The formulas, tricks and trade secrets of Private Equity

Customer Value Proposition

Sample Chapter

The customer value proposition (CVP) is what a customer receives when he/she pays for a product or service. It is a crucial topic for discussion when understanding how and why a business makes sense. If the CVP isn’t compelling, then one would think that a private equity deal involving the business wouldn’t be compelling either. There are both tangible and intangible aspects to the customer value proposition (CVP), but two dimensions often divide it in private equity:

  1. Comparative value: this is the perceived value of the offering compared to competitors’ offerings. It could be as simple as one product is twice as good as another product and hence worth twice as much. In practice though, there are many variables and a lot more subjective analysis is required.
  2. Monetary value: this is very similar to comparative value, but using money as the medium for comparison. So while it may not be reasonable to compare chalk and cheese, you can compare the price of each and the perceived value from one dollar’s worth of each offering.

Not only should the private equity business owner be able to communicate the customer value proposition (CVP) clearly, but also it should be reasonable and believable. Some of the components that the customer value proposition (CVP) should include are:

  1. The issue or problem to be addressed
  2. The need and urgency
  3. The target result and its benefits and risks
  4. The merits against competitors (comparative value)
  5. The cost and time incurred (monetary value)

If these aren’t clear and believable, especially to the private equity partner, then it’s difficult to understand how the business will survive and grow. With markets being competitive, survival and growth isn’t as easy as it may sound without a good customer value proposition.

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