At the heart of the Business Model Canvas is the ‘Value Proposition.’ The way that the Value Proposition is defined can determines the way that the rest of the Canvas is filled out.
Glossing over and coming up with a loose definition of the ‘Value Proposition’ can be a big mistake, which is why the Value Proposition Canvas was developed by the same group who developed the original Business Model Canvas.
‘Value’ is a word that is lobbied around in almost every business conversation (“adding value”), yet in most cases it is poorly understood. That’s because value is a relative concept – what is valuable to one may not be valuable to another. Yet if the group who the value offered is big enough and lucrative enough – even if it is just a niche – then the Value Proposition can lead to the inception of a fantastic business model.
Business Model – the rationale of how an organization creates, delivers and captures value
The opposite can also be true. A group can be big enough to open the opportunity for grabbing market share in a huge market, but if the Value Proposition is too weak to differentiate and compete against other offerings then the business model will fail.
A study by Simon Kucher & Partners found that 72% of new products and services introduced to the market fail to deliver on expectations.Strategyzer
The first step is to anchor the Value Proposition around the perspective of the customer.
Customer Profile – Gains vs. Pains
First and foremost, what is the ‘job to be done’ on behalf of the customer?
Once we understand this, we can analyze the benefits/costs from their perspective.
The customer is looking to complete a task, solve a problem, or satisfy a need.
- Expectation that a need will be satisfied or met for this particular ‘job to be done‘
- Functional, social, emotional, or financial benefits
- Negative emotions and experiences in relation to the ‘job to be done‘
- Functional, social, emotional or financial risks
Value Proposition – Gain Creators and Pain Relievers
Using the above context from the Customer Profile, we can look at the ‘value’ being created as if we were in the customers’ shoes.
You may have heard the old adage about selling “painkillers” versus selling “vitamins.” One is a ‘need to have’ because it solves an immediate problem, the other is a ‘nice to have’ because it builds on an existing solution.
Just like a growing plant, we look at the customers’ gains and the ‘value add’ for the customer. These are tangible, measurable benefits that the customer sees, feels, or experiences.
Just like taking a painkiller, we look at the customers’ pains and the ‘relief’ for the customer. These are similar to symptoms being alleviated, the difference is significant and palpable.
Combined, a picture is painted as to what the Value Proposition to the customer is. This may or may not included insights related to the competition – just remember that a cheaper mousetrap rarely sells.
Value Proposition Canvas
The Value Proposition Canvas – as a whole – is a tool that is meant to help find a fit between customers and the value proposition offered.
Viewing the components discussed above holistically, we can see that these tools help to distill the Value Proposition at the heart of the Business Model Canvas.
Value Proposition – View/Download PDF
Customer Segment(s)- View/Download PDF
Overall, we must look at value from the perspective of “Jobs to Be Done” and synthesize insights within the framework of the Value Proposition Canvas in order to avoid being in the 72% who typically fail to deliver on customer expectations when they come to market.