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Value in Use Analysis for New Product Introductions
 

Value in Use Analysis for New Product Introductions

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This paper shows successful examples of companies selling products based on value. Quantification of value is critical to a successful product introduction and this paper provides a basic overview of ...

This paper shows successful examples of companies selling products based on value. Quantification of value is critical to a successful product introduction and this paper provides a basic overview of the tools to measure it. In addition, a new tool, the Value Box is introduced to capture the value/price space and develop pricing strategy

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    Value in Use Analysis for New Product Introductions Value in Use Analysis for New Product Introductions Presentation Transcript

    • 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