Description

VPC was developed by Alexander Osterwalder and Yves Pigneur to complement the business model canvas. Michael Lanning and Edward Michaels are credited with coining the term “Value Proposition” (VP) in a 1988 staff paper for the consulting company McKinsey and Co. The authors define value proposition as “a clear, basic explanation of the benefits, both tangible and intangible, that the firm will provide, coupled with the approximate price it will charge each client segment for those services”. This tool is basically a simple paper sheet with a large leftward square and the rightward circle. It is a geometrical collection formed by the customer segment canvas and the value proposition template. Together they are meant to impart an understanding of what features and functionalities a product should possess to meet the requirements of a particular category of users (customer/consumer).

The analysis of VPC is divided into six steps, based on the value proposition builder model:

• Identifying and analysing market sectors, specific clients, or target those clients for whom the solution has the potential to generate value and profitability.
• Analyse and identify the value experience that the organisation’s activities provide to clients. Positive, negative, and neutral experiences must be characterised. The value proposition’s effectiveness is dependent on getting real customer or employee feedback.
• Define the offering mix that will enable the defined target market segment to benefit from the value experience.
• Examine the benefits of the offers considering the value experience provided to the target market. Benefits have a cost component, which includes pricing and customer risks, allowing value to be calculated as “Value = Benefits minus Cost”.
• The next point to consider is alternatives and differentiation: what other options does the market have for the product or service?
• To guarantee that the value proposition is substantiated, back it up with appropriate proof.