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Kay Plantes is an MIT-trained economist, business strategy consultant, columnist and author. Business model innovation, strategic leadership and smart economic policies are her professional passions. A former Madison, WI resident, Kay now resides in San Diego, CA. The views on her blog are not those of her employer, IBM.

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June 27th, 2013

The role of Value Propositions in Business Model Strategy

Value propositions exist at all levels where strategy is decided. Make sure the "containing" doll is in alignment with the next smaller strategy level.

A prospect recently asked, “What is the difference between strategy and value proposition work?” Since “strategy” is used to describe everything from how to stop a 2-year old’s tantrum to how to grow a Fortune 500 business, the question is best posed differently: “What is the role of the value proposition in a company’s strategy work?”

A value proposition articulates:

  • a promise of value being delivered to a defined target market, where value is the tangible and intangible benefits less the price the target pays to receive them;
  • why this promise is to be believed; and,
  • the offering that gives rise to the benefits.

A value proposition should be defined and regularly reviewed at every level where you also develop a strategy. Remembering to do so will make you a better strategist.

At the customer level, great sales reps know how to pitch a company’s solution in a way that describes how a specific customer’s situation will benefit from that solution. When companies merely respond to questions in an RFP, and fail to present a strong value proposition, they end up competing on price alone.

At the offering and category level the value proposition sets in motion the entire marketing communications and sales strategy, including branding.  Dove did a great job of transforming its value proposition from a focus on its product to a focus on helping women feel great about their bodies and looks. Brilliant.  ELI changed the frame of reference for its offering from a compliance training solution that could lower liability costs to an organizational development solution that enhances workplace performance while also lowering liability costs.

At the business level, the value proposition embraces multiple offerings, categories and even customer groups, and becomes a key part of your business model strategy.  (For smaller companies category and business become one.) The value proposition still serves an important role in marketing communications and sales. But it also shapes operations by pointing to new capabilities the company could add and defines growth strategy by identifying new offerings that advance the benefits to customers.

Apple’s benefit promise of saving time, eliminating frustration, getting more done in your life and feeling “cool” opened the door to new categories, from computers to music to phones to mobile computers to who knows what comes next. Each category has its own value proposition but the value propositions are aligned, just as Apple’s consumer electronics products work together. ELI’s new value proposition is changing its offering from one-time trainings to a system of engagement that adds informal, ongoing learning tools to classroom and on-line training.

Too few companies understand the power of a value proposition at the business level and its role in shaping strategy. Walmart failed to realize that its value promise – lowest cost – demanded a move into on-line retail. Walmart should have owned the space Amazon built so patiently, much as Blockbuster should have owned Netflix’s market space. Both companies had clear and strong value promises in their value propositions, but they failed to think strategically about how to deliver on their promises, instead using them merely to drive marketing communications.  Dove’s new value promise, on the other hand, opened the door to new categories – from hair care to skin care beyond soap. And if Dove is ambitious, it could even lead to a line of lingerie that would smartly challenge Victoria’s Secret, Calvin Klein and others in winning the hearts and minds of aging baby boomer women.

At the corporate level – think 3M, IBM and other companies in multiple businesses – corporate value proposition work boils down to defining the value promise of the corporate brand. And this work always points to the values on which the corporation stands. Innovation can happen here as well. Corporations that are including “social benefit” as part of their values, like Patagonia or Pepsi, are stronger corporate brands.  Imagine if McDonald’s and Kraft added “helping parents raise kids with healthy eating habits” to their current value propositions based on fun-to-eat food that tastes great. Future healthcare cost projections for a nation in which one out of three kids are overweight would not be so frightening.

How are you using value proposition in your business?


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