I will start to share with you the definition of Value, and the definition of Proposition, separately. To do that, I decided to reach the most simple source:  A dictionary.

Value: the importance or usefulness of something. The amount of money that something is worth. An amount, as of goods, services or money, is considered a fair and suitable equivalent for something else. (Source: Longman Dictionary of American English & The American Heritage College Dictionary, Houghton Mifflin Company).

Proposition: a statement in which you express a judgment or opinion. An offer, plan or idea especially in business or politics. (Source: Longman Dictionary of American English & The American Heritage College Dictionary, Houghton Mifflin Company).

Now I will write the dictionary definition of “Value Proposition”: Value Proposition is an analysis or statement of the combination of goods and services offered by a company to its customers in exchange for payment. Read more: http://www.businessdictionary.com/definition/value-proposition.html

Now, let me ask you? Given the definitions from the dictionaries above, do you understand what is the meaning of “Value Proposition” and its importance in building business models? Do you? … I doubt it.  Why? Because, it is difficult to try to build from an idea, or a concept, or definition of a successful action. The reality is different than a dictionary. Let me continue…. Eight out of ten entrepreneurs who start businesses fail within the first 18 months. In the USA, 80% of the companies crash and burn in less than two years!.

So many books, strategy gurus, and professors have invested their time and efforts to create different methodologies to help you to design and build business models, and value propositions. Recently, Professor Alex Osterwalder co-created a methodology, which he called the “Business Model Canvas”. The business model canvas is a method, which helps you create business models. It has 9 elements listed below:

You start your business model created by understanding the customer needs to clearly design and develop the right Value Proposition.

For me, a value proposition is nothing more than to design the offer of a viable product or service with the purpose to fulfill a specific demand from a specific customer. The better you build the offer in terms of purpose, key benefits, significance, attractive category, and uniqueness, the merrier will be the customer because it has fulfilled his needs.

The offer can be a tangible product such as a detergent or apples or a mobile or an app; or services such as an advisory, a hotel room, banking or utilities such as (water, energy, gas, telephone, etc.). The offer can also be a hybrid product (product and service bundled together).

The demand is the need or the desire that the customer has for that particular offer (product or service).

If you pay attention to the “value proposition” latter definition, there are three key inherent elements: (1) an offer of a product/service; (2) a demand or need to be fulfilled, and (3) a specific customer. These three elements produce all together a good “value proposition”. When you have a perfect fit between what the customer wants and what the product/service offer, then you have built a “value proposition”.

Let´s try to be simple in quotidian terms:
An example: a boyfriend wishes to propose to her girlfriend. The ring he chooses to propose is a symbol of his desire to marry her, in order to fulfill her needs. He is offering himself to her through a traditional action called “marriage proposal”. In reality, the value of the offer has nothing to do with the “engagement ring value”, but the boyfriend himself (he is the product-service bundled).  If he pops up the question “will you marry me?” , we assume he has done all the previous analysis about her and he loves her and he is sure she will make him happy.

Now let´s go to the girlfriend, she is the customer. If she says YES, and she accepts the engagement ring, that means she accepts the boyfriend as the “one” who will fulfill her needs of love, protection, caring, future father of their kids: she believes he is the unique and right complement for her life.

The value proposition will prove to be the right one, only if the “boyfriend” is the perfect fit for the “girlfriend” needs. In this case, she will say “yes”. If not, she will reject him. Alternatively, if it is not the right value proposition, with time even if they marry, they will end up in a divorce.

Returning back to business, when do we have an excellent “value proposition”?.  I will develop more about this topic in my next post.

Published by eleonoraescalantestrategy

Corporate Strategy Artist, San Salvador, El Salvador View all posts by eleonoraescalantestrategy