Last month's Insights highlighted the critical importance of determining a tight market focus - one in which a specific set of customers have strongly felt needs that are not being met. In this second installment of Insights "The Idea of the Business" series, we continue to examine the key elements that form the core of the business strategy by taking a look at the next step in the process: the creation of an effective value proposition tailored to your target market's specific needs and concerns.

Your value proposition is your total offering to the customer. In a broad sense this includes the specific definition of your products and services, pricing, terms of purchase, after-sales support, and even aspects such as the image and/or reputation associated with owning and using your products and services.

The goal of your value proposition is to have an offering that effectively meets the needs of your target market at a price they are able and willing to pay and that earns you an economic return. Those elements of your value proposition that meet customer needs are benefits - all other aspects are features or even potentially advantages, but are not real benefits. Price is part of a broader category of costs, which include monetary costs as well as factors such as time and risk.

The key to an effective value proposition, then, lies in developing an offering where the total benefits delivered (total actual customer needs met) more than outweigh the total costs to the customer in finding, purchasing, implementing and using your products and services.

You must also keep in mind that your value proposition must be developed in light of buyer alternatives - your offering must not only be of value, but of greater value than all other options available to your target market. In order to create a proposition that meets your market's needs better than all other options, it is necessary to explore adding or removing both benefits and costs.

In some cases you offer more value by increasing benefits at a similar or lower cost - compare the cost of a PC today versus five years ago. In other cases you increase value by eliminating many features and even some benefits - but at a dramatically lower cost. Southwest Airlines is a well known example of this. Sometimes you can increase benefits significantly at a premium price and still deliver substantially more value - Starbucks is an obvious example.

A good value proposition, in addition to offering value, must be effectively communicated to your target market. Strong value propositions should be:

• Clear - easily understood in terms the buyer understands
• Concise - expressed in a short phrase or tagline
• Compelling - clearly meets urgent needs better than all other options