There are numerous publications on the subject of the business model. At this point, we would like to take a closer look at the core of a business model: the value proposition model. We experience countless workshops in which terms hail that mostly no one understands, there is gluing, there are photos for LinkedIn and afterwards everyone falls into each other’s arms over a beer. But only 5% of all organizations have a quantified value proposition, that is, one based on comprehensive data. Nothing wrong with creative workshops and idea sharing, but the key is to use more customer insights to create and, more importantly, review. Since most companies have little or no customer insight, many value propositions are not supported by relevant customer data. We don’t want to downplay creativity and luck as important success factors, but data in the form of customer insights is also necessary to ensure the success of new business models.

Definition Value Proposition

A value proposition describes the benefits customers receive from the relationship with the organization.

Presentation Value Proposition Model

When developing a value proposition, one question in particular is exciting to answer: “What is the customer willing to pay for the new benefit?” Many companies have launched digital add-on services in recent years without customers being willing to pay for them. Insurance, banks, electricity providers, etc. offer new portals, apps and services that satisfy a need of the customer. But apparently the need of the customers is not so great that they are willing to pay for it. As a result, costs for organizations are rising while revenues and profits in the core offering are usually falling at the same time, and customers are literally being inundated with free additional services. When we talk to executives, they cite that these new services help them differentiate themselves. But in most cases, the effect of the new benefits on the company’s financial performance cannot be confirmed. Companies are offering more and more in the hope that something will help keep customers loyal. Our value proposition model addresses this point and is designed to help optimize value for customers but also value for the company.

The first step is to determine the different customer activities during the Customer Purchase Process. For an easy start, the entire customer base can be assumed. In a later phase, the analysis based on different segments is more target-oriented. Care must be taken to ensure that the selected segmentation can also be used in everyday life. Personas in particular are very popular in analysis. The challenge for most companies is to even identify them on a day-to-day basis. Thus, care must be taken not to “overhead” the analysis.

In a second step, the Customer Purchase Process Analysis examines each activity to determine whether there are potentials and/or problems from the customer’s point of view. At this point, we experience a central problem of customer orientation. Still, this analysis is too much driven by the thought: “We in the organization have to do or provide something for the customer.” This is one way of creating value. However, it is also important to consider how the customer can be integrated into the value creation process in the sense of co-creation.

In the third step of our value proposition model, the respective results of the previous analysis are distributed to the different value levels of a company. Some points relate to the business model, some to the brand, some to the offering, and so on.

In our view, the key weakness of existing value proposition models is at the last stage. There is no systematic way of classifying the “ideas” identified in terms of their value contribution. Workshops always talk about customer delight, customer loyalty, great experiences, etc. All well and good, but also very abstract and not very tangible in terms of the business impact for the company. We therefore propose to transfer the identified ideas into our systematics. There are two dimensions to consider.

In the first dimension, a distinction must be made as to whether the ideas are to be classified as hygiene, differentiation, or willingness to pay. Hygiene ideas in particular should be viewed critically. While an organization could leverage this potential or solve the problem, the customer is not willing to pay for it, nor does it help differentiate. We experience too many ideas that turn out to be hygiene for the customer: current example the chat bot. Many companies have implemented this but no customer uses it. Thus, only ideas that can be used for differentiation and/or willingness to pay should be pursued.

The second dimension is to determine whether the idea is Blue or Red. Blue means the idea is completely new to customers. Red ideas are relatively close to existing value propositions. This results in the risk that these can be easily copied or that the customer does not rate the added value so highly. The concept of entitlement inflation is often neglected when developing new value propositions. Customers are valuing innovations as standard services in ever shorter timeframes. As a result, this dimension should also help to clearly set the ambition level for the company during the elaboration. “Do we want something radically new or something similar to the existing value proposition”.

Conclusion Value Proposition Model

Our value proposition model takes up the basic systematics of existing approaches. However, the focus is not only on business models, but also on the different levels of customer management. From our point of view, the last stage is neglected in practice. The ideas are often just scored or ranked. Completely absurd is the use of the Kano model from the 1970s for the structure of ideas. Since in this model it is assumed to inspire the customers. We are not fundamentally against enthusiasm, but we also know that in our culture enthusiasm is very difficult to achieve. In principle, the value contribution to the company is clearly neglected in the existing approaches. However, customer orientation always means balancing the value for the customer with the value for the company. This model thus provides a unique system for significantly reducing the risk involved in developing a new value proposition.