| 'Customer value proposition' has become one of | | | | were worth to that customer and, objectively, |
| the most widely used terms in business markets | | | | how superior they made his company's offering |
| in recent years. Yet our management-practice | | | | to that of the competitor. |
| research reveals that there is no agreement as | | | | Not surprisingly, when push came to shove, |
| to what constitutes a customer value proposition | | | | perhaps suspecting that his service was not |
| - or what makes one persuasive. Moreover, we | | | | worth the difference in price, the salesperson |
| find that most value propositions make claims of | | | | offered a 10-cent concession to win the business |
| savings and benefits to the customer without | | | | - consequently leaving at least a half million dollars |
| backing them up. An offering may actually provide | | | | on the table. |
| superior value - but if the supplier doesn't | | | | Some managers view the customer value |
| demonstrate and document that claim, a | | | | proposition as a form of spin their marketing |
| customer manager will likely dismiss it as | | | | departments develop for advertising and |
| marketing puffery. Customer managers, | | | | promotional copy. This shortsighted view neglects |
| increasingly held accountable for reducing costs, | | | | the very real contribution of value propositions to |
| don't have the luxury of simply believing suppliers' | | | | superior business performance. Properly |
| assertions. | | | | constructed, they force companies to rigorously |
| Take the case of a company that makes | | | | focus on what their offerings are really worth to |
| integrated circuits (ICs). It hoped to supply 5 | | | | their customers. Once companies become |
| million units to an electronic device manufacturer | | | | disciplined about understanding customers, they |
| for its next-generation product. In the course of | | | | can make smarter choices about where to |
| negotiations, the suppliers' salesperson learned that | | | | allocate scare company resources in developing |
| he was competing against a company whose | | | | new offerings. |
| price was 10 cents per unit lower. The customer | | | | We conducted management-practice research |
| asked each salesperson why his company's | | | | over the past two years in Europe and the United |
| offering was superior. This salesperson based his | | | | States to understand what constitutes a |
| value proposition on the service that he, | | | | customer value proposition and what makes one |
| personally, would provide. | | | | persuasive to customers. One striking discovery is |
| Unbeknownst to the salesperson, the customer | | | | that it is exceptionally difficult to find examples of |
| had built a customer value model, which found | | | | value propositions that resonate with customers. |
| that the company's offering, though 10 cents | | | | Here, drawing on the best practices of a handful |
| higher in price per IC, was actually worth 15.9 | | | | of suppliers in business markets, we present a |
| cents more. The electronics engineer who was | | | | systematic approach for developing value |
| leading the development project had | | | | propositions that are meaningful to target |
| recommended that the purchasing manager buy | | | | customers and that focus suppliers' efforts on |
| those ICs, even at the higher price. The service | | | | creating superior value. |
| was, indeed, worth something in the model - but | | | | "Customer Value Propositions in Business Markets', |
| just 0.2 cents! Unfortunately, the salesperson had | | | | James C. Anderson, James A. Narus and Wouter |
| overlooked the two elements of his company's IC | | | | van Rossum, Harvard Business Review, March |
| offering that were most valuable to the | | | | 2006. |
| customer, evidently unaware how much they | | | | |