Value in Use Analysis for New Product Introductions

Value in Use Analysis and the Value Box© Concept for New Product Introductions
Jose A. Briones, Ph.D.
SpyroTek Performance Solutions, LLC.
ASC Conference
October 2009

Value and Innovation
Innovation exists at the intersection of invention and value
If your new product/invention/service does not offer value, it is just novel - not innovative.
Your new offering must deliver value
Meet an unmet need
Innovation is not a measure of the change you make. It is a measure of the need you address
www.spyrotek.com

How Do We Capture Value?
Value is captured through
Pricing
Market share
Brand awareness
In order to capture value, we must first be able to measure value
www.spyrotek.com

Pricing of a New Product
There are multiple ways to approach pricing for a new product
Cost-plus
Competition-driven pricing.
Customer-driven pricing
Minimum Return on Investment (ROI)
Cost in use analysis
Value in use analysis.
We must move away from cost-based pricing to value-based pricing
www.spyrotek.com

Product/Project Minimum ROI Requirement Examples
www.spyrotek.com
Scope Change
High
Level 3
Potential reward
Translational
Level 2
Organic
Level 1
Low
High
Low
Risk

Value in Use Analysis
Value must be shared between seller and customer
Customer will not switch from alternative technology unless new offering carries enough value to make the switch worthwhile
Clayton Christensen: Customers do not buy products, they hire products to do a job.
Define the job your product is hired to do and the benefit your customer gets from it
Absolute price/unit is irrelevant. We must compare cost in use and value in use.
www.spyrotek.com

Gillette’s Custom Plus Disposable
Amazon’s price of 3 Pack with 10 razors/pack: $10.61
Cost/razor: $0.35
www.spyrotek.com

Gillette’s Fusion
Amazon’s price: $16.95
8 Cartridges
Cost/cartridge: $2.12
www.spyrotek.com

Gillette’s Custom Plus vs. Fusion
Price of product
$10.61 vs. 16.95
Fusion package is 50% more expensive
The custom plus package has 30 units vs. 8 for the Fusion
Cost in use
$2.12. vs $0.35 per razor.
Fusion has a unit product cost 6 times higher than Custom Plus
Why would a customer choose to buy a product that has a cost 6 times higher?
The customer believes that the additional value in use that the Fusion provides justifies the additional cost in use
Durability of blade
Comfort
Less irritation
www.spyrotek.com

3M Scotch® Tape
Amazon price: $1.00
300’ length
Cost per inch: $0.003
Cost to hang a poster:
$0.01
www.spyrotek.com

3M Command® Strips
Amazon Price: $1.95
12 strips
Cost per strip: $0.15
Cost to hang a poster:
$0.60
www.spyrotek.com

Scotch Tape vs. Command Strips
Price of product
$0.99 vs. $1.95
Scotch tape sells for half the price of Commander strips
Using Scotch tape, the user can hang 75 posters vs. 3 for the command strips
Cost in use
$0.01 vs $0.60 to hang one poster
Commander strips have a product cost twice as high as Scotch tape but 60 times the cost in use to hang up a poster.
Why would a customer choose to buy a product that has a cost in use 60 times higher?
The customer believes that the additional value in use that Commander provides justifies the additional cost in use
Less damage to walls
Simplicity to remove
Durability
www.spyrotek.com

Economic Value Definition
Reference Value (RV): The cost of the competing product that the customer views as the best alternative to our product
Differentiation Value: (DV) The value to the customer (both positive and negative) of any differences between our offering and the reference product.
Economic value (EV): The price of the customer best alternative (reference value) plus the value of whatever differentiates the offering from the alternative (differentiation value).
EV=RV+DV
www.spyrotek.com

The Concept of “Hard” vs. “Soft” Value in Use
Hard or objective value in use is value which can be readily quantified by the customer: “cash out the door”
Raw material savings
Energy savings
Reduction in spare parts cost
Increased production that results in direct cost savings such as reduced overtime
Soft or subjective value in use are benefits that, while real, can not be quickly quantified or monetized immediately by the customer.
Improved safety
Improved quality, less returns
Environmental/Green benefits
Increased production rates when the plant is not at full capacity
www.spyrotek.com

Economic Value Analysis
Step 1: Identify the cost in use of the competitive product or process that the customer views as the best alternative
Step 2: Identify all factors that differentiate your product from the competitive offering
Step 3: Determine the value to the customer of these differentiating factors. Sources of value can be subjective or objective.
Step 4: Add up the reference value and the differentiation value to determine the economic value.
www.spyrotek.com

Value Maximization
In order to maximize value, we must determine the value in use associated with our product by using mapping tools
There is no “perfect” value analysis technique. All techniques will have advantages and disadvantages.
The value captured by of your product will also depend on the number of players in the value chain that will split the value of the product
Stop talking about attributes and start taking about benefits
www.spyrotek.com

Value in Use Analysis Tools
Market Perceived Quality Profile (MPQP)
Kano Analysis
Attribute Map
Conjoint Analysis
www.spyrotek.com

Market Perceived Quality Profile (MPQP)
Rank the importance of attributes on a 1-10 scale or by distributing a fixed number of points (i.e. 100)
Rank comparative performance of each attribute
Multiply performance by weight to obtain overall product rating
www.spyrotek.com

MPQP Example for Adhesive
www.spyrotek.com

MPQP Issues
Advantages
Good for a first discussion with the customer and to generate a basic list of requirements when little is known about the market
Provides overall product rating comparison
Disadvantages
No clear differentiation between important variables
“Everything is important”
“We want everything”
We need further differentiation of the importance of attributes to achieve sub-segmentation based on real customer needs
Kano Analysis
Attribute Map
www.spyrotek.com

Kano Analysis
Kano analysis is a tool which can be used to classify and prioritize customer needs.
Customer needs are not all of the same kind, not all have the same importance, and are different for different populations
Briefly, Kano stated that there are four types of customer needs, or reactions to product characteristics / attributes:
1. The 'Surprise & Delight' factors. These really make your product stand out from the others. Example, a passenger jet that could take off vertically
2. The 'More is Better'. E.g. a jet airliner that uses a little less fuel than the competition.
3. The 'must be' things. Without this, you'll never sell the product. E.g. A jet airliner that cannot meet airport noise regulations.
4. Finally, there are the 'dissatisfiers', the things that cause your customers not to like your product. E.g. a jet airliner that is uncomfortable to ride in.
www.spyrotek.com

Kano Example: Banking
www.spyrotek.com

Attribute Map
www.spyrotek.com

Limitations of Attribute Map and Kano
The Kano model and the Attribute Map can be used to help identify customer segments, based on the relative priority of each segment's requirements.
Disadvantages
Kano analysis determines value of individual product attribute but does not provide value of specific level within the attribute
Customers choose products based on the overall profile of properties, rarely on one single property.
Ranking of combination of properties may differ from individual property rankings
Conjoint analysis may be needed for breaking ties
www.spyrotek.com

Conjoint Analysis
Rather than directly ask customers what they prefer in a product, or what attributes they find most important, Conjoint Analysis employs the more realistic context of respondents evaluating potential product profiles with different combinations of attributes.
By varying the combinations attributes and observing the responses we can determine the real value of each attribute and the magnitude of the value within each attribute
Forces the customer to make choices of what they are willing to trade-off
www.spyrotek.com

Conjoint Analysis Example
www.spyrotek.com
The exercise is repeated for multiple combinations and the analyst or the computer can statistically deduce what product features are most desired and which attributes have the most impact on choice

The Value Box© Concept

The Value Box is a tool to assess strategy based on an overall picture of the value space
The total cost of manufacture is the lower level of the box
The minimum desirable ROI targets for the product form the next lower levels of the box.
Intermediate levels are set by the cost in use of competitive technologies.
The upper levels are set by the degree of value in use of the new product
The right axis can be the number of players in the value chain or number of value sub-segments
www.spyrotek.com

The Product Value Box© Concept
www.spyrotek.com
Number of players
in the value chain
Price
Full Value
in
Use Price
Cost in Use
Competing
Technology
Minimum
Floor
Price
Total Cost of Manufacture
Time

The Product Value Box© Concept for a
Generic Product
Price
Number of players
in the value chain
“Hard + Soft” Value in Use Price
Retailer
“Hard” Value in Use Price
Cost in Use
Competitive Technology
Converter
Target Return on Investment
Manufacturer
Minimum ROI
Total Cost of Manufacture
Time
www.spyrotek.com

Hybrids vs. Non-Hybrids
Is buying a hybrid car worth it?
Gas savings vs. higher monthly payment
Depends on
Gas mileage difference
Price of gasoline
Mileage driven/yr
Price differential of comparable models
www.spyrotek.com

The Product Value Box© Concept for Toyota Prius
Price
Full “Hard + Soft” Value in Use Price
$21,000
Full “Hard” Value in Use Price
$13,500
(Break even hard value for customer)
Price of Competitive Technology, 40mpg economy car
$12,000
Discount Pricing Approach
$11,000
Time
www.spyrotek.com

Value Split Pricing
Value
Sub-segments
Price
Full “Hard + Soft” Value in Use Price
$21,000
50% Hard Value Split plus 100 % Soft Value Pricing
$20,250
Full “Hard”Value in Use Price
$13,500
50% Hard Value Split Pricing
$12,750
Price of Competitive Technology
$12,000
Customers whose main criteria is hard value in use will not purchase the product unless they get to capture enough of the value. Price must be attractive enough to overcome risk and cost of switching.
Customers who consider soft value in use in their purchase criteria may not need to capture as large a fraction of the value to make the purchase decision.
www.spyrotek.com

Summary
To be successful in the marketplace and create innovations, products must deliver clear value that addresses unmet needs
Value in use can be measured and quantified
Pricing is a tool used to share the value with the customer
The Value Box© is a new tool to facilitate the mapping of the value space and determine the best commercial strategy
Contact information: Brioneja@SpyroTek.com
(469) 737-0421
www.spyrotek.com

Value in Use Analysis for New Product Introductions

by Jose Briones on Oct 09, 2009

Accessibility

Categories

Tags

Upload Details

Usage Rights

2 Embeds 68

Statistics

Value in Use Analysis for New Product Introductions — Presentation Transcript

http://www.slideshare.net	61
http://www.arandomjog.com	7