by: Alexander Osterwalder

In some of our consulting work we were asked to help describe in a more structured way a company’s value proposition. To do this we came up with a template as illustrated in the image accompanying this blog. Alternatively, you can also download the “value proposition design template” as a word template from our website.

business model design template

The template forces business executives to think of their value proposition in a more structured way and across its life cycle. The template or canvas helps a company identify and describe where it creates value for the customer, starting from the moment a potential customer evaluates a value proposition all the way to the moment a customer stops using/needing the company’s products and services.

The template describes 8 phases of value creation:

  1. Evaluation Process: A company can create value by making the product/service evaluation process as easy as possible. In this phase of the life cycle a customer will try to understand if a company’s value proposition satisfies his needs.
    Example: Many software companies allow their customers to freely and conveniently test their products.
    Example: Some ski gear companies organize special camps to allow their best customers to test all their newest material.
  2. Value Co-Creation: Through various technological advances the integration and participation of the customer in the value creation/design process is increasingly possible.
    Read more: Frank Piller of TU Munich and MIT writes a lot of interesting material on mass-customization.
    Watch more: Eric Van Hippel of MIT outlines in a video how customers can be integrated in designing new and innovative products that correspond to their needs. You can also download his book about democratizing innovation.
  3. Purchase Process: Customers highly value an efficient, simple and convenient purchase process.
    Example: Amazon’s “one click shopping” makes buying on its website a very quick and efficient process.
  4. Set-up/Installation/Configuration: Some products and services require set-up, installation or configuration. The simplification of this process is of enormous value to the customer.
  5. Use & Operation: In many cases most of the value of a value proposition still comes from the use or operation of an actual product or service. However, to differentiate themselves companies try to create value beyond a simple product or service.
    Example: The main value of Salesforce.com’s value proposition comes from the use of its hosted sales force solution. Yet, Salesforce is carefully creating additional value by offering continuous updating “behind the scences” and providing easy access to complementary products by third party vendors.
  6. Complementary Products/Services: Value is also created when a product or service adds value to a complementary product or service or is itself represents a platform for valuable complementary products/services.
  7. Maintenance & After-Sales: Value is often created during the maintenance and after-sales phase. This can be either by offering high quality service or by offering a value proposition that minimizes the need for maintenance & after-sales.
    Example: The attractiveness of Salesforce.com’s value proposition essentially comes from the fact that the hosted software model (application service provider - ASP) minimizes the need of software maintenance by the customer.
  8. Ending & Value Transfer: In many cases once a customer does not need a product or service anymore he has to terminate the service or dispose of the product.
    Example: ending the subscription of a magazine
    Example: disposing of batteries

We added a vertical axe of so-called “categories of value creation” to the template in order to stimulate the reflection on value creation among the 8 phases. These five categories are:

  • Productivity & Returns: value is created by increasing a customer’s productivity, his returns and his utility.
  • Simplicity: value is created by making each phase of the value proposition life cycle as simple as possible to understand. For example, a software company can make the parametrization of its software as simple as possible.
  • Convenience: value is created by making a customer’s life as convenient as possible. For example, an online grocer creates value by delivering goods at the time the customer desires.
  • Risk: value is created by minimizing a customer’s various risks. For example, a customer risks choosing a product/service that does not satisfy his needs, or he may incur a physical risk by using the product (e.g. lawn mower) or he may risk choosing a product at the wrong moment (e.g. buying a plasma TV just before an important price decrease).
  • Image: value is created by the image a product/service gives its purchaser (e.g. iPod)

In our work the value proposition design template has three functions. Firstly, it stimulates a structured thought process about a company’s value proposition. This process or reflection should be done by a team with the help of a facilitator who can ask the right questions. Secondly, once the template is filled out it can be used to design and introduce a set of key performance indicators (KPI) to measure the performance of a value proposition. The template and the KPIs should be revisited regularly by the management team. This will lead to continuous improvements in the value proposition design. Thirdly, the value proposition template and the corresponding KPIs are a great tool to communicate a company’s value proposition to all its employees.

Remark: We like using Kim & Mauborgne’s strategy canvas to describe a company’s value proposition in addition to the value proposition canvas because it allows a visual comparision with competitors (we wrote about their work here / you may also want to read more about the strategy canvas in their book “Blue Ocean Strategy“).

(To design the template we drew on the work of Kambil, Ginsberg and Bloch - “Re-inventing Value Propositions” and my PhD dissertation - “The Business Model Ontology“)

Original Post: http://www.arvetica.com/archives/2006/12/07/value-proposition-design-template/

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