Loading the player...

What is a 'Value Proposition'

Value proposition refers to a business or marketing statement that a company uses to summarize why a consumer should buy a product or use a service. This statement convinces a potential consumer that one particular product or service will add more value or better solve a problem than other similar offerings will. Companies use this statement to target customers who will benefit most from using the company's products, and this helps maintain an economic moat.

BREAKING DOWN 'Value Proposition'

A value proposition is a promise by a company to a customer or market segment. It is an easy-to-understand reason why a customer should purchase a product or service from that specific business. A value proposition should be a clear statement that explains how a product solves a pain point, communicates the specifics of its added benefit and states the reason why it's better than similar products on the market. The ideal value proposition is concise and appeals to a customer's strongest decision-making drivers.

Creating a Successful Value Proposition

A company's value proposition communicates the number one reason why a product or service is best suited for a customer segment. Therefore, it should always be displayed prominently on a company's website and in other consumer touch points. It also must be intuitive, so that a customer can read or hear the value proposition and understand the delivered value without further explanation.

A successful value proposition has a bold headline that communicates the delivered benefit to the consumer. The headline should be a single memorable sentence, phrase or even a tagline. A sub-headline is often displayed below the main headline, expanding on the explanation of delivered value and providing a specific example of why the product or service is superior to others the consumer may be considering. The sub-heading can be a short paragraph between two and three sentences, with bullet points below the sub-heading to list the key features or benefits of the product. This allows consumers to scan the value proposition quickly and pick up on the product features. Added visuals increase the ease of communication between business and consumer.

Value propositions can follow different formats, as long as they are unique to the company and to the consumers it is servicing. However, all effective value propositions are easy to understand and demonstrate specific results from a customer using a product or service. They differentiate a product or service from any competition, avoid overused marketing buzzwords, and communicate value within five seconds.

RELATED TERMS
  1. Marketing Strategy

    A marketing strategy is a business's general scheme for developing ...
  2. Value

    Value is the monetary, material or assessed worth of an asset, ...
  3. Marketing Mix

    The marketing mix, which focuses on product, price, placement, ...
  4. Productize

    "Productize" refers to the process of developing or altering ...
  5. Business-to-Business Advertising

    Business-to-business advertising is marketing efforts directed ...
  6. Standard of Value

    A standard of value is the understood worth of a commodity used ...
Related Articles
  1. Small Business

    Value chain analysis: The basics

    Value chain analysis establishes an action plan to understand and implement activities that create values to a firm's clients, resulting in firm profits.
  2. Small Business

    Every Business Needs To Answer These 5 Questions

    Although there are endless ways to reframe and rephrase them, there are only really five important questions that every business needs to answer.
  3. Investing

    Does Active Value Investing Pay Off?

    Learn about a well-researched paper that explores why active value investors underperform, and how value investing might be beneficial for your portfolio.
  4. Investing

    What Is The Value In Value Investing?

    Value investing has its advantages, but it also has significant drawbacks. We look at the pros and cons.
  5. Investing

    How Value Investors’ Patience Has Been Tested

    Investors in value stocks are finding their patience tested. Does this strategy still work?
  6. Investing

    Loser Stocks: Should I Stay or Should I Sell Now?

    What to think about when deciding to sell or hold on to a losing stock.
  7. Investing

    What's Fair Value?

    Fair value has three different meanings depending on the context.
  8. Investing

    A Guide to Value Investing Strategies

    Learn the value investing techniques that legendary investors like Warren Buffett and Peter Lynch have used to identify undervalued companies that pay off.
RELATED FAQS
  1. What are the elements of an effective value proposition?

    Learn what a unique value proposition is, and understand all of the elements that a company must include in constructing ... Read Answer >>
  2. What is the difference between economic value and market value?

    Learn about the differences between economic value and market value. Discover how they serve different purposes for businesses ... Read Answer >>
  3. What are the Four Types of Economic Utility?

    Understand the four main types of economic utility that apply to transactions between consumers and businesses: form, time, ... Read Answer >>
  4. What is capital structure theory?

    Discover capital structure theory as it relates to financial management and the methods in which companies attempt to raise ... Read Answer >>
  5. What are examples of economic values in use today?

    Learn some examples of economic values in use today as the global marketplace expands and new theories emerge to explain ... Read Answer >>
Hot Definitions
  1. Working Capital

    Working capital, also known as net working capital is a measure of a company's liquidity and operational efficiency.
  2. Bond

    A bond is a fixed income investment in which an investor loans money to an entity (corporate or governmental) that borrows ...
  3. Compound Annual Growth Rate - CAGR

    The Compound Annual Growth Rate (CAGR) is the mean annual growth rate of an investment over a specified period of time longer ...
  4. Net Present Value - NPV

    Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows ...
  5. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing a company that measures its current share price relative ...
  6. Internal Rate of Return - IRR

    Internal Rate of Return (IRR) is a metric used in capital budgeting to estimate the profitability of potential investments.
Trading Center