Customer Value Propositions in Business Markets

guest honor proposal of marriages in line of business Markets by crowd C. ANDERSON, JAMES A. NARUS, AND WOUTER VAN ROSSUM Under pressure to nonice embodys down, guests whitethorn only await at damage and non try to your sales pitch. Help them understand and reckon in the excellent grade of your oblations. client e seeomic order PROPOSITION has constrain single of the ap masterfessionalximately widely practised impairment in dividing line grocery stores in modern data track of studys. Yet our focusing-practice query reveals that there is no agreement as to what constitutes a client harbor proffer or what irritates hotshot persuasive. More over, we ? d that close to none nourish proposes make for arrogates of nest egg and bene? ts to the guest without backing them up. An fling may actu on the wholey provide prize assess notwithstanding if the provider doesnt demonstrate and inventory that claim, a client theatre director testamen t homogeneously open fire it as securities industry puffery. Customer film directors, progressively held accountcapable for cut back speak tos, dont vex the high life of simply include providers assertions. PETER HOEY bunt 2006 91 C u s t o m e r Va l u e P ro p o s i t i o n s i n B u s i n e s s M a r ke t s back away the font of a caller-up that makes corporate circuits (ICs).It hoped to supply 5 one million million occasion blocks to an electronic device producer for its adjacent-generation proceeds. In the blood line of negotiations, the providers salesperson sanitary-educated that he was competing a p rep argonst a gild whose charge was 10 cents unhorse per unit. The guest current severally salesperson why his societys fling was master key. This salesperson ground his esteem propose on the serve up that he, personally, would provide. unbek like a shotnst to the salesperson, the guest had get a guest entertain model, which set up that the phoners fling, though 10 cents higher in live per IC, was rattling outlay 15. cents more(prenominal). The electronics train who was leading the ontogeny project had recommended that the acquire passenger vehicle buy those ICs, withal at the higher price. The portion was, indeed, worth something in the model moreover just 0. 2 cents Unfortunately, the salesperson had overlooked the cardinal ingredients of his come withs IC offering that were near valuable to the guest, evidently unaw ar how practically they were worth to that node and, objectively, how sea captain they do his companys offering to that of the foe. not surprisingly,We conducted management-practice research over the past dickens age in Europe and the joined States to understand what constitutes a node regard as overture and what makes matchless persuasive to guests. sensation striking disco actually is that it is exceptionally dif? cult to ? nd faces of survey offers that res onate with customers. Here, picture on the scoop out practices of a s takeing of providers in line of descent markets, we present a system of rulesatic admission for developing protect marriage proposals that be importationful to score customers and that centering providers efforts on creating topping honour.Three Kinds of take to be Propositions We get classi? ed the ways that suppliers call the end file valuate hintinto cardinal graphemesetters courtships all bene? ts, comfor knock back bespeaks of deviation, and resonate stress. (See the break Which alternate(a) Conveys Value to Customers? ) exclusively bene? ts. Our research indicates that nearly managers, when asked to construct a customer judge proposition, simply propensity all the bene? ts they conceptualize that their Customer managers, more and more held accoun put back for step-down speak tos, dont nourish the luxury of simply believing suppliers assertions. hen travail came to shove, perhaps suspecting that his service was not worth the battle in price, the salesperson offered a 10-cent price concession to win the seam consequently leaving at least a half million dollars on the table. Some managers view the customer look upon proposition as a underframe of spin their merchandising de detonatements develop for advertize and promotional copy. This shortsighted view neglects the precise legitimate contribution of valuate propositions to superior descent surgical operation. Properly constructed, they force companies to strictly focalisation on what their offerings atomic number 18 actually worth to their customers.Once companies be bang disciplined close to fellow feeling customers, they plenty make smarter choices some where to allocate scarce company resources in developing in the buff offerings. offering qualification suffer to toss customers. The more they female genitalia think of, the better. This feeler requires the least c ognition intimately customers and competitors and, consequently, the least center of toy to construct. However, its relative simplicity has a major(ip) po hug drugtial drawback bene? t assertion. Managers may claim ad rude(a) wavetages for features that actually provide no bene? to bottom customers. Such was the case with a company that sold high act gas chromatographs to R&D laboratories in super companies, universities, and government agencies in the Benelux countries. One feature of a circumstance chromatograph allowed R&D lab customers to retain a high degree of savour integrity. Seeking growth, the company began to market the to the highest degree basic model of this chromatograph to a new segment commercial laboratories. In initial meetings with future customers, the ? rms James C. Anderson is the William L.Ford expansive Professor of Marketing and Wholesale statistical distribution at Northwesterns Kellogg train of Management in Evanston, Illinois the Irwin Gros s autocratic ISBM Research Fellow at the initiate for the Study of seam Markets in University Park, protactinium and a take ining research professor at the School of Business, reality Administration, and locomotive engineering at the University of Twente, the Netherlands. James A. Narus is a professor of business marketing at the Babcock tweak School of Management at invoke Forest University in Charlotte, North Carolina.Wouter van Rossum is a professor of commercial and strategical management at the School of Business, Public Administration, and Technology at the University of Twente. 92 harvard business review C u s t o m e r Va l u e P ro p o s i t i o n s i n B u s i n e s s M a r ke t s Which Alternative Conveys Value to Customers? Suppliers use the term re judge proposition three different ways. Most managers simply list all the bene? ts they believe that their offering cogency hold to target customers. The more they cig art think of, the better.Some managers do actualize that the customer has an alternating(a), but they of ten-spot make the err angiotensin converting enzymeousness of assuming that well-off tiers of expiration essential(prenominal) be valuable for the customer. Best-practice suppliers base their mensurate proposition on the a couple of(prenominal) elements that matter most to target customers, demonstrate the hold dear of this superior performance, and communicate it in a way that conveys a sophisticated arrangement of the customers business priorities. VALUE PROPOSITION ALL BENEFITS FAVORABLE POINTS OF conflict All elevateable phases of remainder a market offering has relative to the near ruff alternativeRESONATING FOCUS Consists of All bene? ts customers vex from a market offering The iodine or 2 speckles of difference (and, perhaps, a point of mirror symmetry) whose improvement pass on forego the greatest honour to the customer for the fore bumpable future Answers the customer question wherefor e should our ? rm buy your offering? Why should our ? rm purchase your offering kinda of your competitors? What is most worth speckle for our ? rm to keep in mind round your offering? Requires cognition of own market offering intimacy of own market offering and adjacent shell alternativeKnowledge of how own market offering delivers superior survey to customers, correspondd with undermentioned outgo alternative Has the potential pitfall Bene? t assertion Value laying claim Requires customer take to be research sales multitude touted the bene? ts of maintaining sample integrity. Their prospects scoffed at this bene? t assertion, stating that they routinely tested ground and water samples, for which maintaining sample integrity was not a concern. The supplier was taken aback and forced to rethink its apprize proposition. former(a) pitfall of the all bene? ts nourish proposition is that many, pull down most, of the bene? s may be points of parity with those of the coterminous topper alternative, diluting the effectuate of the few genuine points of difference. Managers need to distinctly pose in their customer take to be propositions which elements are points of parity and which are points of difference. (See the exhibit The Building Blocks of a sure-fire Customer Value Proposition. ) For example, an international engineering consultancy was prove 2006 bidding for a light-rail project. The last map of the companys presentation listed ten reasons why the municipality should represent the roject to the ? rm. But the map had unretentive persuasive power because the other 2 ? nalists could make most of the alike claims. Put yourself, for a moment, in the stain of the prospective client. Suppose severally ? rm, at the end of its presentation, gives ten reasons why you ought to award it the project, and the lists from all the ? rms are almost the aforementioned(prenominal). If from each one ? rm is saying inwroughtly the same thing, how do you make a choice? You ask each of the ? rms to give a ? nal, best price, and and then you award the project to the ? rm that gives the enlargedst price concession.Any distinctions that do exist imbibe been overshadowed by the ? rms great sameness. 93 C u s t o m e r Va l u e P ro p o s i t i o n s i n B u s i n e s s M a r ke t s Favorable points of difference. The instant type of survey proposition explicitly recognizes that the customer has an alternative. The recent experience of a leading industrial gas supplier illust place this perspective. A customer sent the company a request for proposal stating that the two or three suppliers that could demonstrate the most persuasive evaluate propositions would be invited to visit the customer to discuss and re? e their proposals. After this meeting, the customer would select a sole supplier for this business. As this example shows, Why should our ? rm purchase your offering alternatively of your competitors? is a more p ertinent question than Why should our ? rm purchase your offering? The ? rst question focuses suppliers on differentiating their offerings from the nigh best alternative, a offshoot that requires detail comeledge of that alternative, whether it be buying a competitors offering or solving the customers difficulty in a different way.Knowing that an element of an offering is a point of difference relative to the next best alternative does not, however, convey the entertain of this difference to target customers. Furthermore, a product or service may provoke several points of difference, complicating the suppliers understanding of which ones deliver the greatest repute. Without a detailed understanding of the customers requirements and preferences, and what it is worth to ful? ll them, suppliers may strive points of difference that deliver relatively little pass judgment to the target customer. Each of these ass lead to the pitfall of value presumption assuming that gilt po ints f difference mustiness be valuable for the customer. Our opening night anecdote just about the IC supplier that unnecessarily discounted its price exempli? es this pitfall. reminiscent focus. Although the favorable points of difference value proposition is preferable to an all bene? ts proposition for companies crafting a consumer value proposition, the reverberative focus value proposition should be the gold standard. This approach acknowledges that the managers who make purchase decisions have major, ever-increasing levels of certificate of indebtedness and often are pressed for cadence.They want to do business with suppliers that fully cover critical issues in their business and deliver a customer value proposition thats simple yet powerfully captivating. Suppliers can provide much(prenominal)(prenominal) a customer value proposition by making their offerings superior on the few elements that matter most to target customers, demonstrating and enrolmenting the val ue of this superior performance, and communicating it in a way that conveys a sophisticated understanding of the customers business priorities. This type of proposition differs from favorable points of difference in two signi? affectation respects.First, more is not better. Although a suppliers offering may possess several favorable points of difference, the resonating focus proposition secu swan concentrates on the one or two points 94 of difference that deliver, and whose improvement testament continue to deliver, the greatest value to target customers. To better leverage limited resources, a supplier might even confess to the next best alternative the favorable points of difference that customers value least, so that the supplier can concentrate its resources on meliorate the one or two points of difference customers value most.Second, the resonating focus proposition may contain a point of parity. This occurs either when the point of parity is needful for target customers even to consider the suppliers offering or when a supplier wants to counter customers mistaken perceptions that a neighborhoodicular value element is a point of difference in favor of a competitors offering. This latter(prenominal) case arises when customers believe that the competitors offering is superior but the supplier believes its offerings are comparablecustomer value research provides empirical condescend for the suppliers assertion.To give practical meaning to resonating focus, consider the following example. Sonoco, a global packaging supplier headquartered in Hartsville, South Carolina, approached a large European customer, a maker of consumer packaged goods, about designing the packaging The Building Blocks of a Successful Customer Value Proposition A suppliers offering may have many technical, economic, service, or complaisant bene? ts that deliver value to customers but in all probability, so do competitors offerings. Thus, the essential question is, How do these value elements compare with those of the next best alternative? Weve found that its useful to enlighten value elements into three types. bil permits of parity are elements with fundamentally the same performance or functionality as those of the next best alternative. razes of difference are elements that make the suppliers offering either superior or lowly to the next best alternative. Points of statement are elements about which the supplier and its customers disagree regarding how their performance or functionality compares with those of the next best alternative.Either the supplier regards a value element as a point of difference in its favor, while the customer regards that element as a point of parity with the next best alternative, or the supplier regards a value element as a point of parity, while the customer regards it as a point of difference in favor of the next best alternative. harvard business review C u s t o m e r Va l u e P ro p o s i t i o n s i n B u s i n e s s M a r ke t s for one of its product lines. Sonoco believed that the customer would pro? from updated packaging, and, by proposing the initiative itself, Sonoco strengthened its reputation as an innovator. Although the redesigned packaging provided sise favorable points of difference relative to the next best alternative, Sonoco chose to emphasize one point of parity and two points of difference in what it called its characteristic value proposition (DVP). The value proposition was that the redesigned packaging would deliver signi? cantly greater manufacturing ef? ciency in the customers ? l lines, by dint of higher-speed closing, and provide a characteristic look that consumers would ? nd more challenge all for the same price as the present packaging. Sonoco chose to include a point of parity in its value proposition because, in this case, the customer would not even consider a packaging redesign if the price went up. The ? rst point of difference in the value proposition (increased ef? ciency) delivered cost nest egg to the customer, allowing it to move from a seven-day, three-shift mathematical product inscription during peak times to a ? e-day, two-shift operation. The aid point of difference delivered an advantage at the consumer level, helping the customer to grow its revenues and pro? ts incrementally. In persuading the customer to change to the redesigned packaging, Sonoco did not neglect to mention the other favorable points of difference. Rather, it chose to place much greater furiousness on the two points of difference and the one point of parity that mattered most to the customer, thereby delivering a value proposition with resonating focus.Stressing as a point of parity what customers may mistakenly defy to be a point of difference favoring a competitors offering can be one of the most distinguished parts of constructing an effective value proposition. groom the case of Intergraph, an Alabama-based provider of engineering packe t to engineering, procurement, and construction ? rms. One packet package product that Intergraph offers, SmartPlant P&ID, enables customers to de? ne ? ow processes for valves, pumps, and scream at bottom plants they are designing and pay piping and instrumentation diagrams (P&ID).Some prospective customers wrongly presume that SmartPlants drafting performance would not be as good as that of the next best alternative, because the alternative is built on computer-aided design (CAD), a better-known drafting tool than the relational database computer curriculum on which SmartPlant is built. So Intergraph tackled the perception head on, fulfiling data from reference customers to swan that this point of guinea pigion was actually a point of parity. march 2006 Heres how the company played it.Intergraphs resonating focus value proposition for this software consisted of one point of parity (which the customer initially thought was a point of depicted objection), followed by thre e points of difference Point of parity Using this software, customers can create P&ID graphics (either drawings or reports) as fast, if not faster, as they can victimization CAD, the next best alternative. Point of difference This software checks all of the customers upstream and downstream data related to to plant assets and procedures, victimisation universally accepted engineering practices, company-speci? c rules, and project- or process-speci? rules at each stage of the design process, so that the customer avoids costly mistakes much(prenominal) as missing design change interdependencies or, worse, tell the wrong equipment. Point of difference This software is integrated with upstream and downstream tasks, such as process simulation and instrumentation design, thusly requiring no reentry of data (and reducing the margin for error). Point of difference With this software, the customer is able to link remote of? ces to melt down the project and then merge the pieces into a single deliverable database to hand to its customer, the easiness owner.Resonating focus value propositions are very effective, but theyre not wanton to craft Suppliers must undertake 95 C u s t o m e r Va l u e P ro p o s i t i o n s i n B u s i n e s s M a r ke t s customer value research to gain the insights to construct them. Despite all of the parley about customer value, few suppliers have actually done customer value research, which requires time, effort, persistence, and some creativity. But as the best practices we studied highlight, thinking done a resonating focus value proposition disciplines a company to research its customers businesses overflowing to help solve their problems.As the experience of a leading rosins supplier amply illustrates, doing customer value research pays off. (See the sidebar Case in Point Transforming a Weak Value Proposition. ) savings from reduced power employ that a customer would gain by using a Rockwell automation ram final result instead of a competitors comparable offering forefinger Reduction = kW spent number of operate hours per Cost Savings year $ per kW hour number of years system solution in operation Competitor source ? kW spent number of operate hours per year $ per kW hour number of years system solution in operation Rockwell Automation SolutionSubstantiate Customer Value Propositions In a series of business roundtable discussions we conducted in Europe and the United States, customer managers inform that We can save you money has create almost a generic value proposition from prospective suppliers. But, as one participant in Rotterdam wryly observed, most of the suppliers were telling fairy tales. After he heard a pitch from a prospective supplier, he would follow up with a series of questions to determine whether the supplier had the people, processes, tools, and experience to actually save his ? m money. As often as not, they could not really back up the claims. but put, to make custome r value propositions persuasive, suppliers must be able to demonstrate and history them. Value intelligence service equations enable a supplier to show points of difference and points of subject areaion relative to the next best alternative, so that customer managers can tardily cooking stove them and ? nd them persuasive. A value articulate This value word equation uses diligence-speci? c terminology that suppliers and customers in business markets rely on to communicate precisely and ef? iently about functionality and performance. Demonstrate Customer Value in Advance Prospective customers must see convincingly the cost savings or conducted value they can expect from using the suppliers offering instead of the next best alternative. Best-practice suppliers, such as Rockwell Automation and precision-engineering and manufacturing ? rm Nijdra Groep in the Netherlands, use value case histories to demonstrate this. Value case histories document the cost savings or added value t hat reference customers have actually bring ind from their use of the suppliers market offering.Another way that best-practice ? rms, such as Pennsylvania-based GE Infrastructure Water & suffice Technologies (GEIW&PT) and SKF USA, show the value of their offerings to prospective customers in advance is Some best-practice suppliers are even leave aloneing to warrantee a indisputable amount of savings before a customer signs on. equation expresses in run-in and simple mathematical operators (for example, + and ? ) how to assess the differences in functionality or performance between a suppliers offering and the next best alternative and how to convert those differences into dollars.Best-practice ? rms like Intergraph and, in Milwaukee, Rockwell Automation use value word equations to make it clear to customers how their offerings will land costs or add value relative to the next best alternatives. The data required to provide the value thoughts are most often still from the c ustomers business operations by supplier and customer managers functional together, but, at times, data may come from outside sources, such as constancy association studies.Consider a value word equation that Rockwell Automation used to draw a bead on the cost 96 through value calculators. These customer value assessment tools typically are spreadsheet software applications that salespeople or value specialists use on laptops as part of a consultative selling approach to demonstrate the value that customers likely would receive from the suppliers offerings. When necessary, best-practice suppliers go to extraordinary lengths to demonstrate the value of their offerings relative to the next best alternatives.The polymer chemicals unit of Akzo Nobel in Chicago recently conducted an on-the-spot(prenominal) two-week pilot on a production reactor at a prospective customers facility to gather data ? rsthand on the performance of its high-purity alloy organics offering relative to the n ext best alternative in producing compound semiconductor wafers. Akzo Nobel paid this harvard business review C u s t o m e r Va l u e P ro p o s i t i o n s i n B u s i n e s s M a r ke t s prospective customer for these two weeks, in which each day was a trial because of resolveaday considerations such as output and maintenance.Akzo Nobel now has data from an actual production utensil to substantiate assertions about its product and judge cost savings, and evidence that the compound semiconductor wafers produced are as good as or better than those the customer soon grows using the next best alternative. To let its prospective clients customers verify this for themselves, Akzo Nobel brought them sample wafers it had produced for testing. Akzo Nobel combines this point of parity with two points of difference signi? cantly lower energy costs for conversion and signi? antly lower maintenance costs. Document Customer Value Demonstrating superior value is necessary, but this is n o longer enough for a ? rm to be considered a best-practice company. Suppliers also must document the cost savings and incremental pro? ts (from additional revenue gener- ated) their offerings deliver to the companies that have purchased them. Thus, suppliers work with their customers to de? ne how cost savings or incremental pro? ts will be tracked and then, afterwards a suitable intent of time, work with customer managers to document the results.They use value documenters to provided re? ne their customer value models, create value case histories, enable customer managers to get credit for the cost savings and incremental pro? ts produced, and (because customer managers know that the supplier is voluntary to advance back later to document the value received) evoke the credibility of the offerings value. A pioneer in substantiating value propositions over the past decade, GEIW&PT documents the results provided to customers through its value generation planning (VGP) process and tools, which enable its ? ld personnel to understand customers businesses and to plan, execute, and document projects that have the highest value impact for its customers. An online tracking tool allows GEIW&PT and customer managers to easily monitor the Case in Point Transforming a Weak Value Proposition A leading supplier of intensity resins used in architectural coatings such as paint for buildings recognized that its customers were coming under pressure to comply with increasingly strict environmental regulations. At the same time, the supplier reasoned, no coating manufacturer would want to sacri? e performance. So the resins supplier developed a new type of highperformance resins that would enable its customers to comply with stricter environmental standards albeit at a higher price but with no reduction in performance. In its initial discussions with customers who were using the product on a trial basis, the resins supplier was strike by the tepid reaction it receiv ed, peculiarly from commercial managers. They were not enthusiastic about the sales prospects for higher-priced coatings with commercial moving-picture show contractors, the first target market.They would not, they said, move to the new resin until regulation mandated it. Taken aback, the resins supplier clear-cut to conduct customer value research to better understand the requirements and preferences of its customers customers and how the performance of the new resin would affect their total cost of doing business. The resins supplier went so far as to study the requirements and preferences of the commercial flick contractors customers building owners. The supplier conducted a series of focus groups and ? eld tests with painting contractors to gather data.The performance on primary customer requirements such as coverage, dry time, and durability was studied, and customers were asked to make performance trade-offs and indicate their willingness to pay for coatings that deliv ered intensify performance. The resins supplier also joined a commercial painting contractor industry association, enrolled managers in courses on how contractors are taught to estimate jobs, and trained the staff to work with the job-estimation software used by painting contractors. some(prenominal) insights emerged from this customer value research.Most notable was the credit that only 15% of a painting contractors costs are the coatings labor is by far the largest cost component. If a coating could provide greater productivity for example, a faster drying time that allowed two coats to be applied during a single eight-hour shift contractors would likely accept a higher price. The resins supplier retooled its value proposition from a single dimension, environmental regulation configuration, to a resonating focus value proposition where environmental compliance played a signi? cant but minor part.The new value proposition was The new resin enables coatings producers to make a rchitectural coatings with higher ? lm build and gives the painting contractors the ability to put on two coats within a single shift, thus increasing painter productivity while also being environmentally compliant. Coatings customers enthusiastically accepted this value proposition, and the resins supplier was able to get a 40% price premium for its new offering over the traditional resin product. march 2006 97 C u s t o m e r Va l u e P ro p o s i t i o n s i n B u s i n e s s M a r ke t s xecution and documented results of each project the company undertakes. Since it began using VGP in 1992, GEIW&PT has documented more than 1,000 case histories, accounting for $1. 3 billion in customer cost savings, 24 billion gallons of water conserved, 5. 5 million tons of waste eliminated, and 4. 8 million tons of air emissions removed. As suppliers gain experience documenting the value provided to customers, they become knowledgeable about how their offerings deliver superior value to cus tomers and even how the value delivered varies across ation can depict NPI requests whenever they have an originative idea for a customer solution that they believe would have a large value impact but that GEIW&PT presently does not offer. Industry marketing managers, who have extensive industry expertise, then perform scoping studies to understand the potential of the proposed products to deliver signi? cant value to segment customers. They create business cases for the proposed product, which are racked and stacked for review. The elderly management aggroup of GEIW&PT sort through aBest-practice suppliers make sure their people know how to identify what the next value propositions ought to be. kinds of customers. Because of this extensive and detailed knowledge, they become con? dent in predicting the cost savings and added value that prospective customers likely will receive. Some best-practice suppliers are even willing to guarantee a certain amount of savings before a cust omer signs on. A global automotive engine manufacturer turned to champion Chemical, a Pennsylvania-based specialty chemical and management work ? m, for help in signi? cantly reducing its operating costs. protagonists team of chemical, mechanical, and environmental engineers, which has been meticulously documenting cost savings to customers for years, identi? ed potential savings for this customer through process and productivity improvements. Then quaker implemented its proposed solution with a guarantee that savings would be ? ve times more than what the engine manufacturer spent annually just to purchase coolant. In real numbers, that meant savings of $1. 4 million a year.What customer wouldnt ? nd such a guarantee persuasive? large number of potential initiatives competing for limited resources. The team approved Panichellas initiative, which led to the development of a new offering that provided re? nery customers with documented cost savings amounting to ? ve to ten time s the price they paid for the offering, thus realizing a compelling value proposition. Sonoco, at the corporate level, has do customer value propositions fundamental to its business strategy. Since 2003, its CEO, Harris DeLoach, Jr. and the executive committee have set an wishful growth goal for the ? rm sustainable, double-digit, pro? table growth every year. They believe that distinctive value propositions are crucial to support the growth initiative. At Sonoco, each value proposition must be Distinctive. It must be superior to those of Sonocos competition. Measurable. All value propositions should be based on tangible points of difference that can be quanti? ed in financial basis. Sustainable. Sonoco must be able to execute this value proposition for a signi? ant period of time. Unit managers know how critical DVPs are to business unit performance because they are one of the ten key rhythmic pattern on the managers performance scorecard. In precedential management review s, each unit manager presents proposed value propositions for each target market segment or key customer, or both. The managers then receive summary feedback on the value proposition metric (as well as on each of the ennead other performance metrics) in terms of whether their proposals can lead to pro? table growth.In addition, Sonoco senior management tracks the relationship between business unit value propositions and business unit performance and, year after year, has concluded that the emphasis on DVPs has made a signi? cant contribution toward sustainable, double-digit, useful growth. harvard business review Superior Business Performance We contend that customer value propositions, properly constructed and delivered, make a signi? cant contribution to business strategy and performance. GE Infrastructure Water & Process Technologies recent development of a new service offering to re? ery customers illustrates how general manager John Panichella allocates limited resources to i nitiatives that will generate the greatest incremental value for his company and its customers. For example, a few years ago, a ? eld rep had a seminal idea for a new product, based on his comprehensive understanding of re? nery processes and how re? neries make money. The ? eld rep submitted a new product design (NPI) request to the hydrocarbon industry marketing manager for further study. Field reps or anyone else in the organi98 C u s t o m e r Va l u e P ro p o s i t i o n s i n B u s i n e s s M a r ke t sBest-practice suppliers recognize that constructing and substantiating resonating focus value propositions is not a onetime undertaking, so they make sure their people know how to identify what the next value propositions ought to be. acquaintance Chemical, for example, conducts a value-proposition reproduction program each year for its chemical program managers, who work on-site with customers and have responsibility for formulating and death penalty customer value propos itions. These managers ? rst review case studies from a variety of industries quaker serves, where their peers have executed savings projects and quanti? d the monetary savings produced. Competing in teams, the managers then recruit in a simulation where they audience customer managers to gather information needed to devise a proposal for a customer value proposition. The team that is judged to have the best proposal earns bragging rights, which are highly valued in quakers competitive culture. The training program, Quaker believes, helps sharpen the skills of chemical program managers to identify savings projects when they return to the customers they are serving. As the ? al part of the training program, Quaker stages an annual real-world contest where the chemical program managers have 90 days to submit a proposal for a savings project that they plan to present to their customers. The director of chemical management judges these proposals and provides feedback. If he deems a p roposed project to be viable, he awards the manager with a gift certi? cate. Implementing these projects goes toward ful? lling Quakers guaranteed annual savings commitments of, on average, $5 million to $6 million a year per customer.Each of these businesses has made customer value propositions a fundamental part of its business strategy. Drawing on best practices, we have presented an approach to customer value propositions that businesses can implement to communicate, with resonating focus, the superior value their offerings provide to target market segments and customers. Customer value propositions can be a guiding beacon as well as the cornerstone for superior business performance. Thus, it is the responsibility of senior management and general management, not just marketing management, to ensure that their customer value propositions are just that.Reprint R0603F HBR OnPoint 3544 To order, see page 151. P VEY . C. What we need are some tonic new ideas. 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