Have you ever experienced products and services that fail to deliver? Is your business losing customers to competitors? Are you trying to disrupt a market?
Then, the Value Proposition Canvas might just be the tool you need because it is one of the most valuable tools for customer-centric innovation.
This article describes the Value Proposition Canvas, how to use it, and where it fits into the overall business model.
What is the Value Proposition Canvas?
The Value Proposition Canvas (VPC), invented by Alex Osterwalder of Strategyzer, is a tool to describe and visualise how a business creates value for customers.
It’s a way to map out a customers jobs, pains, gains, and the products and services that relieve pain and create gain which forms the value proposition.
Most importantly, the VPC maps a story of how the six inter-related segments create a value proposition which creates the foundations of the Business Model Canvas.
Why Use the Value Proposition Canvas?
The Value Proposition Canvas is used for three main reasons:
- To accurately define the target customer profiles. By empathising with customers and discovering the jobs they are trying to get done, their pains when trying to get jobs done and what they believe they are gaining.
- To understand the value that your offering delivers and how it increases gains and relieves pains.
- Ultimately, the VPC is a way to visually explore and iterate value based on the insights to achieve product – market fit.
Why is a Value Proposition Important?
Designing a Value Proposition is about reducing risk and uncertainty. The two main risks are, 1) The backstage risk of ‘can we do it?’. This would include technology, infrastructure and cost structure. 2) The front stage market risk of ‘should we do it’. That is, are we in the right market? Do our customers care enough about our products and services? And, will they pay us enough?
According to CBInsights, 35% of startups fail because there is no market need, which means the value proposition has not been validated. The lessons here apply to existing businesses, too – think Nokia and Kodak.
Benefits of the Value Proposition Canvas
There are several key benefits to the Business Model Canvas:
- Clarity – The VPC provides a clear picture of either your current value proposition or the value proposition that you are innovating towards.
- Communication – Business and innovation rely on clear communication. The VPC is an effective way to align all stakeholders and quickly share insights and ideas amongst the team.
- Collaboration – Ideas can be quickly mapped out using the VPC. And, because it is such a simple yet powerful tool, all team members can contribute and use the VPC.
- Risk reduction – Reducing risk is one of the most critical aspects when starting or innovating a business. The VPC, helps to identify critical assumptions that will be prioritised and tested.
- Proven innovation model – The Value Proposition Canvas has been around for many years and has been used for innovation and business strategy by thousands of companies.
- Customer-centric – The value proposition is the starting point of understanding value from a customers perspective. When combined with the Business Model Canvas (BMC) to oscillate or zoom in and out between the BMC and the VPC. Doing so helps to continually evolve overall business development from within the lens of ‘creating value for the business’ and creating value for the customer’.
- Simple, not simplistic – You don’t need an MBA to pick up the VPC and start to understand customers and customer value. The critical approach is to make your value proposition visual, ideate, test and learn as you innovate and develop product-market fit
- Speed – Given the simplicity and practicality of the VPC, many iterations can be made in a short space of time.
The Six Parts of the Value Proposition Canvas
The VPC has six elements. On the right-hand side (the circle) is the Customer Profile. The Customer Profile consists of three parts:
- Jobs to be Done (JTBD)
- Customer Pains
- Customer Gains.
On the left-hand side (the square) is the Value Proposition. The Value Proposition consists of three sections:
- The Products and Services that you offer.
- Descriptions of how the products and services relieve annoyances (pains).
- Descriptions of how the products and services create benefits/outcomes (gains).
When there is a clear ‘fit’ between the left and the right sides, this is known as product-market fit because the product or service is starting to get traction in the market.
Read this article for more about the 3 levels of business ‘fit’.
The Customer Profile
The Customer Profile is the starting point, and it is where you are gaining empathy for your customers by deriving insights and needs from your customer research.
Jobs to be Done
Within the Customer Profile, begin with understanding what jobs the customer is trying to get done within their lives. There are three main types of jobs to identify:
- Functional Jobs – these are often the actual tasks they are trying to complete or the specific actions (e.g. read a book, buy some milk).
- Social Jobs. – these are how someone wants to be perceived within society (e.g. be perceived as environmentally conscious).
- Emotional Jobs – are emotional states that are sought (e.g. peace of mind).
There is a fourth job type – Supporting. Focusing on the main three will uncover core insights. However, an example of a supporting job is ‘reserve accommodation’. Think of these jobs as actions when consuming value.
Customer Jobs often remain stable over time, and it is the products or services that evolve to meet the needs in a particular circumstance. Once you’ve captured all the jobs, rank them in the highest importance to the customer.
Find more about JTBD and the best insight generating tools here.
Customer pains are any problem, dislike, obstacle, risk, a negative experience or undesirable outcome prior, during and after trying to get a job done. An example, as in the case of a business traveller, might be the check-in process at a hotel.
Try using trigger questions to uncover the pains, such as – ‘What are the main difficulties customers are having?’, ‘Are customers creating workarounds?’, ‘What mistakes frequently occur?’
After capturing all the customer pains, then order them in terms of severity.
It’s important to remember that customer gains are not simply the opposite of pains. Instead, they are the required, expected, desired or unexpected outcomes, or in other words – what success looks like.
An example of a customer gain in the case of a business traveller might be that they expect free wifi now but require a good nights sleep.
Questions that may help uncover gains might be ‘What could make their life easier?’, ‘What does success look like?’, or, ‘ How might we help them increase their perceived status?’
Once you have all the pains identified that you can, rank them according to what is most essential, to things that would be least important.
Customer Profile Tips
- Explore all types of Customer Jobs, not only the functional ones
- Leave your solution to one side; this is about empathy, so understand their world deeply
- At this stage, try to capture as many as possible; the more the better, then they can be prioritised later.
- Get specific; clarity is required here.
- High-value jobs are ones that are really important; they are tangible, the customer is unsatisfied, and there may be a lucrative opportunity.
- Create different profiles (and Value Propositions) are for distinct customer types to get really clear on the products and services that provide value.
The Value Proposition
Once you have profiled the customer types, proceed to the Value Proposition for each. This is the side of the canvas where we work out how to address the pains and increase gains.
Products and Services
The products and services section links directly with the customer jobs, pains and gains. Here we what products and services your customers will hire to get specific jobs done and, in the process, address (create value) for some (often not all) pains and gains.
The products and services don’t have to work in isolation; these can be new bundles of existing offerings.
Pain Relievers are descriptions of how the products and services you offer reduce the customer pains that are in the way of getting the jobs done satisfactorily.
Consider how your products and services might reduce fear, eliminate mistakes, stop frustrations, or eliminate barriers or concerns. As in the case of the business traveller, there is no need to wait and check in.
Again, once you have identified the pain relievers, prioritise them in terms of essential to those less important.
Gain Creators describe which benefits and outcomes you intend to focus on that customers expect or wish for.
An example of a gain creator for a business traveller might be that the rooms are very well designed for short stays as opposed to the needs of families.
Consider how you might compete against existing value propositions, outperform customer expectations, or surprise them with better quality.
Ten rank the gain creators from most impactful to less impactful.
Value Proposition Tips
- Focus on addressing as many pains and gains as possible; However, you will not be able to address all, so work on what is most important.
- It is critical that you can clearly articulate how the Value Proposition links with the Customer Profile in terms of addressing the pains and gains.
- Remember that this Value Proposition canvas is only for each customer type, so capture only the products and services that apply and not everything your company offers.
What is a Good Value Proposition?
The signs of a good Value Proposition could include:
- There is strong alignment with product – market fit.
- You have differentiated enough that you have achieved a competitive advantage.
- You have created a value proposition that is hard to emulate.
- It addresses the jobs, pains and gains.
How to Complete the Value Proposition Canvas
There are seven main steps to complete the VPC:
- Create your ‘as is’ VPC. Map out your existing VP to gain clarity of the ‘current state’. The VPC can be completed in any order. However, I suggest to start with the Customer Profile and completing 1) customer jobs, then 2) pains, 3) gains. then, move to the Value Proposition and complete, 4)products and services, 5) pain relievers, 6) gain creators.
- Complete customer research. Ideally, using design thinking, human-centred techniques to derived insights and needs. You may like this helpful post about design thinking.
- Innovate. Taking into account what you have learned so far, are there any key insights that have emerged from the research and indicate potential opportunities or obstacles? Then, use design thinking to innovate new value proposition model ideas. Design thinking is a proven process for innovation and the human-centred nature of the VPC.
- Experiment. Starting with the model that indicates the most significant opportunity based start testing all the hypotheses by running experiments for the most riskiest assumption. The process follows three main steps, 1) what is your idea (VPC hypothesis) 2) What needs to be true for the idea to work? (riskiest assumption) 3) How can the assumption be tested? 4) Have any insights changed the assumption?
- Stay lean. Traditional innovation was a lengthy and risky process of R&D, business planning, building a product and taking to market before getting real evidence of a customers interest in a product, willingness to pay, preferences and priorities. Using the VPC and focusing on customers enables the desirability of a business model to be validated.
Value Proposition Best Practices
- Forget about your solution when building out the customer profile – live in their shoes and build empathy.
- Ideate a lot of options and then we can select and choose in Value Proposition.
- Try not to focus only on functional jobs, social and emotional jobs can open up innovative value propositions and business models too.
- Be specific rather than vague (eg how exactly does a customer measure success or failure).
- Do not mix customer segments – particularly B2B – split them out into different customer segments.
When to Use the Value Proposition Canvas?
The VPC should be used frequently to ensure that the value proposition informs the business model. Here are some common reasons to use the VPC:
- Prototyping and testing product – market fit. Matching the VP with the market (profile) indicates that you have product – market fit. While there are no guarantees, indications of product – market fits may lead to greater success.
- Whenever there’re new products and services proposed. Without revisiting the current jobs, pains and gains, any new idea may be a waste of time and effort without validating how it support the customer profile.
- Creating business strategy. Fundamental to a business strategy is the concept of ‘where we will play’ which are the customer segments and markets. Without truly understanding customers, a business strategy will not be anywhere robust enough.
Value Proposition Example - Hilti
Hilti’s new value proposition transformed their business model.
Originally, Hilti was a tool manufacturer. However, following manufacturing price pressure from cheaper goods made out of Chine. Hilti reinvented itself as a subscription based tool fleet management company.
How they did this was rather than understanding the jobs, pains and gains of builders, they gained empathy to understand the jobs, pains and gains of CEO’s and CFO’s. And, what they found out is the huge risk involved when there are delays to construction projects.
Hiltis’ VP provides construction companies with known tool expenses (good for cashflow) and reduced delays from tool breakdowns meaning that they are able to complete more projects on time.
Without really getting to know a customers jobs, pains and gains, Hilti may not have been able to transform itself into a new business model.
Here is a post that explains how to gain empathy for customers and generate insights.
The Value Proposition Canvas is an essential innovation tool.
It combines perfectly with the Business Model Canvas to design innovative new value propositions and business models.
By starting with the VPC you will ensure that your business will be customer-centric and the products and services will solve customers jobs, pains and gains.
If you liked this article, you might also enjoy some of these innovation books.