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How to Test Value Propositions like a Business Designer

Value propositions are the north stars that guide your business. When you get them right, they can be key business drivers and help you reach and monetize your target customers. But developing value propositions that are insightful, unique, and targeted is no small feat.

In this episode of the Creative Confidence Podcast, IDEO Senior Business Director Angel Annunciacao shares design tools for testing value propositions, how to understand willingness to pay, and how to uncover insights to help finetune your value proposition.

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What is a Value Proposition?

Think of a value proposition (or value prop) as a simple statement that helps describe what benefit a potential customer might get from using a specific product or service over another. It sounds really simple, but it's incredibly invaluable and important in business design—both externally and internally.

Externally, it serves as a foundation for any public communications and marketing that you might do. It's telling your customer clearly what your offer is and why they should choose you over a competitor.

Internally, it's also important because it serves as a north star. It helps the entire organization, whether you’re in accounting or engineering or product, really align on what it is you’re trying to offer in the marketplace and move in the same direction.

How to Write a Value Proposition

At IDEO, we start with a simple fill-in-the-blank sentence:

For [target user], who [user need], [name of concept] solves/provides/helps [benefit].

First, you define who your target user is that you're going after. Then there’s the user need—what is that pain point that you're trying to solve for? The name of your concept is your offering, whether it’s a product or a service. And then the most important part is the benefit that your customer is getting by choosing your offering.

“A value proposition serves as a north star. It helps the entire organization move in the same direction.”
Angel Annunciacao, Senior Business Director at IDEO

Value Proposition Examples

Strong value propositions

Angel gives an example to make it more tangible. Imagine you’re working with Shopify back when they were starting out. Something you might write is:

For the novice entrepreneur, who doesn’t know a lot about launching an ecommerce business, Shopify provides a step by step process to set up, grow, and manage their entire transactions.

While this isn’t Shopify’s actual value proposition, it’s an example of what an effective one might look like. It doesn't get into the details of every single feature, but it's easy to understand and gives us enough information to understand what makes Shopify unique. When we’re thinking about value propositions at IDEO, we like to come up with a few initial value props. It's not about nailing a perfect one on your first try, but coming up with a couple of different hypotheses.

Once we have a few value props that we feel good about, we dig into more questions to really flesh out the benefit. These questions can include:

How does the offer help create value for the customer?
How is the offer unique to what's already in the marketplace?
What about our offer will really help us differentiate and make it harder for others to imitate?
Do we have the capabilities to actually bring this offer to life?
If we don't, what are those capabilities that we might want to invest in to really deliver on the promise that we're putting out in the world?

As we explore these questions, we iterate on the value proposition statements and then often land on a few that we then take into research to get feedback.

Weak value propositions

Let's go back to the Shopify example. What would be not as effective? Here’s an example of a weaker value prop:

For business owners, who need help processing online transactions, Shopify helps owners manage their checkout process.

Angel says that this isn’t as strong as the other value prop for a couple of reasons. First, the target consumer that’s listed here is really broad. While we always want to make sure our target market is large enough that it makes business sense to go after them, we also want to make sure that it's specific enough so that we can really distill the unique needs that this target group has, and build an offering that's helping them solve those needs.

The second reason is the benefit. Helping manage the checkout process could be beneficial and might be a need that entrepreneurs have, but it doesn't really touch on what makes Shopify unique. What's making them unique to what else is out in the marketplace? The first example gets a lot more specific on what value Shopify provides to the customer.

If you want to learn more about IDEO’s approach to business design, check out our online course Designing a Business

How to Test Value Propositions

According to Angel, organizations often feel pressure to rush and nail down the perfect value prop statement quickly. But at the end of the day, value propositions are about testing the consumer's needs, and that's something you want to do early and often. It’s about testing a few hypotheses to make sure that you’re going in the right direction. And what’s great is that you can do this pretty scrappily—and you don’t have to spend a ton of time or money.

A card sort activity

One of Angel’s favorite methods is a card sort activity, where research participants choose from two different options at a time to get to a short list of the benefits that are most important to them.

Angel gives an example of a client that had developed a new technology to help people understand how different food groups would impact their bodies. They had an idea of who their target consumer might be as well as a value proposition that might resonate, but they weren't one hundred percent sure. Angel sat down with the clients and talked through the benefits that their product could offer, and turned them into simple sentences like “A product that shows me ____ about my body when I use it.” They then printed out 12 of them on small 2x3 cards.

To test these, the team would put two at a time in front of their consumers and ask, “Which of these two is more valuable for you?” They would take the ones that the consumer chose, and discard the ones they didn't choose. Along the way, they asked questions like, “Why this one? What's interesting? Why not that one?” After going from 12 cards to 6 cards, and from 6 cards to 3 cards, they had a discussion about the final 3 cards. They asked, “Why these three? What’s standing out to you? Would you change these in any way to make them even more valuable for you?” The team wanted the consumers to really edit them and share what they found valuable.

The card sort activity mimics real life because every purchase out in the world requires a decision or a trade-off. In its simplest form, this activity is asking potential customers to consider these trade-offs and choose the product that would bring them the most value in their life. And in this particular example, the value proposition that the clients had come in with initially was not one of the top three that their consumers gravitated toward.

“At the end of the day, value propositions are about testing the consumer's needs, and that's something you want to do early and often.”
Angel Annunciacao, Senior Business Director at IDEO

A Max-Diff Study

If you need to get to a larger sample size or if you have a shorter amount of time (qualitative research often takes a bit more time), you can run a Max-Diff study. A Max-Diff study essentially asks respondents to evaluate the potential benefits or options within a given set and choose the one that is most important to them and the one that is least important to them.

Let's say you had six value props that you're trying to test. You could put it out into the world and ask the question, “On a scale of one to five, how likely are you to buy this product?” Angel says that the issue with that is oftentimes people will rank all six of the offers as really valuable or not valuable, or rank everything a three out of five. That makes it really difficult to understand which option is really rising to the top.

A Max-Diff, on the other hand, forces respondents to make tradeoffs and indicate a preference between the different options by selecting the most important and least important value props out of the group of six. When you get this kind of data, you're able to see how important the different value propositions are relative to each other, similar to the card sort activity. If you don’t have experience running Max-Diffs and quantitative studies, most survey platforms like Qualtrics or AYTM will have this already built into their platform.

3 Ways to Test Willingness to Pay

Angel says that when it comes to willingness to pay, there’s often a large “say-do gap,” where what people say they'll pay for something is very different from what they're actually willing to pay. She says it’s great to test willingness to pay because it’s a way to test your value proposition—you’re exploring with your consumers how much they value your offering, reflected by what they're willing to pay for it. Angel shares 3 effective ways to test willingness to pay:

1) Asking at the end of an interview

In a qualitative interview, Angel usually goes through and explains what the product or the offering is, has a discussion, and asks many questions. At the end of their time together, her team compensates respondents for their time and insights that they've shared.

In this moment when they receive the money, Angel likes to say something along the lines of, “We actually have the product or offering ready today for you to sign up for or buy. How much of the money that I just gave would you be willing to give back to me in order to get access to it today?” When it comes to parting with real money, people start to put more thought into it, and you can see what the product is actually worth to the consumer.

2) Creating reference anchors

Another way to test willingness to pay is to use reference points to anchor people. This can be an especially effective method when your offering is groundbreaking, and when people don't have a quick idea of what the competition costs and what they would pay. To do this, Angel typically starts by explaining what the offer is then asking four questions:

Is the value of this offer for you more or less than a cup of coffee?
Is the value of this offer for you more or less than a pair of new jeans?
Is the value of this offer for you more or less than a new iPhone?
Is the value of this offer for you more or less than a car?

This method is not going to give you the exact willingness to pay, but it really helps to define the bounds within which your offering can be. If you already know that it should fall within a specific range of these prices, you can make it even more narrow. For example, you can ask if the offering is closer to the cost of a cup of coffee at 7-Eleven or a cup of coffee at a Four Seasons Hotel bar. That can help you define what feels realistic for your offering.

Additionally, Angel says that you can also create reference points with services—you just want to be thoughtful about what you're choosing as the “cup of coffee.” If it's subscriptions, for instance, you could say more or less than a Spotify subscription. It’s about doing the research to see the offerings that people are most familiar with, and creating some quick reference points.

“When it comes to willingness to pay, there’s often a large ‘say-do gap,’ where what people say they'll pay for something is very different from what they're actually willing to pay.”
Angel Annunciacao, Senior Business Director at IDEO

3) Observing real money and products

For testing willingness to pay, Angel also likes to see what people are doing in real life. And when there’s an offering that’s actually on the market, she says you can do this pretty easily through observation.

Angel gives the example of a large e-commerce company that wanted to see how much Gen Z valued sustainable options. They had read reports about how Gen Z really cared about sustainability and wanted greener options, but on their platform, what they were seeing was that the products that were more sustainable weren't necessarily the ones that were selling as well as some of the other options.

To study this, Angel’s team brought together more than a dozen Gen Z consumers who used the platform regularly and were looking to buy some things in the next two weeks. They gave them each $30 to spend and asked them to walk them through their thought process. The team watched the Gen Z participants share their screens as they looked at and compared different products.

About the Speaker

Angel Annunciacao
Senior Business Director, IDEO

Angel is a Systems & Strategy Director at IDEO who specializes in launching new products, building new ventures, and crafting sustainable organizational strategies. Adept at oscillating between the big picture and the minute details, Angel is an expert in setting a vision for both clients and team members and designing the paths to lead them there.

At IDEO, Angel has partnered with clients across industries -- including food & beverage, health, financial services, technology, and NGOs -- in applying human centered research to tackle a diverse set of challenges. Angel earned her MBA at UC Berkeley (Haas) and her B.S. in Business and Communications from UNC-Chapel Hill. On the weekends, you can find her trying out new recipes, exploring a trail in the Redwoods, or immersed in a good mystery novel.

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If you want to dive deeper into value propositions and business design, check out our 5-week course Designing a Business.