How to Write a Customer Value Proposition
Customer Value propositions are powerful tools helping the organization discover what it takes to deliver on their strategy. I’ve always found that the Internet was missing a good guide to creating Customer Value Propositions so I decided to make one.
You can download the canvas here …
Part 1 — What do you need know about Customer Value Propositions?
1. What is a Customer Value Proposition?
Customer Value Propositions clearly ask the company what capabilities it can combine in order to produce what important an unmet value to the customer that will lead to which outcome.
- Customer Value Propositions are one part of a chain of strategic statements linking the problem the company wants to solve to both the customer and how they want to solve it.
- It asks the team to figure out the value offering before they go into solution mode. It’s a great way to hypothesize what is valuable to the customer and test it with the customer before wasting time working on the wrong solutions.
- It guides the team. It tells them to look up from their nuts and bolts, from their channels and their product and get the value to the customer right first — it’s all about the focusing on the value. The final vehicle (the solution) is just a distributer of value.
Customer value propositions challenge the company to stop the strategy fiction and make a clear connection between what they are capable of and what they realistically will be able to create for the customer from the customers’ perspective.
The product is just a vehicle of distribution of value, you have to get the value right first.
When writing the statement it will challenge the team. They might realize that:
- They don’t have the right capabilities or activities available to realistically solve their own strategy
- The capabilities combined won’t offer any significant, important or unmet value to the customer.
So value propositions are hard, but hard means good, right!?
2. Are there both Value Propositions and Customer Value Propositions — are these different?
Value propositions are different from Customer Value Propositions. The former is an aged marketing tool designed to explore and discover “how to sell our products and services”. It’s a positioning statement which includes:
“references to which sector the company is operating in, what products or services they are selling, who are its target clients and which points differentiate it from other brands and make its product or service a superior choice” — Value Propositions, wikipedia (1)
The traditional Value Proposition isn’t interested in the customer it only cares about the product. It carries the mindsets “if we have product they will come” and “you can buy your customers”.
The Customer Value Proposition in comparison turns the team’s focus towards the customer and argues that if you don’t know what progress the customer is trying to achieve how can you even help them get there?
The traditional Value Proposition isn’t interested in the customer it only cares about the product.
3. Tell me more .. where did Customer Value Propositions come from?
The Customer Value Proposition got a real energy boost when Osterwalder and Pigneurs published their prototyping tool/book The Business Model Canvas (2). In the canvas the authors divide a business into nine key elements where the Value Proposition is central.
Note: Osterwalder and Pigneur uses the term Value Proposition not Customer Value Proposition. But they did introduce a significant improvement in focus on the customer in their Value Propositions.
After launching the canvas Osterwalder’s company Strategyzer started combining several new and progressive ideas from other thought leaders to fuel work on the canvas. One of these ideas / theories were Jobs-to-be-done (Clayton Christensen and Innosight’s version(3)). This strengthened the inclusion of the customer in the Value Proposition by now asking the prototypers to articulate what progress the customer is trying to achieve or what struggle they are trying to overcome in a given situation where they would reach out and hire a company’s offering to help them get there.
It clearly puts the onus on the customer and their progress.
In 2014 Strategyzer and Osterwalder published their book: Value Proposition-Design (4) with the accompanying canvas Value Proposition Canvas (5) helping organizations identify and articulate what jobs together with pains and gains the customer wants to resolve and then how the company will resolve them — reflecting on gain creators, pain relievers, products and services.
In my opinion this was a setback. The Value Proposition Canvas is not made by people who understand the customer as well as they understand business. I made this point to Osterwalder during their book launch: that where they were able to break the business down into nine components in the Business Model Canvas, they seem to be able to break a complex customer down into only three elements (pains, gains and jobs). And I asked if they weren’t oversimplifying the customer? Osterwalder reasonable response is that the Value Proposition Canvas is a prototyping tool. Once you get tone* you do the proper work.
*’Get tone’ is a reference to the movie Top Gun where the instrument panel in the plane gives out a strong tone once it has a lock on the target (6).
An earlier introduction to Customer Value Proposition is made by James C. Anderson, James A. Narus, and Wouter Van Rossum in their HBR article Customer Value Propositions in Business Markets (7). It argues that business needs Customer Value Propositions to understand what their customers find valuable and how to prioritize resources to deliver it. The article is very much focused on the work and context of the customer manager (sales rep.) in a business-to-business setting and how they need to be empowered to make sure they can convince the customer and agree on the right price.
It introduces key elements of a good Customer Value Proposition which you will find translated into the method and tool presented in the second part of this article, e.g..
- Understand the customer’s business
- Substantiate your value claims
- Document value delivered
In summary the Value Proposition by Osterwalder et. al. oversimplifies the customer because it’s a prototyping tool, while Anderson et. al. puts the focus on the sales representative. I need a tool that is both a part of the organizations living strategy and has broader implications.
4. Customer Value Propositions as living strategy
Maybe the most important source of insights and influence on the Customer Value Proposition is the article Can you say what your strategy is? by David J. Collis and Michael G. Rukstad (8).
In their article they break business’ strategy into three buckets: objective, scope and advantage. where the latter is a great foundation for the Customer Value Proposition:
“Advantage — a sustainable competitive advantage. the complete definition of a firm’s competitive advantage consists of two parts. The first is a statement of the customer value proposition. Any strategy statement that cannot explain why customers should buy your product or service is doomed to failure. The second part of the statement of advantage captures the unique activities or the complex combination of activities allowing that firm alone to deliver the customer value proposition.” — Can you say what your strategy is?
Collis and Rukstad are asking the organization to identify the unique or complex combination of activities that will deliver what value to the customer — from the perspective of the customer.
What I’ve done though is put both parts of their advantage-statement into the first part: the Customer Value Proposition. Because I thought it might be a good idea, I tested it (a lot) and it works.
This new statement is an excellent challenge to the company. And I’ve experienced both brilliance and frustration when teams are trying to discover what activities they can muster, and how these can combine into what real, important and unmet value to the customer leading to which desired outcome for both.
Thinking get’s real at this point.
Part 2 — How to / using the canvas
You can download the canvas here …
The Customer Value Proposition is one statement consisting of four parts: activities, value, job, scope and measure (bonus).
A good looking statement might look like this (see the red boxes below). So it’s not complicated, it’s simple.
Let’s go through the parts and explain in detail.
The Customer Value Proposition is an hypothesis statement. Strategy after all is just a theory about what we think the world looks like, what impact we can have on it to which effect (9).
To be true to this format the statement needs to be articulated as a clear testable statement.
#1 — Unique activities and capabilities
What are the unique capabilities or combination of activities that the organization can assemble for the customer’s need? These might be existing or new, they might be internal or gathered externally through purchasing or partnerships.
It can be related to e.g. competence, technology, data, resources, connections/network, brand building, distribution, operations, sales team etc.
The team’s goal is to find out what the company can use when putting together an offering relevant to the customers’ need.
I’ve found this to be a difficult exercise. But given that the team will invest potentially tons of money, time and resources into its strategy asking a simple, but hard questions early might be necessary.
How to: One way to answer the question is simply to gather a broad cross-functional team in a room. Ask them individually first and then in groups to post-it the capabilities and activities they can think of that could produce value and then work together to first combine and then prioritize them.
Question: What are the unique capabilities or combination of activities that the organization can assemble to serve the customers’ need?
After the prioritization the team improves the articulation of the chosen statements to fit into the Customer Value Proposition. If there are several strong suggestions they might need to be tested to find the best one(s).
NB! Remember that you are in strategy mode not solutions mode. What tangible solutions these capabilities will lead to is a problem to solve for the engineers and designers later in the process. For now making the herculean effort to identify the individual or combination of capabilities and activities themselves should be more than enough.
Example: In one of the starts-ups I’ve co-founded (10) we used the Customer Value Proposition to clarify what capabilities to invest in directing our focus of investment. We wrote the following:
We believe that by ‘combining our innovative business model with our sophisticated technology ..’
We needed to find our own strengths, which was clearly both our transformative business model and our introduction of advanced technology in a space where the use of technology is (still) underwhelmingly basic to the point of offering no value to the customers.
#2 — what is the value you want to offer?
Capabilities and activities on their own are not value — they are merely nuts and bolts we use to produce value.
In the second part of the Customer Value Proposition the team needs to imagine what the joint output of the chosen activities and capabilities are through the lens of value to the customer.
In other words the team has to translate what the combination of internal activities and capabilities will lead to that is valuable to the customer.
This is a difficult mindset shift for many teams as this is not about functionality or value to the business. This is about value to the customer.
How to: Using the work from the first exercise where the team listed and combined its capabilities and activities the goal is now to translate how these will become something that is valuable to the customer.
Question: What will the customer get or be able to do that is valuable to them as a result of the activities and capabilities being offered?
Remember, we are not asking for solutions at this point. Don’t write “an app”. We are not looking for the vehicle (the solution) rather think of how and where the vehicle will offer what kind of value.
The eld365-statement read:
‘.. we can offer the customer a tangible / manageable understanding of their operations energy consumption ..’
This described how we plan to offer our customers value at the same time as it gives our engineers and designers ample space and experimentation to find out how.
#3 — how does it support the customer’s job-to-be-done?
For a properly customer obsessed process I would recommend doing the Customer Value Proposition after the team has first done the Jobs-to-be-done statement (11).
The Jobs-to-be-done statements helps the team understand what progress the customer is trying to achieve that motivates them. The purpose is to identify what is valuable to the customer and how to serve them in order to unlock value for the organization.
With the Jobs-statement in place the third part of the Customer Value Proposition statement creates a clear link showing why the value offered by the organization has an immediate and direct impact on what is most valuable to the customer.
.. a clear link showing why the value offered by the organization has an immediate and direct impact on what is most valuable to the customer.
What is important:
- You want to demonstrate that you understand the customer and the situation they are in when you offer your customized value.
- You want to make sure that when the engineers and designers start their creative and creation process their focus is on the customer need and that they have has as much understanding of the customer as for the business.
How to: In this part of the Customer Value Proposition statement the team has to be quite specific answering the question: how does the value support the customer’s job-to-be-done?
The team reflects on both the jobs-to-be-done statement and the output from the second exercise (the value) discussing different opportunities and ideas and agrees to one or more hypotheses.
Question: how does the value support the customer’s job-to-be-done?
While also making sure the suggested statement likely leads the customer to the desired behavior that is valuable to the business.
In our startup we had to learn how facility managers (our users) interpreted and understood the world. Giving them arbitrary numbers about measures they don’t have a relationship with wouldn’t help them. We needed to make sure that when we presented the data from the sensors they were talking to the managers in their language with their logic. We also knew that our competitors didn’t measure single users (a user in this case are the heaters in one room or a specific machine in the factory etc.), but just gave the managers an accumulated total number. In addition we had learned that some managers who had been testing the solution immediately started wanting to run their own experiments on the facility and needed to have pin point accuracy in order to idenfity the outcome of e.g. reducing the speed of their ventilation system in one room. The way we could meet the customers’ important unmet need and differentiate us from our competitors was to be able to pinpoint the energy use of very specific users, and then also present the numbers in a way the facility managers immediately understood.
Our statement eventually read: “supporting them towards targeted and specific measures (actions)”
#4 — within which scope
In the Customer Value Proposition statement we use the customers’ scope to limit and clarify our own offering.
NB! this is the customers’ scope not ours.
Is there a specific situation when or where the value will be offered (e.g. specifically during the morning commute to work / rush-hour) or is there a clear goal (e.g. sustainability) where the organization’s offering will be of more value, relevance or use to the customer?
The scope helps the team to tailor the offering by framing it towards a specific bigger goal for the customer or narrower customer context. This is helpful if we want to be very clear on where we want to show up and have an influence — and where not to show up. Leading to a very precise design.
“Clearly defined boundaries … should make it obvious to managers which activities they should concentrate on and, more important, which they should not do.” — Can you say what your strategy is? (8)
The scope is not absolute. All strategy is theory. It is a starting point and as the team learns the scope can be challenged and adjusted, even pivoting if we learn that we were clearly wrong.
“The scope of an enterprise does not prescribe exactly what should be done within the specified bounds. In fact, it encourages experimentation and initiative.” — Can you say what your strategy is? (8)
How to: Using available insights and expertise the team discusses if the offering described so far in the statement will only be limited to a certain situation in the customer’s life or to serve a specific bigger purpose.
Question: is there a specific situation or context in the customer’s life where the value will be offered?
The cross-functional team will have different layers of knowledge about the customer and everyones’ point-of-view needs to be externalized and shared.
The team continues their post-it exercise adding, clustering and prioritizing post-its from participants describing different context.
Example: For our startup we wanted to link energy saving technology to sustainability. We did not want to design solutions for the sake of energy reduction on its own, but to focus our efforts and our narrative on problems where it would show up to support sustainable initiatives.
We wrote: “.. delivering to their own sustainable future”
#5 — How do you measure it (bonus)?
If the team doesn’t measure their strategy they won’t be able to improve it or hold it accountable.
Don’t wait to decide how to measure until the final solution has been built. The solution is designed to deliver on the strategy and so the strategy on its own needs to be measured to. Does it deliver valuable outcomes to both the customer and the business?
Figuring out how to measure the strategy can be quite difficult. But measuring sales or brand impact usually isn’t helpful as there can be a thousand different influences between the strategy and those measures.
e.g. The Customer Value Proposition might have 0% influence or 100% influence on sales, the team wouldn’t know if they just measure the end point (the sale).
If the team doesn’t measure their strategy they won’t be able to improve it or hold it accountable.
I’ve found that measuring strategy is very contextual. The team needs to break their high altitude strategy down into smaller more tangible and measurable results. As in: if everything goes according to plan what would change look like? How would we start seeing changes and improvements emerging and how can we measure the customer as they mature towards our desired outcome (depending on industry; not all purchases are impulsive or can be changed with one influence).
The team could e.g. use objectives and key results (12) and would then measure their ability to grow towards their higher level objective (The Customer Value Proposition) breaking it down and measuring key results along the way.
The complete statement
That’s it. You should now have your complete statement ready to be interrogated and tested (continue readong below) before it starts informing the engineering and design process.
I’ve spent a decent amount of time explaining the process, but it could be done in 90 minutes or 2 months depending on what the company needs from the process (sometimes the journey is the destination).
Part 3 — Remember to test it!
You can download the canvas here …
We need to test our assumptions to be sure we are making the right decisions. Or more precisely; we need to test if the logic the strategy is based on is true by asking “what has to be true for my strategy to be true?”.
“The traditional model In strategy is to focus on the question: What is true? A more effective model for framing and making strategy choices is to focus on the logic behind the choice by asking: What would have to be true?” — Roger L. Martin, A new way to think (13)
Riskiest Assumptions Testing (14) is a method for validating the assumptions the strategy is based on. It helps the team break down their overarching strategy statement into a number of small assumptions to be prioritized and tested by simply asking:
Question: what needs to be true for the Customer Value Proposition to be true?
The team enthusiastically and rigorously probes and explore the statement identifying a handful or even tens of underlying assumptions or biases.
e.g. if the statement suggests the customer wants a drink it must be because she is thirsty? Or maybe they want to socialize, or want to reward themselves… Is the drink milk, water, a smoothie or whiskey?
e.g. I once worked with a team suggesting that the customer appreciated the heritage of the brand and we asked how they knew this. Where is the data to confirm that the customers do? The team realized that they never tested this, but it was only an ingrained truth that everyone had grown to believe. Now we needed to test of it was true or not.
Going through your statement with a magnifying glass will help you weed out the conscious and unconscious assumptions that have to be true for your statement to be true.
After the team has collected all assumptions they need to structure and organize them. I usually do this in a few steps:
a. I draw an axis (arrow with arrow heads in both directions) with “less important” on the left and “more important” on the right.
b. I ask the team to prioritize and cluster all their post-its. What’s more important goes to the right and what’s less important goes to the left. NB! What makes something more or less important is not defined (data precedes framework), the team figures this out if needed as soon as there is a pattern emerging and by asking: what makes this assumption more imporant than this one, and what makes this less important than this? I acknowledge doing it this way sounds weird given that most of us have been primed to think we get rudderless without structure. But I’ve tested this so many times and it has always worked. The teams do this without hesitation and the prioritization becomes much better than if we introduce some arbitrary or random measure like ‘feasability’ or ‘risk’.
While Prioritizing and cleaning up the assumptions the team assesses which of the prioritized assumptions are so important they need to be tested before they can continue.
Running these tests might help the team to new learnings and maybe even identify previously unknown insights (unknown unknowns). This will give them an opportunity to go back to the statement and start improving it.
The team can use business experimentation for testing (15).
With a statement that has been tested enough that the team is confident in its fit with the market and curious to get to work they are ready to go…
What have I learned?
A friendly list of hopefully helpful experiences from my own work with Customer Value Propositions.
- The first thing that happens is that the team comes up with something so internally focused there isn’t even a customer in there. It’s all about us. This is a great starting point for improvement!
- The team might list only what the company is already offering, the existing benchmark in the market or top-of-mind insights. This sets a good baseline, now go deeper!
- The team is describing solutions not strategy — ask why! Why do I think this solution is valuable? The strategy should describe the value, not the solution.
- Bring a cross-functional team. There is magic in every corner of the organization — if we want it?
- The team is only describing the solution they know they want to make (then you don’t need strategy). Stop! We are too early for solutions which assume we already know what the customers’ want. It will give no wiggle room once you find out that you were wrong. Increase the altitude.
- Testing it with customers through the RAT (riskiest assumptions testing) is maybe the most valuable experience. Test early rather than spending too much time on your internal ideas before testing it.
- Does the value proposition match the customer’s need? If it doesn’t you are doing the wrong thing (or you have the wrong customer).
- Does the value proposition likely lead to the desired behavior from the customer that is valuable to the business? How?
- Testing it, learning and improving is one thing. But can it also be measured? Can it be broken down into smaller tangible parts?
- Are you keeping the statement alive? Making sure it can be improved as soon and as often as you learn something (static strategy can be as bad as no strategy at all. It’s like a wrist watch that is only correct twice a day).
- Does it distinguish you from the competition? Being different is not important, but being better is. Will this likely help you outshine the competitors in your market?
- Is the juice worth the squeeze? Will the cost of the capabilities and activities likely outsize the benefit of the customers’s behavioral change?
(1). Value propositions, wikipedia, https://en.wikipedia.org/wiki/Value_proposition
(2). The business model canvas, https://www.strategyzer.com/canvas/business-model-canvas
(3). Driving customer centricity, Using “Jobs to Be Done” to Identify Opportunities for Growth, https://www.innosight.com/leadership-agenda/the-jobs-to-be-done-organization/
(4). Book: Value Propositions, https://www.strategyzer.com/books/value-proposition-design
(5). Value Proposition Canvas, https://www.strategyzer.com/canvas/value-proposition-canvas
(6). Top Gun, final dogfight, https://youtu.be/uvFc0EPRSI4
(7). Customer Value Propositions in Business Markets by James C. Anderson, James A. Narus, and Wouter Van Rossum, https://hbr.org/2006/03/customer-value-propositions-in-business-markets
(8). Can you say what your strategy is? by David J. Collis and Michael G. Rukstad, https://hbr.org/2008/04/can-you-say-what-your-strategy-is
(9). Strategy needs experimentation, https://everythingnewisdangerous.medium.com/strategy-needs-experimentation-146805986a73
(10). eld365.io, https://www.eld365.io/
(11). Jobs-to-be-done + experimentation, https://everythingnewisdangerous.medium.com/jobs-to-be-done-experimentation-b4c32826256c
(12). Objectives and Key Results, Wikipedia, https://en.wikipedia.org/wiki/OKR
(13). A New Way To Think, Roger L. Martin, https://store.hbr.org/product/a-new-way-to-think-your-guide-to-superior-management-effectiveness/10565
(14). The MVP is dead. Long live the Rat., Rik Higham, https://hackernoon.com/the-mvp-is-dead-long-live-the-rat-233d5d16ab02
(15). What is business experimentation, https://bootcamp.uxdesign.cc/what-is-business-experimentation-2f96d573b0b0