market differentiation

How to Develop and Validate a Value Proposition (Product Positioning)

If I were to ask you these questions right now, would you be able to answer them?

  • What does your company do?
  • What product does your company sell, and how is it different from the competition?
  • Who is this product for?

Seriously, stop reading right now and try to answer these questions aloud or in your head.

Can you answer these questions in 1-3 sentences and in a clear way that wouldn’t invite follow-up questions from an average customer?

Can everyone in your organization?

What is a Value Proposition?

A value proposition is simply a way to connect a product offering with customer needs in a clear way.

It should resonate with customers and would motivate them to try or buy your product. Essentially, the value proposition is synonymous with the unique selling proposition and product positioning.

In order to find its product-market fit, startups need to come up with value proposition statements for its products. Initially, they begin with a hypothesis or a simple guess.

This hypothesis then needs to be validated with customers and refined as the product evolves and as the company acquires more knowledge about the market and customers.

A validated value proposition statement is the ultimate outcome of finding the product-market fit. This statement should encapsulate the key insights you’ve gathered about customers, as well as unique product strengths.

Do You Need One?

If you don’t have one, you’re shooting in the dark. If you have one but it’s not validated, you might be deluding yourself.

Here are some practical benefits of developing a value proposition:

  1. A value proposition forces the company to focus. It’s impossible to write a value proposition without having difficult conversations and answering tough questions about priorities. For example, what does the company stand for and what product offerings will it commit to?
  2. A value proposition informs all marketing campaigns. Once the target audience and benefits of a product are identified, the team can be much more effective at creating impactful content and making sure that this content is aligned with the main message.
  3. A value proposition unites and aligns everyone in the company by clearly describing what the company is offering to the world. Product teams can use this information to make better product decisions and sales teams can use it to present the product in a way that resonates with customers.

So, how do you develop one?

Data Used to Develop a Value Proposition

  1. Customer needs. The product or marketing team must understand customer needs, problems, and desires by doing market research, arranging usability studies, listening to sales calls, and getting feedback from paid customers.
  2. Product and company strengths. A value proposition should reflect the company’s core strengths and priorities, as well as the product’s existing and future functionality.
  3. Competition. The product or marketing team should conduct a competitive analysis to understand how other companies are positioning themselves to decide what segments to target and how to differentiate their product.

Now, let’s look at some templates and examples.

A Simple Value Proposition Template

Here is a simple and useful template that you can use to put a value proposition in writing:

To <our customers/prospects>, <name of the brand> is the brand of <frame of reference> that promises <relevant, superior benefits> based on <compelling rational or emotional proof points>.

Examples of Value Proposition Statements

Here is an example of a value proposition or positioning:

To savvy business and leisure air travelers (average age: 44), Virgin America is the brand of contemporary air travel that is making flying fun again by disrupting the domestic airline industry with distinctly designed aircraft, technologically advanced amenities, and world-class service.

Notice how this format forces company to focus. To include “technologically advanced amenities, and world-class service” in its value proposition, Virgin America also needs to make a decision not to compete on price.

By defining its target audience as savvy business and leisure travelers and by choosing to focus on the domestic market, Virgin America also decides not to cater to long-distance, cross-border travelers.

Here is how a hypothetical startup might use the same formula:

X is design software that teams of user interface designers use to streamline collaboration and reduce busy work. See everyone’s edits and comments in one place in real time. X won a “Breakthrough of the year” award by The New Tech Times and is used by Tesla and Uber. Our clients report completing 30% more designs and reducing the number of creative reviews.

Let’s break it up:

  • Customers/prospects: teams of user interface designers.
  • Name of the brand/product: in this case, “X”.
  • Product category or frame of reference: design software. Notice the deliberate choice of words: we are not describing the product as “a design app” or “a design platform“.
  • Relevant, superior benefits: streamline collaboration and reduce busywork; see everyone’s edits and comments in one place in real-time.
  • Compelling emotional and rational proof points: “see everyone’s edits and comments in one place in real-time” — this is both a benefit and a proof point that explains how customers are going to get benefits streamlined collaboration and reduced busy work.
  • Compelling rational proof points and social proof: won a “Breakthrough of the year” award; used by well-known companies.

Validate a Value Proposition with Market Research

How do you know that you have actually found your value proposition and your product-market fit?

Once a value proposition is outlined, it needs to be validated. This section might be its own blog post and even its own book, but I will try to be brief.

Here is a non-exhaustive list of methods a startup or a company can use to validate a value proposition:

  • Product analytics. Do customers use the features you deem most valuable?
  • Usability studies. Is there a disconnect between what customers expect and get out of a website and a product?
  • Customer interviews. An in-depth conversation about customer needs and about their reaction to the value proposition.
  • Search volume analysis. Are you using the same words as your customers, are they searching for the terms you use?
  • Competitive intelligence. How do competitors describe their products, are you clearly differentiating your product?
  • Internal employee surveys and interviews. What insights do your customer-facing teams – customer support, sales, and research – have about customer needs and what ways of positioning the product worked best for them?
  • Tests via paid advertising and outbound campaigns. What versions of the value proposition yield the best click-through ratios and response rates?
  • Website heat-maps and A/B test results. What versions of the value proposition yield the best conversion rates and engagement?

Value Proposition Hierarchy

Most companies will also find it useful to have multiple versions of a value proposition, tailored to specific customer profiles.

Here is a simple hierarchy:

  1. The universal value proposition should appeal to the broadest possible customer base. This version should be used in marketing and sales channels that don’t allow customization.
  2. Custom value propositions should address the needs of specific audiences and customer segments. For example, they might highlight benefits relevant to specific roles within the company, relevant to specific verticals or specific company sizes.

Example of how different versions can be used:

  • The main heading on the landing page can be based on the high-level proposition as our goal is to elicit interest from a wide range of website visitors.
  • Other sections of the website can address the needs of specific audiences and should be based on custom value proposition tailored to specific audiences.

Another example:

  • Sales managers can lead with a high-level value proposition first — before they get to know a lead’s specific needs and use cases.
  • Later in the conversation, once they get more information about the lead, they can customize the way they sell the product and use a custom value proposition.

Related Posts

  1. How to Find Your Ideal Customers
  2. Key Growth Metrics, Part 1: Churn/Retention, and Virality
  3. Key Growth Metrics, Part 2: CLV/LTV, and CAC

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