This article describes Value Proposition Canvas, developed by Alexander Osterwalder in a practical way. After reading you will understand the basics of this powerful marketing tool.
What is the Value Proposition Canvas?
The Swiss business management theorist Alexander Osterwalder developed a design for the perfect value proposition. This design is intended for the development of products customers are really waiting for. Alexander Osterwalder ’s Business Model Canvas (BMC) is one of the most widely used models for the creation of a business model that identifies determiners of the value proposition. In addition he developed the Value Proposition Canvas, in which the focus is on the customer and his requirements. The Value Proposition Canvas is about finding out why the customer needs a supplier, what the customer can perceive as an extra value and what the customer finds annoying or disadvantageous. Value Proposition has therefore become an important component of the aforementioned Business Model Canvas (BMC) and focuses on an important part of Business Model Canvas (BMC), namely the value proposition that the product or service has for the customer.
The Value Proposition Canvas helps to systematically understand what customers want and it creates products and services that perfectly match their needs. It collects customer information in a simple way that suits their needs and requirements which allows a more effective design of business models. Eventually, this will lead to profitability and no time will be wasted on developing ideas that customers may not be interested in.
Added value for the customer
When designing new business models, organisations are usually focused internally and they are inclined to forget to look at their customers externally. Anyone can think of good and creative ideas, but the main idea is to design added value for a customer on paper. By using the Value Proposition Canvas organizations identify customer needs in a visual and structured way as a result of which they design a value proposition that perfectly reflects their customer requirements. With this they have a profitable business model for both themselves as suppliers and for their customers.
Pain and gain
By using Value Proposition Canvas suppliers look at what customers really want, the problems they experience, how these can be solved and what their ‘pains’ and ‘gains’ are. By expressing this in a structured and visual manner, it immediately becomes clear how the value proposition of the services and/or products can be adjusted to match the requirements of the customer. In order to apply Value Proposition Canvas properly, it is important to have a good look at the customer’s requirements. The following questions can be used as tools in this:
What jobs is the customer trying to get done?
Jobs represent the tasks the customer wants get done and which call for the help of a supplier. This is how an organization knows whether their products and/or services are in line with the jobs of the customer. Essentially, it is about the needs and requirements of the customer and his demands. Furthermore, there might be several ‘jobs’ at the same time.
What is the pain of the customer?
By pain is meant what the customer finds annoying or what he perceives as negative. These are the unpleasant side effects such as rising costs, high risks, declining sales, fierce competition, customer loss and perhaps negative emotions and a negative atmosphere. Not all pains are perceived as equally important by the supplier.
What is the gain of the customer?
The gain is the positive outcome the customer envisages. It is about what the customer expects and what would surprise him. This could be cost savings, user friendliness, more turnover, service, advice and a pleasant working environment. By responding well to the gain, suppliers can make a difference.
Suppliers can obtain information about the jobs, pain and gain by entering into discussions with customers and by observing the market. By writing down the answers and categorizing and priority setting, a clear picture emerges of how they can serve their customers in the best possible way. As suppliers it is important to manage the customer’s biggest pain. When it has become clear what the customer wants, a value proposition can be attached to the product or service immediately. The most important elements will then form the basis of the new product or service. After this phase there will be a test phase in which the customer himself plays an important role.
It is important that there is a fit between the pain and the pain solutions and the gain and gain-ideas the supplier proposes. By looking very closely at this, the chances of failure are minimal and something will be developed that will eventually help the customer. Initially, this fit will be studied by the supplier. The customer has the task to carry out a final check.
A value proposition has now been created of which the supplier has the idea that it looks promising. It will have to be tested at an early stage so that adjustments can be made in good time. It may happen that the requirements of the customers about the jobs, gain and pain have been misunderstood or misinterpreted. There could also be a problem because the supplier has made certain assumptions. The value proposition must therefore be translated into practice. In a Value Proposition Canvas it is important to always test the value proposition together with the customer so that it can be established whether the value proposition actually adds value to the customer’s business as required by the customer. The customer is led through the process step by step to assess whether previous assumptions and interpretations are still correct. After all, it is the customer who determines whether the value proposition will produce results for him or not.
It’s Your Turn
What do you think? Is the Value Proposition Canvas applicable in today’s modern marketing and product development methods? Do you recognize the practical explanation or do you have more suggestions? What are your success factors regarding the development of products to meet the customer’s requirements (and expectations)?
Share your experience and knowledge in the comments box below.
- Osterwalder, A. (2014). Value proposition design: how to create products and services customers want. John Wiley and Sons.
- Osterwalder, A., & Pigneur, Y. (2013). Designing business models and similar strategic objects: the contribution of IS. Journal of the Association for Information Systems, 14(5), 237-244.
- Osterwalder, A., & Pigneur, Y. (2010). Business model generation: a handbook for visionaries, game changers and challengers. John Wiley & Sons.
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