Source: Reprinted by permission of Harvard Business Review. “Customer Value Propositions in Business Markets,” by James C. Anderson, James A. Narus, and Wouter van Rossum, March 2006. © 2006 by the Harvard Business School Publishing Corporation; all rights reserved.

      A// Benefits

      The all-benefits customer value proposition is the meaning that supplier managers most frequently attach to the term. Why? It requires the least detailed knowledge about customers and competitors and, thus, is the easiest for supplier managers to construct and deliver. They simply list all the potential benefits they believe that their offering might deliver to targeted customers. The more they can think of, the better.

      Yet simply listing all the benefits has the potential pitfall of benefit assertion: claiming distinctions for the offering that actually have no benefit to target customers. Consider the following example: a value-added reseller of gas chromatographs was accustomed to selling high-performance instruments to R&D laboratories in large companies, universities, and government agencies in Belgium, the Netherlands, and Luxembourg. One feature of a particular chromatograph, a patented injection system, enabled R&D lab customers to maintain sample integrity by avoiding high-temperature vaporization, eliminating the risk of thermal degradation, enhancing test discrimination, and permitting the use of volatile solvents. Seeking growth, the firm began to market the most basic model of this chromatograph to a new market (application) segment for the firm: contract laboratories.

      In initial meetings with prospective contract lab customers, the firm’s salespeople touted the injection system feature and its benefit of maintaining sample integrity. The prospects scoffed at this, stating that they were doing routine testing of soil and water samples for environmental regulation compliance, for which maintaining sample integrity was not a concern, and that room-temperature sample injection served their requirements adequately. The supplier was taken aback and forced to rethink its value proposition.

      Another pitfall of the all-benefits proposition is that many, if not most, of the benefits may be points of parity with the next-best alternative, diminishing the effect of the few actual points of difference. An international engineering consulting firm was bidding for a light-rail project, and on the last chart of its presentation to the prospective municipal client, it listed the ten reasons why the municipality should award it the project. The other two finalist firms, though, could make most of the same claims because they were points of parity. Put yourself, for a moment, in the place of the prospective client. Suppose each firm, at the end of its presentation, gives ten reasons why you ought to award it the project. The lists are almost the same. How do you resolve the impasse? By asking each of the firms to “sharpen their pencils” and give a final best price. You then award the project to the firm that gives the largest price concession. Any distinctiveness that does exist between firms has been overshadowed by the greater overlapping sameness.

      Favorable Points of Difference

      The second customer value proposition, favorable points of difference, explicitly recognizes there is an alternative open to the customer. The recent experience of a leading industrial gas supplier underscores this distinction. It received a request for proposal from a customer for a major piece of business stating that the two or three suppliers that could demonstrate the most persuasive value propositions in their proposals would be invited to visit the supplier and to discuss and refine their proposals. After the meeting, the customer would select a supplier for this business.

      As this example illustrates, “Why should our firm purchase your offering instead of your competitor’s?” is a more pertinent question than “Why should our firm purchase your offering?” Why? Because the former question focuses supplier managers on differentiating their offering from the next-best alternative, which requires more detailed knowledge of it. A characteristic that the favorable-points-of-difference proposition shares with the all-benefits proposition, though, is that more is regarded as better, so supplier managers strive to list as many favorable points of difference as they can.

      Knowing that an offering element is a point of difference relative to the next-best alternative does not, however, convey what the value of this difference is to target customers. Further, a supplier’s market offering may have several points of difference relative to the next-best alternative, which complicates understanding which of them delivers the greatest value to target customers. Without a detailed understanding of the customer’s requirements and preferences, and what it is worth to fulfill them, suppliers may stress points of difference that deliver relatively little value to the target customer. Each of these can lead to the potential pitfall of value presumption : assuming that favorable points of difference must be valuable for the customer. Our opening anecdote in chapter 1 about the IC supplier that unnecessarily discounted its price nicely illustrates the likely outcome when supplier salespeople stress favorable points of difference that actually have little value for the customer.

      Resonating Focus

      Although we contend that a favorable-points-of-difference proposition is preferable to an all-benefits