Value Proposition Design

We really like Alexander Osterwalder’s (et al’s) updated approach on designing value propositions. In his latest book, called “Value Proposition Design”, he shows a straightforward method of designing a relevant value proposition that is matched to the jobs, gains and pains of the targeted customer segments. Something that earlier readers recognize from the book “Business Model Generation”. In “Value Proposition Design” he however develops the model and tools further and also gives practical advice on how a value proposition can be tested and iterated to reach the perfect market fit.

Why is this important? If you have ever launched a product that failed you already know why. Being highly relevant to your target customers is one of the most overlooked and mistreated challenges of modern business. Imagine if all innovations where designed for a clearly defined and relevant target audience, with a clear understanding of their everyday problems, jobs they need to get done as well as the associated gains and pains. Would that increase the likelihood for innovation success? Probably, since most innovations today don’t succeed in penetrating the market place. Studies even show that only a small fraction of all innovations are in the market at all three years after launch.

Also, research has show over and over again that it pays off to differentiating your brands and business in meaningful way in the minds of the consumers, clearly separating you from competition. Creating a relevant value proposition is an important step to get this right.

What is a value proposition?

A Value Proposition is often described as the sum total of functional and emotional benefits which that a company promises that a customer will receive in return for what they pay. To be effective it needs to bring more value than available customer alternatives.

Developing a Value Proposition is traditionally based on a review and analysis of the benefits, costs and value that an organization can deliver to its customers, prospective customers, and others within and outside of the organization. In “Value Proposition Design” designing a Value Proposition is however far more intuitive, even for non marketeers, since the approach was developed with simplicity in focus:

“Tired of endless text? Value Proposition Design simplifies complex ideas into quickly readable illustrations with only the most practical, important details. The result? You’ll learn more, in less time, and have fun along the way.”

Is there then something negative about the approach? Well, when reading the book, we sometimes get a feeling that it’s almost a Value Proposition Dummy for Beginners. On the other hand, we are at the same time convinced that the approach will save many companies and start ups a lot of time and money, if they can get these basics right since far to many struggle with their value propositions (and are not trained in designing them).

The Value Proposition Canvas

A key tool in the book is the Value Proposition Canvas. A simplified overview is sketched out below.

Value Proposition Canvas Simplified

The underlying logic of the Value Proposition Canvas is straight forward. The process starts with your products & services, gain creators and pain relievers. You then move on to a targeted customer segment (one at the time) and work through (in a broad sense) the jobs they are trying to get done, and their relevant gains and pains. The exercise does of course require deep customer understanding and customer research, e.g. in the form of relevant customer observations, to get it right. After having completed a customer segment, you then go back to the Value Proposition for iteration and design in relation to the targeted customer segment. You may even decide to give up a specific customer segment – and instead choose to focus on another one – because you discovered that your suggested value proposition was not relevant for the first.

The workshop mode

In the design of a Value Proposition, we are particularly fond of the work shop format since it can create the early and passionate involvement of your team. This is also closely described in the book, that offer relevant workshop tools on the related website.

Based on my own experiences, the ideal workshop format is run with 6-10 people from across your organization. With a larger group you can split the group members into smaller groups and take on the same approach, but with focus on one customer segment per group. The targeted customer segments are ideally chosen before the workshop. Ideally all groups also have a facilitator to help explain the approach and steer the discussion along the Value Proposition Canvas. During the actual workshop, Post It notes in different colors are then used to structure generated insights and thoughts in the meeting. Finally, the small groups report back their findings to the larger group.

I definitely recommend reading the book as a start. On the Strategyzer website you can actually get a sneak peek at 100 pages for free.

If you are interested in trying the approach, we can help you get started with training as well as workshop facilitation. Please contact us to learn more.

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