A value proposition in marketing is a concise statement of the benefits that a company is delivering to customers who buy its products or services. It serves as a declaration of intent, both inside the company and in the marketplace.
The term value proposition is believed to have first appeared in a McKinsey & Co. industry research paper in 1988, which 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."
- A company's value proposition tells a customer the number one reason why a product or service is best suited for that particular customer.
- A value proposition should be communicated to customers directly, either via the company's website or other marketing or advertising materials.
- Value propositions can follow different formats, as long as they are "on brand," unique, and specific to the company in question.
- A successful value proposition should be persuasive and help turn a prospect into a paying customer.
A value proposition stands as a promise by a company to a customer or market segment. The proposition is an easy-to-understand reason why a customer should buy a product or service from that particular business. 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. The ideal value proposition is to-the-point and appeals to a customer's strongest decision-making drivers.
Companies use this statement to target customers who will benefit most from using the company's products, and this helps maintain a company's economic moat. An economic moat is a competitive advantage. The moat analogy—coined by super-investor Warren Buffett of Berkshire Hathaway—states that the wider the moat, the bigger and more resilient the firm is to competition.
A great value proposition demonstrates what a brand has to offer a customer that no other competitor has and how a service or product fulfills a need that no other company is able to fill.
A company's value proposition communicates the number one reason why a product or service is best suited for a customer segment. Therefore, it should always be displayed prominently on a company's website and in other consumer touch points. It also must be intuitive, so that a customer can read or hear the value proposition and understand the delivered value without needing further explanation.
Value propositions that stand out tend to make use of a particular structure. A successful value proposition typically has a strong, clear headline that communicates the delivered benefit to the consumer. The headline should be a single memorable sentence, phrase, or even a tagline. It frequently incorporates catchy slogans that become part of successful advertising campaigns.
Often a subheadline will be provided underneath the main headline, expanding on the explanation of the delivered value and giving a specific example of why the product or service is superior to others the consumer has in mind. The subheading can be a short paragraph and is typically between two and three sentences long. The subheading is a way to highlight the key features or benefits of the products and often benefits from the inclusion of bullet points or another means of highlighting standout details.
This kind of structure allows consumers to scan the value proposition quickly and pick up on product features. Added visuals increase the ease of communication between business and consumer. In order to craft a strong value proposition, companies will often conduct market research to determine which messages resonate the best with their customers.
Value propositions can follow different formats as long as they are unique to the company and to the consumers the company services. All effective value propositions are easy to understand and demonstrate specific results for a customer using a product or service. They differentiate a product or service from any competition, avoid overused marketing buzzwords, and communicate value within a short amount of time.
For a value proposition to effectively turn a prospect into a paying customer, it should clearly identify who the customers are, what their main problems are, and how the company's product or service is the ideal solution to help them solve their problem.
A value proposition is meant to convince stakeholders, investors, or customers that a company or its products or services are worthwhile. If the value proposition is weak or unconvincing it may be difficult to attract investment and consumer demand.
An employee value proposition (EVP) applies to the job market. Here, a company that is hiring will try to frame itself as a good place to work, offering not only monetary compensation but also a range of benefits, perks, and a productive environment. In return, the job candidate will need to convince the hiring company that they have the appropriate skills, experience, demeanor, and ambition to succeed.
If a company cannot convince others that it has value or that its products or services or valuable, it will lose profitability and access to capital and may ultimately go out of business.
Economic utility can be defined as the total amount of satisfaction that someone experiences when they consume a particular product or service. It helps measure how much fulfillment someone requires in order to satisfy a particular need or want.
Companies strive to increase the utility or perceived value of their products and services to enhance customer satisfaction, increase sales, and drive earnings. The concept of economic utility falls under the area of study known as behavioral economics, which is designed to assist companies in operating a business and marketing the company to attract the maximum amount of customers and sales revenues.
There are four types of economic utility, which include form, time, place, and possession. Companies that can understand and recognize areas that are lacking in their marketing schemes can assess consumer purchase decisions and pinpoint the drivers behind those decisions, thus boosting their sales and profits.
- Economic utility is the total amount of satisfaction experienced when a product or service is consumed.
- Form utility is the value a consumer derives from products or services in a way they actually need.
- When a company provides goods or services to consumers when they demand or need them, it is referred to as time utility.
- Place utility involves making products or services available in locations that allow consumers to easily access them.
- Possession utility is the use or perceived value a consumer gets from owning and being able to use a product or service in a timely manner.
Form utility refers to how much value a consumer receives from a product or service in a way that they actually need. Form utility is, therefore, the incorporation of customer needs and wants into the features and benefits of the products being offered by the company.
Companies invest time and money into product research to pinpoint exactly what products or services consumers desire. From there, company executives strategize on the development of the product with the goal of meeting or exceeding those needs to create form utility.
Form utility may include offering consumers lower prices, more convenience, or a wider selection of products. The goal of these efforts is to increase and maximize the perceived value of the products.
For instance, a cosmetics company may conduct focus groups and testing to identify holes in the market related to different skin types and skin tones. The company may decide to produce and market new offerings to cater to and complement the needs of a more racially diverse clientele. The company can increase its sales while adding value to these new consumers.
Utility doesn't necessarily have to be measured in numbers—just in perceived value. For instance, someone may choose to walk rather than take the bus or drive because they perceive the health benefits from the exercise to be greater than the speed and ease associated with being transported in a vehicle.
This type of utility occurs when a company provides goods and services when consumers demand or need them. Companies analyze how to create or maximize the time utility of their products and adjust their production process, logistical planning of manufacturing, and delivery. So when demand increases, the company should respond by producing and delivering more of the product to the market.
Creating time utility includes considering the hours and days of the week a company might choose to make its services available. For example, a store may open on weekends if customers typically shop for a certain product at that time. Time utility might also include 24-hour availability for a product or the company's customer service department through a phone number or website chat function.
Failure to factor time utility into the equation can lead to a drop in the customer base, which can result in a loss of revenue.
Economic utility can also be referred to as utility marketing. That's because product development and design require companies to persuade consumers to make purchases.
Place utility refers to making goods or services available in locations that allow consumers to easily access products and services.
While most people typically think of place utility as a physical or brick-and-mortar location, such as a retail store or shopping mall, the digital age helps broaden the definition of availability. For instance, companies can maximize place utility through their website. Those with effective search engine optimization strategies can improve their place utility.
Increasing convenience for customers can be a key element in attracting business. For example, a company that offers easy access to technical support gives consumers an added value compared to a similar company that does not offer a similar service.
Making a product available in a wide variety of stores and locations is considered an added value since it is more convenient. Apple (AAPL) sells iPhones and laptops through its retail stores, but also offers its products through other electronics retailers, including Best Buy (BBY).
Possession utility is the amount of usefulness or perceived value a consumer derives from owning a specific product and being able to use it as soon as possible. The basic premise behind this utility is that consumers should be able to use a specific good or service as soon as they're able to purchase or obtain it.
For instance, someone who purchases the latest iPhone won't get much utility for the product if Apple has it on backorder and can't manufacture and ship it to the consumer in a timely fashion.
That's why it's important for companies to increase the ease of ownership, which boosts the product's possession utility or perceived value. Consider lenders who offer favorable financing terms toward owning a car, appliance, or home. They would likely create possession utility for these products, leading to an increase in sales and, therefore, revenue.
The term economic utility refers to the total degree of satisfaction someone gets from using a product or service. It may be a car, house, food, clothing, financial services, or housekeeping. Companies that offer them can study the behaviors of their consumers and figure out what drives them to make purchases.
One example of an economic utility is the value customers receive from the latest iPhone model. Apple responds to the needs and wants of its consumers by updating and upgrading its phones on a regular basis.
There are four main types of economic utility. The first is form utility, which means the amount of value someone receives from goods or services that they actually need.
Time utility has to do with the amount of time it takes for companies to respond to the needs and demands of their consumer bases.
The third utility has to do with place, which refers to a centralized location where consumers can easily access the products and services they need.
Possession utility is the final type of economic utility. It measures a product or service's perceived value based on a consumer's ability to obtain and use it as soon as the need or want arises.
There are many steps that businesses can take in order to improve utility for their customers. This includes research and marketing activities, such as focus groups and testing. Companies can also consider increasing the speed with which they conduct their production process, resulting in the ease in bringing products and services to market. Companies can also make their products and services easily available (in retail locations and online) at lower costs.
People purchase goods and services to get some benefit or satisfaction. This allows them to fulfill a need or want when they consume it. This phenomenon is called economic utility. There are four basic principles that fall under this umbrella, including form utility, time utility, place utility, and possession utility. Companies can boost their sales and revenues by understanding and tailoring their marketing and production efforts to the way individuals purchase and consume their products.