Challenger Course 9

USP and Value Proposition

About this course

Welcome to Course 3 of Module 2, the second of three carefully curated modules within the scope of the Challenger project. All courses are designed and developed by professionals from prestigious VET providers.

You will work in a team during this module on a given challenge. Your tutor/role model, experienced mentors, and industry experts will support you throughout the phase.

Module 2 will build up on Module 1. By the end of this module, you will have acquired valuable insights and skills and be prepared to bring your own innovative journey to life in the subsequent Module 3.

  • Module 1:          Learning the basics
  • Module 2:          Applied Phase 1: Working on hands-on projects for business
  • Module 3:          Applied Phase 2: Creating your own innovations

All these courses are offered for free. If you registered for participation and handed in the group assignments to your tutor/role model, you will receive a confirmation of participation in the form of a digital badge. After completion of all courses of the module, you will receive an innovation certificate that will prove your experience and gained know-how.

The courses are aimed at learners in VET schools, bachelor students in universities, persons interested in developing their entrepreneurial mindset, persons interested in innovation and how to put ideas into practice, teachers/educators, industry experts, and community members.

Value proposition and unique selling proposition – fundamental components of a business model

 Business model and its innovation

Changes in the Environment and Competition

Political, economic, social, technological and other changes in the business environment, globalisation, sustainability requirements, customers, competitors and suppliers force companies to continuously adapt their offer to new challenges. People are also fast to discover new solutions and adopt new technologies. Therefore, consumers’ expectations, needs, desires and purchasing behaviour are changing. Entrepreneurs, startups, SMEs and large corporations need to find new ways and solutions to satisfy their customers, build relationships, and generate revenue and profit for themselves. They need to improve their business models or develop new ones. They should work on their value propositions and differentiate their offer.

The mistake companies make is paying too much attention to offering individual products and services instead of combining products and services to create a branded experience for the provider. Apple’s most successful retail stores don’t just sell Apple products. They create an inclusive Apple brand experience. Stores are designed to be simple, stylish and uncluttered. They feel like community centres rather than retail outlets. The stores are crowded with shoppers trying out goods. The shops encourage a lot of shopping. But they also encourage lingering and creating good brand experiences.  (Kotler & aal., 2020)

To understand how companies can increase their business performance by improving their business models, we need to understand the concepts of value, value proposition, unique selling proposition, and business model.

Business Model

A business model is how a company creates, delivers and captures value. The business model is based on value – how value is created, what is required, and how value is communicated and captured. It is a structure, plan, or framework that describes how a business generates revenue streams, its key partners, its core activities, and how it delivers value to customers. It helps us to understand the problems that certain customer groups or individuals have and how these problems can be solved and profit generated.

A business model is essential for the development and growth of any company. Starting a business is difficult if one doesn’t know what to offer in the market. When one decides what to offer, one must consider how to offer it and what strategy to choose to bring the product closer to customers.

We often invest too much energy in preparing business plans without checking whether the idea represents a business opportunity. All departments in the company, all business functions, and all employees participate in creating value.

What is the difference between strategy and business model? Strategy is the direction of the company’s operation, the decision on the field of operation, and the method of competition (with costs based on distinctive advantages). Based on the strategy, you choose a business model that will be able to follow the direction of the company’s operation as determined by the strategy.

The business model comprises nine building blocks illustrating how a company generates revenue. These are customers, their problems, solutions and unique value propositions, elusive advantage, channels for communication and sales, cost streams or revenue, and key indicators. Value proposition and unique value proposition are the fundamental building blocks of the business model. It should be a composition of benefits matching the customer segment’s problems.

Image 1: Depiction of business model through business model canvas

Every company has and develops its own business model. Alert companies respond to environmental and market changes and innovate their business models. For example, Rolls-Royce, the manufacturer of aircraft turbines, has switched to offering “power by the hour” drives. Instead of selling engines to airlines, Rolls Royce gets paid for engine hours. The engine remains owned by RR, which is also responsible for engine maintenance and repair. In this way, it lowers customers’ costs, allowing them to focus on their core business and gain an advantage over their competitors. With its business model, Airbnb has made it easy for hosts to acquire customers and earn a lot from bookings. Tesla cars are manufactured quickly by casting the entire body, keeping costs down. Uber has created a unique model for offering transportation services. Common challenges with transport services before Uber were finding the contact of a cab company, the unavailability of cabs, and not knowing the best route, price, and time of arrival at the destination. With its app, Uber makes it possible to make a reservation without calling or sending an email, communicate with a cab company and pay automatically without much frustration.

 Value Proposition and Unique Selling Proposition

Customer Segments

The customer segment represents target customers or early adopters. It is helpful to create a picture of a typical user who is semi-fictitious so that you can better imagine her and her characteristics and adapt to them in the process of creating, mediating, and communicating solutions for her and satisfying her needs.

Customers’ Needs and Wants

Needs are a feeling of lack that causes dissatisfaction in a person. They can be basic physiological needs for food, clothing, home, and security, sociological needs for belonging and affection, and higher-level needs for recognition and self-actualization. Desires are a form of expression of human needs. They change in time and space and depend on the individual. In the past, people needed wristwatches to manage their time; today, wristwatches serve as a fashion accessory.

Value

When developing a business model, we start from a problem resulting from insufficiently satisfied needs and wants. When we clearly define the problem and the target group of consumers who have this problem, we can start to develop a solution to the problem. When developing a solution, we must start with the consumer’s problems. We need to find a solution that can be a combination of products and services and satisfy the wants of consumers better than an alternative, already existing offer on the market. The value that the solution in the form of a product or a service achieves in the process of exchange in the market depends on the benefits it provides to the buyer. Buyers evaluate which offer provides them with the most value. They choose the best value they perceive and can afford. They are limited by their purchasing power, cost of purchase, accessibility and the knowledge they have. The perceived value offered by the buyer must be as high as possible. Therefore, companies develop their offer by increasing the benefits offered or reducing costs. It is equally important that companies communicate their offer and the value offered so that the customer’s expectations correspond to the value offered and the customer is satisfied after the purchase. Buyers buy based on perception at the time of purchase and often do not objectively judge the relationship between the offer’s value and the cost.

Buyers make purchases based on their perceived value of an offer, which is the difference between the buyer’s assessment of all benefits, the assessment of the costs of an offer, and perceived alternatives. Customer evaluation is often subjective. For a Mercedez-Benz car, for example, buyers are willing to pay relatively high prices due to its luxury and superior performance.

The total value, in the eyes of buyers, is the known monetary value of the bundle of economic, functional and psychological benefits that the buyer expects from a certain offer. In the eyes of the buyer, the total cost is a bundle of all the costs that the buyer expects in the evaluation, acceptance, use and disposal of a particular product and service.

“Price is what you pay, and value is what you get.”

The famous American businessman, investor, and philanthropist Warren E. Buffet once explained.

Value is the answer to the question,” Why is our product/service worth buying and paying for?”

More specifically, value can be defined as the ratio between what the buyer gets and what he gives for it. The buyer gets the benefits and bears the burden of the costs. Benefits include functional and emotional benefits. Costs include monetary expenditure, time, energy and mental effort. Therefore, the value is given by:

Value = benefits / costs = (functional + emotional + social benefits) / (money spent + time spent + energy + physical effort)

The marketer can increase the value of the offer for the customer in different ways:

  • Increases benefits
  • Reduces costs
  • Increases benefits and lowers costs
  • Increases benefits more than it increases costs
  • Reduces benefits less than it reduces costs.

A customer choosing between two value propositions, V1 and V2, will examine the ratio V1: V2. V1 will be preferred if the ratio is greater than one; it will prefer V2 if the ratio is less than 1; and it will be indifferent if the ratio is equal to one.

Value Proposition

A value proposition can massively influence how successful one’s business will be. Therefore, it is the basis of a high-value (profitable), growing business. However, more than half of companies do not work enough on optimizing their offer and value propositions. A value proposition answers the question: What main problem must we solve? Why is our solution worth buying and paying for? Are we different, and how are we better than the competition?

How to Write a Value Proposition

  • Identify your customer’s main problem.
  • Identify all the benefits of your product and focus on customer needs.
  • Describe what makes these benefits valuable and why they matter to your customer.
  • Connect this value to your buyer’s problem.
  • Differentiate yourself as the preferred provider of this value. Is there anything your business provides that others don’t?
  • Use a template to help you brainstorm. (Coleman, 2023)

Examples of value propositions:

  • Uber: The smartest way to get around.
  • Apple: The best experience. Only on Apple.
  • Duolingo: The free, fun, and effective way to learn a language.

An example of a value proposition in the case of Gorenje, along with its explanation, is presented on their website.

Image 2: Gorenje and its value proposition
Source: https://www.gorenje.co.uk/stockist/why-buy-gorenje

The value offered must be clearly defined to meet the needs of internal and external communication regarding the company’s offer. The best product in the world cannot be sold or charged good prices if we don’t present the benefits and value offered. All company employees must understand what the customer expects and their contribution to creating benefits for the customer or value offered.

Unique Selling Proposition / Point (USP)

A unique value proposition is a benefit that makes a company’s offering special and worthy of a potential buyer’s attention. The information about the unique value offered speaks about the difference between the company’s offer and the competitive offer and about which customer such an offer is intended for. The unique value is communicated with a clear and compelling message about why we are different and worthy of attention and why our product is worth buying. The unique selling proposition of Duolingo is the gamification approach to language learning. It keeps learners engaged and motivated.

It is the buyer’s first contact with the goods; its task is to attract the buyer’s attention. If it is convincing, customers will look at other website pages. Customers internalize a good, unique selling point message and focus on the benefits they will get after using the product. One of the characteristics of the benefits of products can also be sustainability in the sense of a respectful attitude towards people or the environment. Today, sustainability is one of the trends of buyers or one of the key features that customers expect from a product.

Image 3 shows an example of an offer whose unique selling point is its environmental friendliness. Customers who are interested in environmentally friendly products, or this feature of the product is essential for them, or this is their first and biggest problem, and they need a portable battery (power bank), will see other websites with information about the portable battery by clicking on the photo of the rEbank Mini portable battery.

Image 3: Sustainability as a unique selling proposition
Source: (Reusable Technologies, d. o. o., 2023)

The landing page often includes a short phrase introducing the idea and the company’s business philosophy, which is usually not immediately understandable to the uninitiated visitor. It is effective when it is understood. Image 4, which is a snippet from the website of Reusable Technologies, a sustainability company, shows an example of such a statement, rEthink.rEmake.rEuse, for a business idea based on the refurbishment of spent lithium-ion batteries, the reduction of environmentally hazardous emissions and the reduction of e-waste. E-waste is the world’s fastest-growing waste.

Image 4: A statement of business philosophy that underpins the creation of a unique value proposition
Source: (Reusable Technologies, d. o. o., 2023)

On the other website, the Value proposition of Reusable Technologies’ power bank is that it is an excellent promotional gift that advocates sustainable development, a circular economy, and local cooperation (Image 5).

Image 5: Sustainability as a unique value proposition of rEbankMini
Source: (Reusable Technologies, d. o. o., 2023)

Explanation of rEbankMini’s value proposition: rEbankMini is the first power bank in the world, which is powered by a recycled battery, it is entirely manufactured in the EU (specifically in Slovenia), and it is decorated with a unique case made of (remnants of) Slovenian walnut wood. (Reusable Technologies, d. o. o., 2023)

Value Proposition Canvas (VPC): a Tool to Assure Fit Between Customer Needs and Wants and Value Proposition

We are often frustrated by the failure of a good idea because the company is too concerned with technologies, products, and product features instead of customers.

Value Proposition Design shows how to use the Value Proposition Canvas to Design and Test great value propositions in an iterative search for what customers want. Value proposition design is a never-ending process that requires constantly evolving the value proposition(s) to keep it relevant to customers.

Dr Alexander Osterwalder initially developed the Value Proposition Canvas framework to ensure a fit between the product and the market.

The VPC is a tool for creating a value proposition. It consists of two pages. On the right side is a profile of the target customer segment, on the left side a value map. Providers want to offer products that customers demand. Otherwise, they will not be successful in business. Strategyzer developed the value proposition canvas template. The VPC is part of a broader business framework. It focuses on two building blocks of the business canvas: customer segment and value proposition. It analyses the problems and desired benefits of the customer segment; on the other hand, it looks at the solution (products and services) and their benefits in terms of creating benefits and solving the problems of the selected customer segment. The customer tasks are what the customers want to achieve, the gains they want to realise alternative offerings cannot achieve, and the problems of the alternative solutions they want to solve. A good value proposition is a mirror of the profile of the customer segment.

The Customer profile is in the form of the circle, which is divided into three parts: jobs, pains and gains. It represents a target buyer.

Jobs are tasks that customers want to do, solve or desires they want to satisfy. They can be functional, social or emotional. Functional tasks are practical (e.g. giving someone a useful gift), social tasks are about belonging or being connected to a group of people (belonging to a group of sustainable companies), and emotional tasks are about feelings and well-being (feeling good about doing something positive to strengthen business ties and the environment). 

Pains are any problems that hinder the customer from completing the task (e.g. short product lifetime). They can also be negative outcomes (disrespect due to a poorly chosen gift) that customers do not want.

Gains or customer expectations are the positive experiences, outcomes, and consequences that customers want to achieve. They can be common. They are not the opposite of obstacles or problems. They encourage the customer to buy the product.

The Value Map is represented by a square on canvas. It is divided into three parts.

Products and services: a list of products, services, features

Pain relievers remove current customer’s frustration

Gain creators: features of your offer that make your customer happy, offer something new or improve the user experience, also financial and social goals

HOW TO FILL THE VALUE PROPOSITION CANVAS

  1. Choose a customer segment
  2. Identify their jobs (functional, emotional, social)
  3. Identify pains that frustrate the customer
  4. Identify gains that make customers happy
  5. Pick the top 3-5 most important pains and gains related to the most important jobs.
  6. List products and services you can offer, including installations, guarantees, and recycling,…
  7. List all pain relievers.
  8. List of gain creators
  9. With VPC, we focus on the main customer benefits and problem alleviation rather than developing product features that do not contribute to increasing the product’s value for the customer.
  10. Finally, we must not just focus on delivering value to the customer but also on integrating it into the company’s overall business model and operations.
  11. (Disclaimer: The “Business Model Canvas” and “Value Proposition Canvas” tool in some parts of this course is used under the Creative Commons license, and attribution goes to Strategyzer. This course has no affiliation with and is not endorsed by the authors of the Business Model Canvas.)
  12. Pick 3-5 of the gain creators and pain relievers that make the biggest difference to your customer.
  13. Make sure that there is a fit between the two sides of VPC. Pain relievers should address certain customer pains, and gain creators should create the customer’s aspired gains.
  14. Define how you’re better than the competition.
  15. Create a clear value proposition that builds trust with your customers.
  16. Test your value propositions with the customers.

With VPC, we focus on the main customer benefits and problem alleviation rather than developing product features that do not contribute to increasing the product’s value for the customer.

Finally, we must not just focus on delivering value to the customer but also on integrating it into the company’s overall business model and operations.

(Disclaimer: The “Business Model Canvas” and “Value Proposition Canvas” tool in some parts of this course is used under the Creative Commons license, and attribution goes to Strategyzer. This course has no affiliation with and is not endorsed by the authors of the Business Model Canvas.)

Dr Alexander Osterwalder initially developed the Value Proposition Canvas as a framework to ensure that there is a fit between the product and the market. Knowledge library about it is available on the webpage strategyzer.com.

Course materials

ADDITIONAL MATERIAL / LINKS

Business model innovation

https://www.youtube.com/watch?v=B4ZSGQW0UMI

Business Model Innovation – Amazon, Spotify and Tinder

https://www.youtube.com/watch?v=avWVPaJFgFk&t=11s

The Explainer: What is a Business Model?

https://www.youtube.com/watch?v=_C-vGu2mL38&t=52s

What is USP? Unique Selling Proposition Explained For Beginners

https://www.youtube.com/watch?v=rfYdR4iwqAE&t=30s

Value proposition design : how to create products and services customers want (Osterwalder, 2014)

https://www.strategyzer.com/library/value-proposition-design-2

Assignment

This assignment needs to be completed as a team effort. Your tutor or role model will guide you through the assignment. Please reach out if you require support. The final assignment should be submitted to your designated mentor.

Once your course is complete, your tutor or role model will confirm your completion and instruct you to upload the results to the platform to receive permission to obtain a badge. Upon completing all six courses within a phase, you will receive an innovation certificate for that respective phase.

  1. How has your purchasing behaviour changed in recent years, and what have been the reasons for the changes?
  2. Focus on an offer or a supplier that you know well. Through analysis of web pages, advertisements and other marketing information of specific providers, study which customer segments the presented offer is intended for, what components of the offered value, which problems are being solved with it, find the unique value offered and ways of communicating with customers.
  3. Develop (What could be) a value proposition and unique selling proposition of your product/offer intended for specific customer segment?
Co-funded by the EU

Funded by the European Union. Views and opinions expressed are however those of the author(s) only and do not necessarily reflect those of the European Union or the European Education and Culture Executive Agency (EACEA). Neither the European Union nor EACEA can be held responsible for them.

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