Value proposition
A value proposition is a promise of value to be delivered, communicated, and acknowledged. It is also a belief from the customer about how value (benefit) will be delivered, experienced and acquired. A value proposition can apply to an entire organization, or parts thereof, or customer accounts, or products or services. Creating a value proposition is a part of business strategy. Kaplan and Norton say "Strategy is based on a differentiated customer value proposition. Satisfying customers is the source of sustainable value creation." Developing a value proposition is based on a review and analysis of the benefits, costs , and value that an organization can deliver to its customers, prospective customers, and other constituent groups within and outside the organization. It is also a positioning of value, where Value = Benefits − Cost (cost includes economic risk). Overview. A value proposition is a statement which identifies clear, measurable and demonstrable benefits consumers get when buying a particular product or service. It should convince consumers that this product or service is better than others on the market. This proposition can lead to a competitive advantage when consumers pick that particular product or service over other competitors because they perceive greater  value. The phrase "value proposition" (VP) is credited to Michael Lanning and Edward Michaels, who first used the term in a 1988 staff paper for the consulting firm McKinsey and co. In the paper, which was titled "a business is a value delivery system", the authors define value proposition 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". In a modern, clear cut definition, Labeaux defines a value proposition as a statement that clearly identifies what benefits a  customer will receive by purchasing a particular product or service from a vendor. According to Hassan, however, there is no specific definition for value proposition. Creating and delivering value proposition is a significant issue that marketing planners need to consider in planning strategies. Value propositions vary across industries and across different market segments within an industry. Capon and Hulbert linked the success of firms in the marketplace to the value provided to customers. They introduced a principle of customer value, with customer insights driving the company's marketing activities. Customer value should also drive investment and production decisions, because customers  perceive value on the benefits of the product or service they receive. Consequently, as the environment changes, and the customer experience and their desires change, the value they seek changes. As a result, companies are pressured to invest more resources in marketing research; allowing them to gain deep customer insights and, thus, improve value proposition. Consumers are always looking around for the best possible deal at the best quality and how these products or services will contribute to their success. The value proposition is the promise that the business will give the consumer to assure best possible value. The value  proposition is a creative statement that depicts the unique selling point. Without this statement you lose an opportunity to tell consumers why they should pick you over competitors. An important goal in a business is to convince customers that they are getting many more benefits. Coming from a customer's perspective, buyers are not only asking how this product is different to one they may already be using, but what value this product or service may have. Customers are looking for answers that may improve or replace products or services. Customers will never buy a product or service if they  don't feel like they are receiving the best possible deal. Therefore, the value proposition is important to businesses and their success. The value proposition is to differentiate the brand from competitors. To understand and get an idea about the value proposition it is important to analyze the business through the marketing mix: identifying what the product or service is, the price of the product or service, where this will be sold, and how this product or service will be promoted. Identifying these key questions helps clarify and make the value proposition more obvious. Another strategy that has been used  to help process learning and growth of a business is the balanced scorecard. This concept was developed by Robert Kaplan and David Norton in 1990, to help communicate value proposition in a way that businesses can understand. The maps create a visual representation of the businesses objectives and goals so it becomes more approachable. Through these theories the proposition becomes more obvious and displays to consumers why this product or service is so special to the market. Once businesses determine what makes this item or service so exceptional compared to competitors, it can begin to guide a business more clearly . This can lead to marketing concepts and ideas. The value proposition helps the business understand what their primary focus and goals are within the business and help to understand the consumer's needs. When creating a value proposition it is important to think about these key questions: What is the product or service? Who is the target market? What value does the product or service provide? How is this different from competitors? Many businesses that can answer these will have a relatively strong value proposition as they know how their product or service differentiates from competitors. But it is more  than just understanding and recognising what makes them different; it is about creating a statement that engages customers to purchase goods or service. There are many benefits that the value proposition can have on a business. These benefits include a strong differentiation between the company and its competitors, increase in quantity, better operations efficiency and increase in revenue. By also creating a more personal and honest relationship with consumers through the value proposition also gives them another reason to choose you. These benefits will help the business grow and succeed in the market. Value-focused enterprise model. Creating a value -focused enterprise (VFE) requires a fundamental rethink of the way things are organized and managed. This is at the heart of the business strategy and implementation. These customers demand, and are willing to pay for, a sales effort that creates new value and provides additional benefits outside of the product. Using this model, you are able to plan the business on the basis of value to be delivered. The value cycle. Value proposition is by definition what the company offer differs from its competitors and explains why the customers buy from the company. Furthermore, it defines the relationship between: the  performance attributes of products or services, the fulfillment of the needs of particular customers and the total cost. Osterwalder and Pigneur state that the value proposition must be studied through its entire value life cycle. Value elements can be created in each of the five stages of the value life cycle. These stages are: value creation, value appropriation, value consumption, value renewal and value transfer: Value status. Perceived value and willingness to pay are correlated. Customers are willing to pay in several circumstances, a few examples being; when they are faced with different offers, when they are in a partnership  with the supplier, when the need to buy is urgent, when there aren't any substitutes, and when there is a high positive relationship between the value perceived and the price. Companies must choose the best pricing strategy to deliver value for both the customer and corporate perception. Capon & Hulbert introduced some factors that a firm must consider before making pricing decisions. Some of these factors include: Zeithaml studied three consumer defined values: Low price, Quality and value for money, and Features. The study concluded that perceived value is the customer's overall assessment of the utility of a product  based on perceptions of what is received and what is given. Some Customers may see value in cheap prices, and other may see value in volume obtained. The startup literature acknowledges that value is created from providing a solution to a problem. But in The Value Mix, de Ternay argues that value is above all perceived and therefore creating value also depends on addressing human emotions. Innovation. It is believed by Lindic and Marques that value proposition is a significant catalyst for customer focused innovation. Kambil and Baragheh claim innovation is a phenomenon that requires a multidisciplinary approach for analysis  due to its sheer complexity. Fields such as strategic management, organisational science, and information systems marketing are central to this analysis. Lindic used the example of Amazon.com; the transformation from an online bookstore to one of the world's most important online shopping services. Amazon.com has evolved through diversification from their struggling brand prior to the internet bubble burst in 2000, allowing for a great example for analysis and explanation of the potential innovation resulting from value proposition. Amazon also represents the so-called new economy yet at the same time it shares many characteristics with traditional companies. In fact , offline activities represent 70 percent of its core business. As a result, we are able to identify innovations which are common in both traditional and new economy companies. Lindic has developed a PERFA framework to evaluate this concept of value proposition in regards to innovation. Meticulously matching innovations' effects on customers with existing definitions found in the existing literature led to the following five elements that altogether represent a complete overview of all value propositions generated by innovations at Amazon.com. These are Performance (P), Ease of use (E), Reliability (R), Flexibility (F), and affectivity (A). Bonner states that the performances  of innovations or new goods or services offered to customers is a result of a superior company's offering in terms of quality, technical performance, features and ability to meet customer needs and demands. This perspective emphasises innovation as a generator of performance in a customer-oriented way. Ease of use refers to the degree to which a person believes that using a particular system or product will be effort-free (e.g. the ease of search and acquisition, usability, personalisation, service, and support). All else being equal, a feature or application perceived as easier to use than another is more  likely to be accepted by users, according to Wang. In Tornatzky and Klein's meta-analysis of the relationship between the characteristics of an innovation and its adoption, they found compatibility, relative advantage, and complexity have the most consistent significant relationships across a broad range of innovation types. Complexity is defined as “the degree to which an innovation is perceived as relatively difficult to understand and use”. Therefore, the easier it is to use an innovative application or feature, the more likely it is to be accepted by the user. Consequently, ease of use reduces the cost included in the  value proposition equation and increases its value. Reliability is defined as “the ability to perform the promised service dependably and accurately” according to Pitt. Raaij and Pruyn similarly perceive reliability as the ability of a product to deliver according to its specifications. Innovation may, therefore, add to the value proposition for customers by performing in accordance with the standard set for products and services. Flexibility is perceived as necessary in order to maintain the fit of an organisation and a changing environment. It describes a firm's ability to reallocate and reconfigure its organisational resources, processes and strategies as a  response to environmental changes. In other words, flexibility is materialised through the dynamic capabilities of a company which enable it to integrate, build and reconfigure internal and external competencies in order to face rapidly changing environments. Affectivity addresses the feelings or emotions associated with working with a company or using its products and services. Atken states it is highly correlated with a sense of belonging to a certain group or class. It is also correlated with the concept of co-branding, where a brand or company may be associated with the attributes of the product or benefits derived from it . Such a brand generates emotions and feelings among its customers. Kambil argues that the value proposition concept is too vague to be useful for innovation; however, Lindic and Marques' research indicates that if systematically decomposed, the value proposition holds a vital role in the innovation process. It is customers who decide whether or not to purchase a certain product; therefore, innovations should be based on what customers truly value. A value-focused approach requires managers to rethink their perspective on innovation by placing themselves in the customer's shoes. In doing so, managers are able to identify key factors among  the five perspectives of PERFA and make better decisions when deciding what to innovate so as to improve value proposition for their customers. Strategy and marketing. Businesses can use the value proposition to not only target customers, but partners, employees and suppliers. The creative statement should be able to persuade other businesses to create an alliance, which will be helpful in the long run. Joining up with another business can be a very powerful strategy. When businesses align their strengths seem to stand out, and their weaknesses become less noticeable. This makes their products and services stand out to consumers . Creating an alliance with another firm can increase a businesses brand awareness; create a larger customer base, new insights on products and access to new technologies to improve how the business runs. This strategy creates a competitive advantage over other competitors. The value proposition should be able to influence new employees or motivate existing employees to support the businesses goals and plans. Employees can improve the business client base and build a stronger relationship. Treating employees well, by offering bonuses or special deals they are more likely to take on more responsibility and promote the business they work for. This  alliance within the business can promote products or services through word of mouth or social media. The employee's positive attitude towards workforce and products will interest new customers. Suppliers should want to supply the business with products or items needed for the service by their thoughtful and creative statement. Businesses can increase their chances of the products they want and when they want it. By thinking of a well-constructed well-thought-out value proposition it can lead to a very successful business. This can lead to possible alliances with suppliers that will support and help the firm with  supplies and products that are needed to help improve the position of the business.