Proceedings of the 50th Hawaii International Conference on System Sciences | 2017 A Value Proposition Development Framework For Industrial Service Pekka Töytäri Risto Rajala Lucas Nilsson-Ollandt Joona Keränen Aalto University Aalto University Aalto University Lappeenranta University [email protected] [email protected] lucas.nilsson- of Technology [email protected] [email protected] Abstract on skillful development and effective communication of value propositions [11,17]. Value proposition is a key concept in the research Despite widespread use of the term, the existing on service and in the practice of service management. literature provides rather high level definitions of Value propositions are described as tools to value proposition (see a review in [4]). Further, the communicate and motivate a joint value creation actual managerial practice to develop value opportunity among involved organizations and propositions is largely unexplored. Business books stakeholders. The future orientation and intangibility [5,23] provide insights, but do not build on the of service places value proposition as the key element academic work on value proposition and customer of competitive service business. However, the concept value. Hence, this study explores the industrial of value proposition if often vaguely defined, the managerial practices to develop customer-oriented underlying theoretical concepts missing, and the value propositions by conducting value research. The managerial practices to create value propositions study derives theoretical and managerial frameworks unexplored. This study investigates how value- to guide value proposition analysis and development. focused industrial companies build value After the introduction, we review the literature on propositions by conducting customer value research. the theoretical foundation of customer value, value Building on our findings, we suggest theoretical and proposition design, and customer value research. managerial frameworks for value proposition Section three describes the research process and the development. methods used. Section four presents the empirical findings. The last section discusses the findings and 1. Introduction conclusions of the study and offers suggestions for future research and implications for research and practice. Value proposition is a key concept in the research on service and in the practice of service management. Value propositions are described as tools to 2. Theoretical Background communicate and motivate a joint value creation opportunity among involved stakeholders and Value propositions are described as organizations [2,4,16,25,39,40]. Value propositions communication devices indicating how the parties are crafted, adapted, communicated, quantified, and involved could create value by integrating their verified to initiate and sustain business relationships. respective resources and capabilities. Value Strong change drivers amplify the importance of propositions are crafted, adapted, quantified, and value propositions. The future orientation, verified during the buyer-seller interactions [33] digitalization, and intangibility of service exchange within a dynamic value creation configuration highlight the importance of the value proposition as a (“service system”) of resources, capabilities, and key element of service business. Business strategies, technology, which are all connected internally and value creation, and differentiation are also externally to other service systems by value increasingly building on recognizing and effectuating propositions [40]. Previous research has established novel business opportunities, as opposed to several characteristics of value propositions, two of leveraging protected industry position or which are highly relevant here: Value propositions differentiated capabilities and resources, and building address specific stakeholders’ salient business goals, e.g. [20], and communicate bundles of value creating changes toward those goals [2]. Industrial value URI: http://hdl.handle.net/10125/41348 ISBN: 978-0-9981331-0-2 CC-BY-NC-ND 1613 propositions frequently specify a number of value conception to arrive at the value preference (see also creating changes (such as energy savings, quality definition of Customer Desired Value in [12]). improvements, capacity improvements, and similar) Finally, value perception is the result of the and their aggregate, qualitative or quantitative impact assessment of the value preference, i.e. “how much” on specific goals (such as cost savings, risk value the stakeholder perceives to receive along the reduction). For some illustrative examples of different value dimensions. Value assessment aims to industrial value propositions, see, for instance [26]. create tangible evidence of value, qualitative or In business marketing literature, customer quantitative, ideally quantified in terms of the segmentation, customer value research, value stakeholder’s goal metrics (key performance proposition development, value communication, and indicators) [15]. Figure 1 illustrates the relationship value verification are considered as essential between these concepts. supplier-driven elements of value-based service, e.g. [31,33]. In line with our research focus, we review the literature on value propositions and customer value research, and then focus on customer value Value Value Value research as a method to build effective value conception preference perception propositions. To understand the role of value proposition in the buyer-seller interactions, we focus next on the essential elements of the customer-driven evaluation of value propositions. Value selection Value 2.1 Customer value assessment Value propositions communicate customer value, Figure 1. The relationship between and build on the concept of customer value. Research customer’s value conception, value has described customer value as subjectively preference, and value perception. evaluated and experienced in a specific context, and Different stakeholders may hold greatly varying defined as a trade-off between perceived benefits and beliefs and ideas about what is potentially valuable in sacrifices [19]. Further, research has offered a a given situation. For instance, potential value number of different conceptualizations for the dimensions of a car include performance, comfort, benefits and sacrifices, e.g. [24,26,27,37]. social status, aesthetics, ownership cost, While the different conceptualizations emphasize environmental, and similar dimensions and their sub- different strategic, operational, social, and symbolic dimensions. Stakeholders’ value conception may aspects of customer value, all the conceptualizations consist of any combination of these, depending on however define the benefits and sacrifices as multi- their preferences and “value awareness”. Clearly, a dimensional and hierarchical structures. Hence, based stakeholder may be aware of the potential benefits of on our literature review, we conclude that a a powerful engine in a car, but may rule against those stakeholder’s subjective and contextual assessment of benefits based on personal preferences and values. a value proposition is based on assessing the change Value conception and value perception are thus communicated by the value proposition along the highly individual, yet influenced by industry norms, different benefit and sacrifice dimensions relative to corporate culture, and individual history and beliefs. the goals of the stakeholder. Hence, value conceptions between professional roles and business ecosystem members may be very 2.2 Value proposition evaluation different. Specifically, buyers and sellers may have In line with [26], we model value proposition only limited overlap between their conceptions and evaluation by building on three key concepts. A preferences, and conceptions may be very narrow, stakeholder’s value conception is the collection of all limiting and complicating value proposition those benefit and sacrifice dimensions that a communication, evaluation and generally the stakeholder recognizes and is willing to consider as discovery of joint value creation opportunities, as having value creation potential. Value preference is a illustrated in [34]. For instance, the initial purchase contextualized subset of value dimensions from the price of an industrial investment represents only value conception (Vp ⊂ Vc), defining what the about 8%-12% of the life-cycle costs of the lifecycle stakeholder finds relevant and valuable in a given operating costs [30]. Clearly, a purchase decision value proposition evaluation situation. The based on the initial acquisition cost may be unwise. stakeholder performs value selection from the value 1614 A broad and holistic shared value conception complementary resources, and similar changes along would bring all prospective value dimensions into a multitude of other value dimensions can create consideration. Then, understanding the value creation value. potential of all the relevant value dimensions Value propositions address customer’s business included in the value conception has potential to goals. The benefits communicated by the value result in a comprehensive value preference. Finally, proposition need to address salient business goals to the ability to quantify the value potential of each of create interest and urgency. The scope of value the value dimensions included in the value preference propositions extends from product provision to would provide the best measure for value creation.