteristics

Superior value propositions have 10 traits to keep in mind so that you provide good value when you are the designer. Superior value propositions:

1. Prove intrinsic to high-quality business models.
2. Pinpoint the jobs, pains and gains that consumers prioritize.
3. Pay attention to incomplete jobs, “unresolved pains and unrealized gains.”
4. Aim at only a small number of jobs, pains and gains, but provide top-quality solutions.
5. Address your product’s value in “emotional and social jobs” as well as “functional jobs.”
6. Prioritize pressing jobs, pains and gains – the ones clients “will pay a lot of money for.”
7. “Align” with the way your clients evaluate whether something works successfully.
8. Show how you differ from your rivals in addressing the jobs, pains and gains that matter to your targeted audience.
9. Perform far better than your rivals on at least one important criterion.
10. Demonstrate uniqueness that your competitors find too daunting to duplicate.

Designing Value Propositions

Explore value propositions quickly and inexpensively by creating prototypes, or rough drawings or models, to test your ideas. The Value Proposition Canvas exploratory tool lets you analyze a selection of value creation concepts. When you design your value propositions, keep your customer foremost in your mind. Collect and analyze consumer data from your research and outside sources. Interview clients to learn what matters most to them. Ask for feedback and invite those who use your product to join in the development process. Observe how people use your offering in real life. Use your product or service as they do, and take notes about the experience.

“You can fail even with a successful value proposition if your business model generates less revenue than it incurs costs.”

Consider which business model works best for each offering by weighing the following commercial criteria:

1. “Switching costs” – Can users more cheaply substitute a similar product or provider?
2. “Recurring revenues” – Will people repeatedly purchase your offering?
3. “Earnings versus spending” – How much money do you need to put in up front?
4. “Game-changing cost structure” – Will you generate higher profits than your rivals?
5. “Others who do the work” – Can third parties generate content or assist you?
6. “Scalability” – What are the obstacles to expanding your goods or services?
7. “Protection from competition” – Is your offering easy to replicate?

Testing Value Propositions

Challenge your “business hypothesis,” which is the central idea of your proposal. Use test or “learning” cards to plan your experiments. Each card includes: 1) a description of your hypothesis; 2) the outline of the experiment; 3) the data you wish to collect and measure; and 4) the pass/fail goal to measure against. Record your findings on your learning cards.

“Make sure you get the best from presenting your ideas by explaining them with disarming simplicity and coherence.”

After you test your hypotheses, decide if you need to start over, conduct more testing or move on to the next phase of development. One way to facilitate these decisions is to use tests and experiments to evaluate your value proposition and to discern your consumers’ preferences, interests and priorities. Value proposition experiments include:

• “Ad tracking” – Place an ad using, for example, Google AdWords, which measures consumer interest and response.
• Learn with “minimum viable product” – MVPs are simple, functioning prototypes like a website landing page, product mock-up, video tutorial, brochures and storyboards.
• “Illustrations, storyboards and scenarios” – Share your visuals with consumers to gauge their responses.
• “Life-size experiments” – Create life-size prototypes to observe how people use and interact with your design or technology.
• “Split testing” – Create two prototypes, one to compare design options and one to test the value of an improvement in relation to an existing offering.
• “Mock sales and presales” – You can use virtual online sales or presales to measure consumer interest before you go into production.

Next Steps

The Value Proposition Canvas can align every stakeholder, in and outside of your organization. Stakeholders include your business and investment partners, your sales and marketing force, your shareholders and your employees.

“Great value propositions focus on pains that matter to customers, in particular extreme pains.”

Use the value proposition creation and testing processes to improve your offering even after production and distribution. The value proposition cycle remains ongoing as you continually design and test new ideas. Closely follow your industry, market and competition to identify threats and opportunities. New Value Proposition Design enables your enterprise to grow, reinvent and evolve while your existing value propositions continue to succeed in the marketplace.