A value proposition is the promise a product makes to one chosen group of customers. It is written as the problem the product removes for those customers and the alternative it beats. Alexander Osterwalder and Yves Pigneur put the term at the centre of the Business Model Canvas in Business Model Generation in 2010. In 2014, with Gregory Bernarda and Alan Smith, they gave it a canvas of its own in Value Proposition Design. The choice of where to compete ends with a segment and an advantage that might survive being copied, and neither of those two things says what the customer is actually offered. The proposition says it. Everything the strategy then has to build, price and deliver follows from what the proposition says.
The sections below set out the four parts of a proposition and the alternative it is measured against. They then explain why a proposition has to exclude somebody. The page ends with what becomes of a product whose promise excludes nobody.
The four parts of a value proposition
A proposition somebody can argue with has four parts.
- The customer it is written for, named tightly enough that a person either belongs to the group or does not.
- The problem it removes, described the way the customer experiences it.
- The alternative that customer relies on today.
- The reason the claim is believable, which is usually evidence of the product working somewhere already.
The alternative is the part teams skip. If a team skips it, the promise it writes is one nobody can agree or disagree with, because there is nothing on the other side for a buyer to weigh the product against.
One product reconciles card takings for independent pharmacies, and it fills in the four parts like this. Its customer is the owner of a single site who does the books personally on a Sunday evening. Three hours a week go on matching a bank statement against a till report, and month end then arrives with errors nobody can trace back. The alternative is a spreadsheet and an accountant who sorts it out in January. Eleven pharmacies have run the product for a year, and their month end now takes twenty minutes.
The alternative a value proposition is measured against
The spreadsheet in that example is the part that decides the rest. Every proposition is a comparison, so whatever it is compared against sets how much the promise has to be worth. Naming the nearest rival product is the obvious move, and it is usually the wrong one. The rival product was never the thing the buyer was weighing this one against. Most products lose to a spreadsheet, to an email thread or to a decision that the problem is worth tolerating for another year. If a proposition is aimed at a rival, it claims to be better at something the buyer was never choosing on, so the buyer reads it, agrees with it and carries on doing nothing.
Getting the alternative right changes the promise itself. If the alternative is a spreadsheet, the claim has to beat something that is free, familiar and already working, so the gain has to be large and visible within the first week. If the alternative is a paid product, the claim can be narrower, because the buyer has already accepted that the problem is worth money.
Why a value proposition has to exclude
Picking the alternative to beat is already a decision about which buyers the promise is aimed at, and it throws every other buyer out. Michael Porter settled the general case in What Is Strategy, published in Harvard Business Review in November 1996. The essence of strategy, he wrote, is choosing what not to do. A proposition is where that choice reaches a customer, because a promise made to one group is a promise withheld from every other group.
If a product is offered to a two person startup and a retail bank at the same time, it has to answer two opposite demands. The startup wants to be running by the end of the afternoon, with nobody's approval. The bank wants single sign on, an audit trail, a named support contact and a security review that runs for six weeks. A product that serves both leaves the startup filling in a procurement form it never needed, and it leaves the bank holding a product that cannot pass its own review.
Excluding those buyers is what makes a promise specific enough to act on. It tells the engineers what to build first, it tells the marketers who to write for and it tells the sales team which deals to walk away from.
The value proposition that excludes nobody
A promise everybody could accept buys none of that. Nobody had to choose it, and it survives review meetings for exactly that reason. Wording such as a modern platform that helps teams work better together draws no objection, because it makes no claim any person could check. Nothing follows from it. A promise like that implies a roadmap holding every feature anybody has asked for, a price set at whatever the nearest competitor charges and a segment made up of whoever happens to answer the phone.
Both propositions describe the same market. Only the promise written for one segment can be checked by a buyer, because a buyer outside that segment can read it and decide the product is wrong for them.
The test is whether a named group of buyers could read the proposition and decide the product is wrong for them. If no such group exists, the proposition was written to avoid an argument inside the organisation. That argument is the one the strategy was there to settle.
A promise that specific commits the organisation to building one thing, supporting it and selling it to people who are hard to reach. None of that is free. How the money comes back from those customers is a separate choice, and that choice decides what the product has to do to get paid.