# 28.5: Value Proposition

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##### Learning Objectives
• Identify and describe an organization’s value proposition

## What Is Value?

Marketing exists to help organizations understand, reach, and deliver value to their customers. In it’s simplest form, value is the measure of the benefit gained from a product or service relative to the full cost of the item. In the process of the marketing exchange, value must be created.

Value = benefit − cost

### Competition, Substitutes and Differentiation

Alternatives generally fall into two categories: competitors and substitutes. A competitor is providing the same offering but is accentuating different features and benefits. If, say, you are evaluating a Marriott Courtyard hotel room vs. a Hilton Hampton Inn hotel room, then you are looking at competitive offerings. Both offerings are hotel rooms provided by different companies. The service includes different features, and the price and location vary, the sum of which creates different perceptions of value for customers.

AirBnb is a service that allows individuals to rent out their homes, apartments, or a single room. AirBnb does not offer hotel rooms; it offers an alternative to, or substitute for, a hotel room. Substitute offerings are viewed by the user as alternatives. The substitution is not a perfect replication of the offering, which means that it will provide different value to customers.

Competitors and substitutes force the marketer to identify the aspects of the offering that provide unique value vis-à-vis the alternatives. We refer to this as differentiation. Differentiation is simply the process of identifying and optimizing the elements of an offering that provide unique value to customers. Sometimes organizations refer to this process as competitive differentiation, since it is very focused on optimizing value in the context of the competitive landscape.

Finally, organizations seek to create an advantage in the marketplace whereby an organization’s offerings provide greater value because of a unique strategy, asset, or approach that the firm uses that other cannot easily copy. This is a competitive advantage. The American Marketing Association defines competitive advantage as “as total offer, vis-à-vis relevant competition, that is more attractive to customers. It exists when the competencies of a firm permit the firm to outperform its competitors.” When a company can create greater value for customers than its competitors, it has a competitive advantage.

## What Is a Value Proposition?

We have discussed the complexity of understanding customer perceptions of value. As the company seeks to understand and optimize the value of its offering, it also must communicate the core elements of value to potential customers. Marketers do this through a value proposition, defined as follows:

A business or marketing statement that summarizes why a consumer should buy a product or use a service. This statement should convince a potential consumer that one particular product or service will add more value or better solve a problem than other similar offerings.[1]

It is difficult to create an effective value proposition because it requires the marketer to distill many different elements of value and differentiation into one simple statement that can be easily read and understood. Despite the challenge, it is very important to create an effective value proposition. The value proposition focuses marketing efforts on the unique benefit to customers. This helps focus the offering on the customer and, more specifically, on the unique value to the customer. Also, the value proposition is a message, and the audience is the target customer. You want your value proposition to communicate, very succinctly, the promise of unique value in your offering.

A value proposition needs to very simply answer the question: Why should someone buy what you are offering? If you look closely at this question it contains three components:

• Who? The value proposition does not name the target buyer, but it must show clear value to the target buyer.
• What? The offering needs to be defined in the context of that buyer.
• Why? It must show that the offering is uniquely valuable to the buyer.

## How Do You Create an Effective Value Proposition?

When creating or evaluating a value proposition, it is helpful to step away from the long lists of features and benefits and deep competitive analysis. Stick to the simple, and strive for focus and clarity. A value proposition should be clear, compelling, and differentiating.

• Clear: short and direct; immediately identifies both the offering and the value or benefit.
• Compelling: conveys the benefit in a way that motivates the buyer to act.
• Differentiating: sets the offering apart or differentiates it from other offerings.

Here are some examples of value propositions from company websites:

• “Soundtrack your life” (Spotify)
• “Small Business Accounting Software Designed for You, the Non-Accountant” (FreshBooks)
• “Remember Everything” (Evernote)
• “That Horizon Might Be Closer Than You Think” (Mint)
• “Rides in Minutes” (Lyft)
• “Shorten. Share. Measure.” (Bitly)
##### PRactice Question

https://assessments.lumenlearning.co...essments/14477

1. Kenton, Will. "Value Proposition." Investopedia. March 12, 2019. Accessed April 12, 2019. http://www.investopedia.com/terms/v/valueproposition.asp. ↵

## Contributors and Attributions

CC licensed content, Original
• Value for the Customer. Provided by: Lumen Learning. License: CC BY: Attribution
• Practice Question. Authored by: Robert Danielson. Provided by: Lumen Learning. License: CC BY: Attribution
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