Customer value proposition

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See also: value proposition

In marketing, a customer value proposition (CVP) consists of the sum total of benefits which a vendor promises a customer will receive in return for the customer's associated payment (or other value-transfer).

A customer value proposition is a business or marketing statement that describes why a customer should buy a product or use a service. It is specifically targeted towards potential customers rather than other constituent groups such as employees, partners or suppliers. It is a clearly defined statement that is designed to convince customers that one particular product or service will add more value or better solve a problem than others in its competitive set.^[1].

Why CVPs are important

A good customer value proposition will provide convincing reasons why a customer should buy a product, and also differentiate your product from competitors. Gaining a customers attention and approval will help in build sales faster and more profitable, as well as work to increase market share.^[2] Understanding customer needs is important because it helps promote the product. A brand is the perception of a product or service that is designed to stay in the minds of targeted consumers.

Creating a strong CVP

In order to achieve objectives, a customer value proposition needs to be clear, concise and compelling. In order to develop a strong customer value proposition, organizations need to have a thorough knowledge of their potential/current customer base. By identifying customer needs through market research and analysis, firms develop clear and concise value propositions that reflect those needs and the tangible results that customers can reasonably expect from using the firm's products or services. Strong value propositions are also expressed from the customer’s perspective and talk about the experiences and benefits that they will have when using the product.

Competitive Advantage

A product with a successful consumer value proposition is directly linked to a products actual and sustained performance versus competition. The two main attributes that allow consumers to differentiate among products are price and quality. Finding the correct balance between these two attributes usually leads to a successful product. If a company is able to produce the same quality product as its direct competition but sell it for less, this provides a price value to the consumer. Similarly, if a company is able to produce a superior quality product for the same or a slightly higher but acceptable price, the value to the consumer is added through the quality of the product. A product must offer value through price and/or quality in order to be successful.

Target Audiences

• End user - The initial and ongoing satisfaction of the end user is the goal of every business. Customer satisfaction is achieved when superior customer value is delivered. Establishing a lasting business relationship will lead to future sales. Price and quality are the most important factors in a consumer purchase.
• Manufacturer/Distributor – When the sales target is not the end user, but a manufacturer or distributor of a product, the most important factor is conveying superiority of one product over another. There may be other factors besides price and quality that would affect a customer’s decision and communicating those as well is essential^[3].

Types of CVP

1. All Benefits - Most managers when asked to construct a customer value proposition, simply list all the benefits they believe that their offering might deliver to target customers. The more they can think of the better. This approach requires the least knowledge about customers and competitors and, thus, results in a weaker marketplace effort.
2. Favorable Points of Difference - The second type of value proposition explicitly recognizes that the customer has alternatives and focuses on how to differentiate one product or service from another. Knowing that an element of an offering is a point of difference relative to the next best alternative does not, however, convey the value of this difference to target customers. A product or service may have several points of difference, complicating the customer's understanding of which ones deliver the greatest value. Without a detailed understanding of customer’s requirements and preferences, and what it is worth to fulfill them, suppliers may stress points of difference that deliver relatively little value to the target customer.
3. Resonating Focus - The favorable points of difference value proposition is preferable to an all benefits proposition for companies crafting a customer value proposition. The resonating focus value proposition should be the gold standard. This approach acknowledges that the managers who make purchase decisions have major, ever-increasing levels of responsibility and often are pressed for time. They want to do business with suppliers that fully grasp critical issues in their business and deliver a customer value proposition that’s simple yet powerfully captivating. Suppliers can provide a customer value proposition by making their offerings superior on the few attributes that are most important to target customers in demonstrating and documenting the value of this superior performance, and communicating it in a way that conveys a sophisticated understanding of the customer’s business priorities.

Value Proposition	All Benefits	Favorable Points of Difference	Resonating Focus
Consists of:	All benefits customers receive from a market offering	All favorable points of difference a market offering has relative to the next best alternative	The key points of difference(and, perhaps, a point of parity) whose improvement will deliver the greatest value to the customer for the foreseeable future
Answers the customer question:	“Why should our firm purchase your offering?”	“Why should our firm purchase your offering instead of your competitor’s?”	“What is most worthwhile for our firm to keep in mind about your offering?”
Requires:	Knowledge of own market offering	Knowledge of own market offering and next best alternative	Knowledge of how own market offering delivers superior value to customers, compared with next best alternative
Has the potential pitfall	Benefit assertion	Value Presumption	Requires customer value research

^[4][5]

Examples

• iPod vs. Other MP3 Players - As early as 1996 MP3 players were available to the public for purchase. For the first few years the only real value aside from price comparisons were the amount of music they could store. This all changed when Apple Inc. burst on the scene with the iPod and iTunes, the software paired with its new MP3 player to manage the music through a computer program to organize and rename the music on consumer computers. This software did not add cost to the iPod itself and was listed as a free add-on. This is a perfect example of a customer value added proposition. The customer is given added value through the software iTunes because it is free of additional cost to the customer. The combination of its intuitive and easy to use interface along with the customer value added proposition of iTunes, it is easy to see why the iPod in all of its forms dominated and still dominates the market.

• BMW vs. Other Luxury Car Manufacturers - BMW, "the ultimate driving machine". This is a key value proposition for BMW or Bavarian Motor Works. They build luxury cars for those who can afford them. When other luxury companies started making vehicles in direct competition to BMWs, BMW had to differentiate itself once again. In North America it did this via a customer value added proposition through their “No Cost Maintenance” program. The “No Cost Maintenance” plan comes with the purchase of a new BMW vehicle and provides the owner with no cost maintenance for the first 4 years/50,000 miles of use. Neither Audi, Lexus nor Mercedes offer a comparable program.

• Corvette ZR1 vs. Other Supercars - Chevrolet's Corvette ZR1 entered the market with great success, as a sports car with supercar performance, which shattered lap times of the fastest cars in the world around the Nurburgring. It established new records for quarter mile times. Its customer value added proposition is its price. The US market Corvette ZR1 price of $110,000 compared very favorably to the $150,000+ cost of cars it was outperforming. It is beating Ferrari, Porsche, Lamborghini, and Aston Martin in head to head competition for a significantly lower purchase price. This is an example of how Corvette offered value to the customer. Corvette used its reduced cost and superior performance as its value added proposition.

• Audi vs. Other Luxury Brands - Audi's introduction of the Quattro drive system in 1980 has led to it becoming almost synonymous with the use of all wheel drive for high performance vehicles. The Quattro all wheel drive system sets Audi apart from major competitors in terms of perceived customer value added proposition, as although other luxury car manufacturers such as BMW, Mercedes and Jaguar also have all wheel drive systems available, these are not as widely encountered and heavily marketed as Audi's.

• iPhone vs. Palm Pre - The Apple iPhone was introduced in 2007 and was almost immediately successful. As time passed the added value of the iPhone was equal and exceeded as other smart phones came to market. The Palm Pre was introduced with the ability to perform multiple tasks concurrently while the iPhone was only able to run a single application at a time. The multiapplication capability of the Palm Pre gave it a significant advantage over the iPhone.

• DLP vs Plasma TV - DLP TVs offer significant advantages versus plasma TVs. Specifically DLP tvs contain a bulb which illuminates the screen and is replaceable for approximately $250 (US). This allows for DLP tvs to have a longer lifespan and therefore is a more cost effective purchase than plasma for consumers.

See also

• Business model
• Customer relationship management
• Customer

References

1. ^ Investopedia. (2010). Value Proposition. Retrieved 4 22, 2010, from Investopedia: http://www.investopedia.com/terms/v/valueproposition.asp
2. ^ Lake, L. (2010). Develop your Value Proposition. Retrieved 4 22, 2010, from About.com: Marketing: http://marketing.about.com/od/marketingplanandstrategy/a/valueprop.htm
3. ^ Slater, S. F. (1997). Developing a customer value-based theory of the firm. Journal of the Academy of Marketing Science , 162-167
4. ^ Anderson, J. C., Narus, J. A., & Rossum, W. v. (2006). Customer Value Propositions in Business Markets. Harvard Business Review
5. ^ Parasuraman, A. (1997). Reflections on gaining competitive advantage through customer value. Journal of the Academy of Marketing Science , 154-161

External links

• http://www.investopedia.com/terms/v/valueproposition.asp
• http://marketing.about.com/od/marketingplanandstrategy/a/valueprop.htm
• http://www.springerlink.com/content/bg5036v46592r750/
• http://www.customerlifecycle.us/pdfs%5Cwhitepapers%5CCustomer%20Value%20Propositions%20in%20Business%20Markets.pdf
• http://www.springerlink.com/content/t5776l2219408416/