2.1 Evaluate a value proposition
When considering the suitability of a value proposition, a reliable first approach is to conduct a simple SWOT analysis. SWOT analysis helps in identifying internal and external factors that can impact the success of an entity. It stands for:
- Strengths
- Weaknesses
- Opportunities
- Threats.
Strengths are internal attributes that give an advantage over others. Weaknesses are internal attributes that place the entity at a disadvantage. Osterwalder et al. (2010, p. 217) suggest considering the following aspects:
- Alignment between customer needs and value proposition: a good response to customer needs would make the value proposition solid.
- Ability to create network effects: network effects refer to the increase of the value of a product or service as more people use it. This effect occurs because each new user adds value to the existing users, creating a positive feedback loop that enhances the overall utility of the product or service. Consider a social media platform like Instagram. When only a few people use it, its value is limited because there are fewer people to connect with. However, as more people join and use the platform, its value increases for each user because there are more friends, family members and acquaintances to interact with.
- Synergies between products and services offered: this means that the bundle of products and services offered should be integrated in order to enhance the value provided. Besides the typical examples of technological gadgets that embed services such as the Android or Apple ecosystems, this integration can also include the possibility of having a support community. A good statistical software is typically supported by a community of users who develop custom procedures to perform complex analyses.
- Customer satisfaction: this is a complex measure of how well a company’s products or services meet or exceed customer expectations. Companies often use surveys, feedback forms, and direct communication to gauge satisfaction levels and identify areas for improvement.
Opportunities are external factors that the entity can exploit to its advantage. According to Osterwalder et al. (2010, p. 222), the following elements should be considered:
- Recurring revenues: in designing a solid value proposition, it is important to consider the possibility of converting products into services that can generate recurring revenues, such as a subscription fee.
- Additional customer needs: it is worth considering serving a wider range of customer needs to expand the market.
- Integration with complements: it is important to consider the integration of complements. In the case of drone systems, a data analysis service that could be offered as a complement to the drone service would utilise the extensive data that is collected.
Threats are external factors that could cause trouble or loss. In this case, Osterwalder et al. (2010, p. 220) identified the following aspects:
- Presence of substitute products: substitute products are goods or services that can be used in place of each other to satisfy the same consumer need or desire. When the price of one product rises or its availability decreases, consumers may switch to the substitute product. Streaming services can be considered substitute products of cinemas or satellite TV, or even of traditional TV channels.
- Presence of competitors: competitors able to operate in the same industry can pose a threat by lowering prices or offering more value with a differentiated product.