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Creating Customer Value Developing A Value Proposition

AND Positioning
Marketing Management for IBA (Tilburg University)

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Because customers ultimately create value for the company and its collaborators,
managing customer value is essential for a company’s success. The two key aspects
of managing customer value involve developing a value proposition and
developing a positioning strategy.
The value proposition reflects all benefits and costs associated with a particular
offering. Because value is a function of customers’ needs, an offering’s ability to
create value is customer-specific: An offering that creates value for some customers
might fail to do so for a different customer segment. The success of an offering is
determined by the degree to which it can fulfill customer needs better than the
competition on each of the three value dimensions: functional, monetary, and
psychological.
The customer value function reflects the way in which attributes of the offering
translate to subjective benefits and costs for target customers. For simplicity, the
value function is often assumed to be the sum of the offering’s performance on
individual attributes, weighted (multiplied) by the relative importance of these
attributes. The weighted-additive value function is based on the assumptions that (1)
customers have well-articulated valuations of the offerings’ performance on
different attributes, (2) an increase in an offering’s performance on a given attribute
will result in a proportional increase in value, (3) the valuation of an offering is
symmetric with respect to improving or diminishing its performance, and (4)
buyers consider all available information about an offering in a systematic fashion.
These assumptions often need to be corrected for the effects of four decision
factors: reference-point dependence, loss aversion, diminishing marginal value, and
effort optimization.
An offering’s competitive advantage is defined by two factors: points of difference
and points of parity. Points of difference (competitive advantage and competitive
disadvantage) involve attributes that are important for target customers and on
which the company’s offering is perceived to be different from that of its
competitors. Points of parity, on the other hand, refer to attributes on which an
offering’s performance matches that of the competition. Competitive advantage is
defined by differences that are noticeable and perceived as relevant by target
customers. Minor differences in market offerings that are not noticed by customers
or are deemed to be irrelevant do not constitute a competitive advantage. To create
and/or strengthen its competitive advantage a company can adopt the following
strategies: (1) improve the offering’s performance on a given attribute, (2) add a

new attribute on which the offering has an advantage, and/or (3) increase the
perceived importance of an attribute on which the offering has an advantage.
Positioning focuses customers’ attention on the most important aspect(s) of the
offering’s value proposition. Positioning involves two key decisions: identifying the
frame of reference and defining the primary benefit.
The frame of reference provides customers with a benchmark for assessing the value
of the offering. Based on the choice of a reference point, five types of frames of
reference can be distinguished: (1) need-based framing, which directly links the

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benefits of the offering to a particular customer need, (2) user-based framing, which

defines the offering by associating it with a particular type of buyer, (3) category-
based framing, which defines the offering by relating it to an already established

product category, (4) competitive framing, which defines the offering by explicitly
contrasting it with competitors’ offerings, and (5) product-line framing, which
defines the offering by comparing it with other offerings in the company’s product
line. Depending on the frame of reference, two positioning strategies can be
differentiated: noncomparative positioning, which relates the offering’s benefits
directly to customers’ needs, and comparative positioning, which contrasts the
offering’s benefits to those of a competitive offering.
The primary benefit reflects the main reason for customers to choose the
offering and typically involves a functional, psychological, or monetary benefit.
Based on the type and/or the number of primary benefits, there are three common
positioning strategies: single-benefit positioning, multi-benefit positioning, and
holistic positioning.

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