42629 lecture 5 pt 2

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Value Proposition and Market

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42629 lecture 5 pt 2

  1. 1. Integrated Product DevelopmentValue Proposition and MarketJakob A. Bejbro Andersenjaban@mek.dtu.dk Unless otherwise stated, this material is under a Creative Commons 3.0 Attribution–Share-Alike licence and can be freely modified, used and redistributed but only under the same licence and if including the following statement:“Original material by Jakob A. Bejbro Andersen for course 42629 – Innovation and ProductDevelopment Department of Mechanical Engineering, The Technical University of Denmark”
  2. 2. Formulating a Value PropositionGetting the message across to key stakeholders.
  3. 3. Communicating value•Knowing the needs, how does your product/service help?•… You need to formulate a clear ”value proposition”.•Ideally this statement should be ”catch all”.•Many recipies for getting it right.3 Original material by Jakob A. Bejbro Andersen for course 42629 – Innovation and Product 2012 Development Department of Mechanical Engineering, The Technical University of Denmark
  4. 4. Recipé for Value PropositionYou start out by forming a long sentence using the following: CROSSING THE CHASM VALUE PROPOSITION “For >>bulls-eye customer<< …Who >>Key purchase motivation insight<< …Our product is a >>customer language<< …That >>key benefit<< …Unlike >>key competitors<<, Ours >>key differentiators<< …At a price >>less than, equal to, or higher than competitors<<” … Then add eggs and- Then reduce the statement until it is only 2-3 lines.4 Original material by Jakob A. Bejbro Andersen for course 42629 – Innovation and Product 2012 Development Department of Mechanical Engineering, The Technical University of Denmark
  5. 5. EDGEFLOWEDGEFLOW(slides courtesy of EdgeFlow Aps)
  6. 6. EDGEFLOW“For large energy consuming consumers who need ways for strengthening atriple bottom line, the EdgeFlow wind turbine is a visible and green power providerthat effectively cuts CO2 emissions and clearly communicates the customer’senvironmental awareness to its employees and customers. Unlike QuietRevolution, Turby and conventional wind turbines, our EdgeFlow wind turbine ispart of a whole product framework that includes communication services toaccelerate learning and changing of behavior at our customers – all at asignificantly reduced price.” CondensateCompanies focus increasingly on changing toward a more sustainable business.EdgeFlow offers a financially viable investment in sustainable energy productionas well as a framework for integrating technology and idea into the corporateculture, thus forming a first step toward and a framework for change.” Condensate“For customers working toward a more sustainable business, EdgeFlow’s windturbines constitute the next pragmatic investment as well as a visionary blueprintfor pervasive change.”
  7. 7. EDGEFLOW A real world example: EdgeFlow IISound financials: Technical/• Payback < 5 years Financial Siting &• Life time value > DKK 1,6 million Structural/ Financing options• Various financing options Electrical Integration*Strong environmental profile: PR Material• Payback on CO2 < 1 year (internal & Service/• Annual CO2 saving of ~ 24 tonnes Repairs* Wind turbine external)• Direct value chain integration.• Strong coupling to product.An instrument for change Value chain integration Organizational/ Customer• Integrated with organisational learning. learning• Affects behavior of employees and customers• Leading by (clear) example. Behavioral/ Cultural
  8. 8. The MarketRealizing the potential, finding out where to begin.
  9. 9. What is the market?• The place where the value of your product can be realised.• The opportunity for you to establish a business.• Your idea and business defines the reach of the market.• Is inherently complex and likely to change over time. #• A healthy business knows the complexities of its market and is able to adapt to the changes.•Market size is given as: - Number of sales £ - Turnover = Number of sales * Sales price - Gross Margin = Number of sales * (Sales price – Cost of product) - Other: EBIT, EBITDA, ...9 Original material by Jakob A. Bejbro Andersen for course 42629 – Innovation and Product 2012 Development Department of Mechanical Engineering, The Technical University of Denmark
  10. 10. Dimensions of the market• To get an overview, the market needs to be structured.• To establish a structure, one should pinpoint dimensions critical to your product.• Define characteristics of the perfect customer.10 Original material by Jakob A. Bejbro Andersen for course 42629 – Innovation and Product 2012 Development Department of Mechanical Engineering, The Technical University of Denmark
  11. 11. Exercise 3a:Company X wants to sell:Non-alcoholic beerYou are the new marketing executive at the brewery:• Define favourable characteristics for a customer1. _________________________ Drinks large quantities of beer2. _________________________ Cannot / may not consume alcohol3. _________________________ Part of well defined4. group ? _________________________5. _________________________• Now list favourable characteristics for your own idea.11 Original material by Jakob A. Bejbro Andersen for course 42629 – Innovation and Product 2012 Development Department of Mechanical Engineering, The Technical University of Denmark
  12. 12. Market Segmentation• Groups of customers with similar traits and needs are likely to be found.• These ”segments” are require less complex value propositions. Company size Segment 1: Large Large Danish companies Entire market Segment 2: Medium sized Medium German companies DK UK DE Country12 Original material by Jakob A. Bejbro Andersen for course 42629 – Innovation and Product 2012 Development Department of Mechanical Engineering, The Technical University of Denmark
  13. 13. Exercise 3b:You still have the job:•List customer segments for the non- alcoholic beer.1. _________________________ The elderly2. Pub guests who need to drive _________________________3. home _________________________ ?4. _________________________5. _________________________•List as many segments as you can for your own idea.13 Original material by Jakob A. Bejbro Andersen for course 42629 – Innovation and Product 2012 Development Department of Mechanical Engineering, The Technical University of Denmark
  14. 14. Choosing a place to start• Think of the segments as pins on a bowling alley...• ...if you get the the first one, the others should follow.• Start with the most easiest segment (pin) first.• A solid base in seg 1 makes entering new segments easier. 4 2 3 1 4 2 3 4 3 414 Original material by Jakob A. Bejbro Andersen for course 42629 – Innovation and Product 2012 Development Department of Mechanical Engineering, The Technical University of Denmark
  15. 15. Evaluating segments• Use your customer characteristics to describe the accessibility and attractiveness of each segment.Characteristic Compliance (1-5) or yes/noLarge profit potential 1 2 3Placed close by 1Ease of sale 4 2 3C4 4C5 3... 415 Original material by Jakob A. Bejbro Andersen for course 42629 – Innovation and Product 2012 Development Department of Mechanical Engineering, The Technical University of Denmark
  16. 16. EDGEFLOWEDGEFLOWRevisited (slides courtesy of EdgeFlow Aps)
  17. 17. EDGEFLOWSegments The many pins on the bowling alley Good Compliance Medium Poor Strong Free High # per # facilities Strong No accessSegment subsidies Very tall standing facility per sale CSR barriersHigh bay warehousesAirportsBig box warehousesIndustrial buildingsAgricultural facilitiesHyper marketsOffice/hotel buildingsC8C9 Something missing?C10C11 What about market size?C12C13C14
  18. 18. Exercise 3c:You still have the job:•Rate your segments by favourable characteristics Favourable Characteristics s1 s2 s3 s4•Now rate your own segments!18 Original material by Jakob A. Bejbro Andersen for course 42629 – Innovation and Product 2012 Development Department of Mechanical Engineering, The Technical University of Denmark
  19. 19. Total market size (and other ridiculous notions)• It is next to impossible to pinpoint total market size. – Moon rockets (12 pcs.) and air for breathing (all living creatures) can be seen as exceptions.• Investors want (big) figures.• The solution is to pinpoint parts of the market. PART OF MARKET TOTAL MARKET19 Original material by Jakob A. Bejbro Andersen for course 42629 – Innovation and Product 2012 Development Department of Mechanical Engineering, The Technical University of Denmark
  20. 20. Estimating (sub-) market sizes• Good and bad types of market data - Bad data (needs additional qualification) - Good data• ”At least as big as ...” better than ”no bigger than ...”.• If possible, link to segments. MARKET DATA MARKET TOTAL MARKET DATA20 Original material by Jakob A. Bejbro Andersen for course 42629 – Innovation and Product 2012 Development Department of Mechanical Engineering, The Technical University of Denmark
  21. 21. Sources of info for market estimation• Estimation can be done using a ”bottom up” and/or a ”top down” approach.• To figure out market sizes, one has to be creative!21 Original material by Jakob A. Bejbro Andersen for course 42629 – Innovation and Product 2012 Development Department of Mechanical Engineering, The Technical University of Denmark
  22. 22. Market estimation: Bottom up• Describing the market by going ”door to door”.• Look up adresses of potential customers. – Krak, Bing, Google Maps etc.• Find users in fora.• Do surveys – Google docs, Forms• Take contact.• Use kickstarter.com or similar sites. – quantification + validation + financing = great! 13 14 15 7 8 9 10 11 12 1 2 3 4 5 622 Original material by Jakob A. Bejbro Andersen for course 42629 – Innovation and Product 2012 Development Department of Mechanical Engineering, The Technical University of Denmark
  23. 23. Market estimation: Top down• Market intelligence reports (for the lucky few).• Statistics.• Articles.• References: – Who else is i the business?23 Original material by Jakob A. Bejbro Andersen for course 42629 – Innovation and Product 2012 Development Department of Mechanical Engineering, The Technical University of Denmark
  24. 24. Market size and actual sales• A bottom up approach is likely to yield info on what it takes to sell – ”60% of the respondants showed interest”• However, good intentions are free of charge.• Actual sales numbers are likely to be lower.• A good match between needs and value proposition is good for sales. – Less complex segments = less complex needs = easier sale / stronger product Interested in buying? Interested in signing purchase order? Yes No Yes No24 Original material by Jakob A. Bejbro Andersen for course 42629 – Innovation and Product 2012 Development Department of Mechanical Engineering, The Technical University of Denmark
  25. 25. EDGEFLOWEDGEFLOWMarket size estimation (slides courtesy of EdgeFlow Aps)
  26. 26. EDGEFLOW 1st Estimate Danish statistics and user surveyParameter: Parameter: Parameter: Parameter: Parameter:Total number of Number of wind Share of suitable Share of Share of actualbuildings of proper turbines per building. buildings interested signed purchasesize in DK. (height, placement, o customers. orders. rientation)Source/Method: * Source/Method: * Source/Method: * Source/Method: * Source/Method:Danish Geometrical study of Bing maps, survey Survey of 30 Survey of 30Statistics, buildings buildings of industrial areas. industrial industrialby floor area and companies. companies.type. = potential # of turbines sold in DK*
  27. 27. EDGEFLOW2nd EstimateDoor to door – bottom up. Same Same Parameter: Parameter: Parameter: Parameter: Number of Number of wind Share of Share of actual interesting turbines per building interested signed purchase buidlings. customers. orders. Source/Method: * Source/Method: * Source/Method: * Source/Method: Building hunting on Building plans, bing Survey of 30 Survey of 30 Google earth, bing. maps, google earth. industrial industrial companies. companies. = potential # of turbines sold to 30 known UK customers.
  28. 28. EDGEFLOW3rd EstimateStarting from a segment – high bay warehouses Same Same Parameter: Parameter: Parameter: Parameter: Number of high bay Number of wind Share of Share of actual warehouses. turbines per building interested signed purchase customers. orders. Source/Method: * Source/Method: * Source/Method: * Source/Method: Reference list for Looking up Survey of 30 Survey of 30 high bay warehouse reference buildings. industrial industrial suppliers. companies. companies. = potential # of turbines sold to high bay warehouses in EU (specific to certain suppliers)
  29. 29. EDGEFLOWFurther estimatesThe list goes on, but the point has been made.Suddenly, out of the blue – a market intelligence report
  30. 30. Exercise 3d:Your time to shine:•Pick a segment and do a quick market estimate. (Use Google, wikipedia, articles, ...) You have 10 minutes(!): 5 minutes for planning 5 minutes for ”Googling”What was your approach?How far did you get?•On Friday – figure out ways of doing The same for your own idea.30 Original material by Jakob A. Bejbro Andersen for course 42629 – Innovation and Product 2012 Development Department of Mechanical Engineering, The Technical University of Denmark
  31. 31. A few notes on pricing• Number of sales is not interesting if there is no profit – you therefore need to estimate a price.• Try to estimate a price by: – Looking at competing products – Products of similar complexity/size/type – Describing product costs and estimating sales price• Prices should vary between customers/segments – Look for ways of selling at a high price in the early stages. – This is your ”pricing strategy”. Price of product Profits Costs31 Original material by Jakob A. Bejbro Andersen for course 42629 – Innovation and Product 2012 Development Department of Mechanical Engineering, The Technical University of Denmark
  32. 32. Q?32 Original material by Jakob A. Bejbro Andersen for course 42629 – Innovation and Product 2012 Development Department of Mechanical Engineering, The Technical University of Denmark

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