Value proposition design (Ostervalder and Pigneur)

Value proposition design focuses on the fit between a defined customer segment and the offer created for it. Alexander Osterwalder and Yves Pigneur, working with Greg Bernarda and Alan Smith, developed the value proposition canvas as a detailed companion to the value-proposition and customer-segment elements of the business model canvas.

When to use it

• Use the canvas while developing or revising a product, service, business model or new venture.

Origins

Osterwalder and Pigneur published Business Model Generation in 2010, building on earlier business-model work while making the framework unusually visual and accessible. Its business model canvas arranged nine connected components into one view, allowing teams to discuss how an enterprise creates, delivers and captures value.

Their subsequent Value Proposition Design examined the central fit between value propositions and customer segments in greater depth.

What it is

The business model canvas introduced in 2010 contains:

Customer segments—the people or organisations for whom value is created

Value propositions—the benefits offered to each segment

Channels—how the organisation reaches customers and delivers value

Customer relationships—how interaction and support are organised

Revenue streams—how value is captured and priced

Key resources—the assets required to deliver the model

Key activities—the work the organisation must perform

Key partners—external participants that enable or strengthen the model

Cost structure—the economic consequences of the chosen infrastructure.

Business model canvas

Value proposition design zooms in on the first two elements. It asks what customers are trying to accomplish, what makes that difficult and what outcomes they value—then examines how a product or service addresses those priorities.

How to use it

Build a customer profile for one segment and context:

Customer jobs: the functional, social and emotional progress customers are trying to make.

Customer pains: undesirable outcomes, risks, obstacles and costs associated with those jobs.

Customer gains: outcomes and benefits customers require, expect or would find unexpectedly valuable.

Build the corresponding value map:

Products and services: the offer through which value will be delivered.

Pain relievers: the specific ways the offer reduces important customer difficulties or risks.

Gain creators: the specific ways it produces outcomes customers value.

Value proposition canvas

Value map Customer profile

Visualise design test

Rank jobs, pains and gains rather than trying to address everything. Form hypotheses about the strongest fit, create prototypes or messages, test them with customers and iterate using observed evidence. Fit is achieved when the offer addresses important jobs, pains and gains better than credible alternatives—not when every box contains attractive wording.

Then return the proposition to the complete business model. Channels, relationships, resources, activities, partners, revenue and cost must be capable of delivering and capturing the promised value.

The canvas can also support broader strategy. Once a business has identified a capability gap, value-proposition experiments help bridge the gap between its current position and desired future. In a multi-business company, repeat the work for each business and then consider portfolio choices and shared resources at corporate level.

Business strategy may combine the canvas with tools such as generic strategies, the experience curve, repositioning, strategic investment, blue-ocean strategy, price elasticity, the marketing mix, reverse innovation, needs analysis and lean start-up methods. The canvas contributes customer fit; it does not replace those strategic decisions.

Top practical tip

Create the customer profile from interviews, observation and behaviour before filling the value map. Rank the most important jobs, pains and gains, then test one proposed fit with the smallest credible experiment.

Top pitfall

A persuasive canvas is not evidence of demand, and a promising proposition cannot survive inside an incoherent business model. Test customer behaviour and verify that channels, economics, resources, activities and partners can support the promise.

Further reading

• Osterwalder, A., Pigneur, Y., Bernarda, G. and Smith, A. (twenty fourteen). Value Proposition Design. Wiley.
• Osterwalder, A. and Pigneur, Y. (twenty ten). Business Model Generation. Wiley.