Value Proposition

What Is a Value Proposition?

A value proposition refers to the value a company promises to deliver to customers should they choose to buy their product. A value proposition is part of a company's overall marketing strategy. The value proposition provides a declaration of intent or a statement that introduces a company's brand to consumers by telling them what the company stands for, how it operates, and why it deserves their business.

A value proposition can be presented as a business or marketing statement that a company uses to summarize why a consumer should buy a product or use a service. This statement, if worded compellingly, convinces a potential consumer that one particular product or service the company offers will add more value or better solve a problem for them than other similar offerings will.

Key Takeaways

  • A company's value proposition tells a customer the number one reason why a product or service is best suited for that particular customer.
  • A value proposition should be communicated to customers directly, either via the company's website or other marketing or advertising materials.
  • Value propositions can follow different formats, as long as they are "on brand," unique, and specific to the company in question.
  • A successful value proposition should be persuasive and help turn a prospect into a paying customer.
1:38

Value Proposition

Understanding Value Propositions

A value proposition stands as a promise by a company to a customer or market segment. The proposition is an easy-to-understand reason why a customer should buy a product or service from that particular business. A value proposition should clearly explain how a product fills a need, communicate the specifics of its added benefit, and state the reason why it's better than similar products on the market. The ideal value proposition is to-the-point and appeals to a customer's strongest decision-making drivers.

The term "value proposition" is thought to have first appeared in a McKinsey & Co. industry research paper in 1988, defining it as. "as "a clear, simple statement of the benefits, both tangible and intangible, that the company will provide, along with the approximate price it will charge each customer segment for those benefits."

Companies use this statement to target customers who will benefit most from using the company's products, and this helps maintain a company's economic moat. An economic moat is a competitive advantage. The moat analogy—coined by super-investor Warren Buffett of Berkshire Hathaway—states that the wider the moat, the bigger and more resilient the firm is to competition.

A great value proposition demonstrates what a brand has to offer a customer that no other competitor has and how a service or product fulfills a need that no other company is able to fill.

Components of a 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 needing further explanation.

Value propositions that stand out tend to make use of a particular structure. A successful value proposition typically has a strong, clear headline that communicates the delivered benefit to the consumer. The headline should be a single memorable sentence, phrase, or even a tagline. It frequently incorporates catchy slogans that become part of successful advertising campaigns.

Often a subheadline will be provided underneath the main headline, expanding on the explanation of the delivered value and giving a specific example of why the product or service is superior to others the consumer has in mind. The subheading can be a short paragraph and is typically between two and three sentences long. The subheading is a way to highlight the key features or benefits of the products and often benefits from the inclusion of bullet points or another means of highlighting standout details.

This kind of structure allows consumers to scan the value proposition quickly and pick up on product features. Added visuals increase the ease of communication between business and consumer. In order to craft a strong value proposition, companies will often conduct market research to determine which messages resonate the best with their customers.

Special Considerations

Value propositions can follow different formats as long as they are unique to the company and to the consumers the company services. All effective value propositions are easy to understand and demonstrate specific results for a customer using a product or service. They differentiate a product or service from any competition, avoid overused marketing buzzwords, and communicate value within a short amount of time.

For a value proposition to effectively turn a prospect into a paying customer, it should clearly identify who the customers are, what their main problems are, and how the company's product or service is the ideal solution to help them solve their problem.

What Is the Purpose of a Value Proposition?

A value proposition is meant to convince stakeholders, investors, or customers that a company or its products/services are worthwhile. If the value proposition is weak or unconvincing it may be difficult to attract investment and consumer demand.

What Is an Employee Value Proposition?

An employee value proposition (EVP) applies to the job market. Here, a company that is hiring will try to frame itself as a good place to work, offering not only monetary compensation but also a range of benefits, perks, and a productive environment. In return, the job candidate will need to convince the hiring company that they have the appropriate skills, experience, demeanor, and ambition to succeed.

What Happens if a Value Proposition Fails?

If a company cannot convince others that it has value or that its products or services or valuable, it will lose profitability and access to capital and may ultimately go out of business.

Article Sources

Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.
  1. Lanning, Michael J., and Edward G. Michaels. "A business is a value delivery system." McKinsey staff paper No. 41. July, 1988.

  2. CNBC Warren Buffett Archive. "Morning Session - 1995 Meeting."

  3. Alexander Osterwalder et al. "Value proposition design: How to create products and services customers want. Vol. 2." John Wiley & Sons, 2015.