Roadmap to market - 10th release

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The Roadmap to Market aims at collecting all the information you need, to answer to 3 basic questions:

1) Is there a Client for my idea?
2) if Yes, can I minimize the risk of failure for my new product or Service?
3) if No, can I maximize the chances to find the right one?

This book will look into each question, to understand if your idea has market space.
All the key decision involved in the launch of a new product or the opening of a new market are here outlined in a logic sequence, completed with ideas, suggestions and best practices.

And this assessment will not be just some figures on a spreadsheet, but the
summary of a go-to-market strategy, ready to be deployed by your organization.

A guide for marketing innovation.
This book summarizes 15 years of experience in selling high tech innovation to the Oil & Gas, Power Generation and Aerospace markets.
Updated with the latest findings on “innovation trajectories” and “job to be done” theories.
Free download. - No obligations -
Feedbacks, comments and suggestions are highly appreciated.
This is a working in progress document, now at its 10th release.
More than 80 pages of critical ideas and best practices for the Original Equipment Manufacturer (OEM) and Service Provider.

Tailored to the needs of SME and Entrepreneurs serving the Energy industry.
Tagged price refers to the paper issue, available on demand at 11€ per copy.

The “Roadmap to market “ summarizes 15 years of experience in selling innovation to the Oil & Gas, Power Generation and Aerospace markets.

I really appreciate if you take time to rate,share, comment this document. Your suggestions help me expand and correct it, and i will quote any contribution.

You may ask for FREE pdf copy on www.business-exploration.com

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Roadmap to market - 10th release

  1. 1. © 2013 – www.business-exploration.com – all rights reserved Ing. Flavio Tosi, Albo Ingg. Firenze n° 3581 – via 8 marzo, 22 - Castelfiorentino – 50051 Firenze Business Exploration ® 11 € Roadmap to market a guide for marketing innovation to the Oil & Gas, Power Generation and Aerospace industries By Flavio Tosi Business Exploration ®
  2. 2. © 2013 – www.business-exploration.com – all rights reserved Ing. Flavio Tosi, Albo Ingg. Firenze n° 3581 – via 8 marzo, 22 - Castelfiorentino – 50051 Firenze 1/86 Business Exploration® Via 8 marzo, 22 50051 Castelfiorentino (Firenze) – Italy +39 349 648 2225 info@business-exploration.com www.business.exploration.com A Note to the Reader The Roadmap to Market, is copyrighted by the author: Flavio Tosi. It’s a work in progress document, now at its 10th release. You can duplicate it and share it. You can download the last release at www.business-exploration.com. You can copy part of it, or reproduce part of it, quoting the author: Flavio Tosi and the web site: www.business-exploration.com. © Copyright 2013, by Flavio Tosi – Business Exploration®. All rights reserved. Paper copies can be requested on the website at 11€ each, as a printing contribution.
  3. 3. © 2013 – www.business-exploration.com – all rights reserved 2/86 Ing. Flavio Tosi, Albo Ingg. Firenze n° 3581 – via 8 marzo, 22 - Castelfiorentino – 50051 Firenze INDEX: About the author:...................................................................................................6 Preface to this release:............................................................................................6 Foreword....................................................................................................................7 Introduction: “innovating”, and not: “innovation”......................................................8 Summary:.................................................................................................................10 The Roadmap to Market:..........................................................................................11 PART 1. DO YOU HAVE A CUSTOMER?...................................................................... 11 Do you have a Customer? ....................................................................................11 If yes, which part of the market are you thinking to serve? ..................................11 Are you underperforming, or are you over performing?.......................................12 Fighting for the top:...........................................................................................12 Integrated architecture:.....................................................................................13 Carefully planning not to fail:.............................................................................13 Are you over-performing?.....................................................................................14 Are you leaving room to a New Entrant? .............................................................. 16 Is there a Threat or an Opportunity? ....................................................................16 Can my idea disrupt the Performance’s trajectory game?.....................................17 Is my idea built on a new (modular) architecture?................................................18 Is it the right type of modular architecture? .........................................................19 Who is the customer of a new modular architecture? ..........................................19 Are you giving away your business to your suppliers?...........................................20 Confess: you do not have a Customer, don’t you?.................................................22 Who the hell may want it?....................................................................................22 The Roadmap to Market:..........................................................................................24 PART 2. HOW MANY CHANCES THIS INVENTION HAS?.............................................24 How many chances this invention has?................................................................. 24 Classic Marketing: when you know your Customer...............................................25 1 / 4 - Is the solution appealing? ..............................................................................27 A - How much value our idea creates to the Customer? .......................................27 A Customer may be in 2 situations: or it has a GOAL, or it has a PROBLEM .......28 “Who is the Customer?”: From Customer’s “needs” to Customer’s “Goals”......28
  4. 4. © 2013 – www.business-exploration.com – all rights reserved Ing. Flavio Tosi, Albo Ingg. Firenze n° 3581 – via 8 marzo, 22 - Castelfiorentino – 50051 Firenze 3/86 Where does the solution fit? What problem it solves?......................................29 Which solution do we deliver, and how? (S.O.R.C.)...........................................31 How much does Customer needs it? .................................................................36 What advantages gives our solution vs others’ solutions?.................................37 B - What Price will be paid? ..................................................................................37 How to set prices?.............................................................................................38 “How much”? ....................................................................................................38 How does the price change?..............................................................................40 Summary:..........................................................................................................41 C - What additional costs will be sustained by the Customer? ..............................41 Investments:......................................................................................................41 Systems: ............................................................................................................41 Switch Costs: .....................................................................................................42 D - Summary:........................................................................................................42 2/4 - Is the Solution accessible? ...............................................................................42 A - How will the Customer know about the solution?...........................................43 Do we have a clear Unique Selling Proposition (USP)?.......................................43 Is our proposition different from any other one in the customer mind?............44 Which message will impact the customer mind?...............................................45 How will the Customer get in contact with the idea? ........................................47 Summary:..........................................................................................................52 B - Where will the Customer buy the solution?.....................................................52 In our books: .....................................................................................................52 In someone else’s books:...................................................................................53 C - Which is our “Sales Carousel”? ........................................................................53 The “Sales Carousel”:.........................................................................................54 The Traffic Arena: ..............................................................................................54 The Engagement Arena. ....................................................................................56 The Conversion arena........................................................................................57 3 / 4 - Does projected demand sustain the investments?........................................61 A - How many pieces can be sold in the solution’s lifetime? ................................62 TAM Total Available Market...............................................................................62
  5. 5. © 2013 – www.business-exploration.com – all rights reserved 4/86 Ing. Flavio Tosi, Albo Ingg. Firenze n° 3581 – via 8 marzo, 22 - Castelfiorentino – 50051 Firenze RAM Reachable Available Market...................................................................... 62 SAS Served attractive segments.........................................................................63 B - How many pieces can we sell in the solution’s lifetime?..................................64 Listing Competitors:...........................................................................................64 Screening Competitors appeal:.........................................................................64 Checking competitors reach: .............................................................................64 Preparing to Competition response:.................................................................. 64 Summary:..........................................................................................................65 C - How orders opportunities will change in the solution’s lifetime?.....................66 Changes of Demand drivers:..............................................................................66 The 5 forces impacting demand trends: ............................................................66 The 5 cultural factors impacting demand trends: ..............................................66 How we impact Share (Organic sensitivity):.......................................................66 D - Which opportunities do we really see?............................................................ 67 Summary: .............................................................................................................68 4/4 - Does the solution leave unit margins ? ............................................................69 A - Which are the main costs?...............................................................................69 Variable costs: ...................................................................................................70 Fixed costs:........................................................................................................70 Investments:......................................................................................................70 Synergies & Economies:.....................................................................................70 B - Do we have a Supply Chain strategy?...............................................................70 Conclusion: is the investment worth? ......................................................................71 Part 3. WHO THE HELL MAY WANT IT? .....................................................................72 Who the hell may want it?....................................................................................72 Discovery Planning: when you don’t know your Customer ...................................73 Do we have a hint about in which direction to search for a Customer? ................74 Blind Search:......................................................................................................74 Informed Search:...............................................................................................75 Bidirectional search:..........................................................................................75 How we will recognize our Customer?.................................................................. 76 The known Customer: .......................................................................................76
  6. 6. © 2013 – www.business-exploration.com – all rights reserved Ing. Flavio Tosi, Albo Ingg. Firenze n° 3581 – via 8 marzo, 22 - Castelfiorentino – 50051 Firenze 5/86 Low-end customers: ..........................................................................................76 Non-customers:.................................................................................................76 Fake Customers: ................................................................................................77 Found Customers:..............................................................................................77 What we must be ready for?.................................................................................77 Where to start?.....................................................................................................78 Hire a scout: ......................................................................................................78 Get an higher point of view: ..............................................................................78 Follow the river: ................................................................................................78 Meet resident populations: ...............................................................................78 Look for smoke signals:......................................................................................79 Beating the bushes:...........................................................................................79 Avoid searching in circle: ...................................................................................79 How to beat resistance? .......................................................................................80 What type of resistance we will encounter?......................................................80 10 Resistences to innovation: ............................................................................80 Few Words about innovation: ..................................................................................81 What is innovation?..............................................................................................81 How the concept of innovation evolved in time:...................................................81 The ways we reach innovation:.............................................................................82 TIME: Incremental versus Radical innovation. ...................................................82 SPACE: Experimental versus Conceptual innovation: .........................................83 SOCIAL: Competitive versus Collaborative innovation: ......................................83 The sources of innovation:....................................................................................83 Innovators: ........................................................................................................83 Places of innovation: .........................................................................................84 The innovators Talents:......................................................................................84 Bibliography:............................................................................................................86 FEEDBACKS:..............................................................................................................86
  7. 7. © 2013 – www.business-exploration.com – all rights reserved 6/86 Ing. Flavio Tosi, Albo Ingg. Firenze n° 3581 – via 8 marzo, 22 - Castelfiorentino – 50051 Firenze About the author: Since 2009, Flavio Tosi has been helping independents innovators targeting the Oil & Gas, Energy, Aerospace industries to develop the potential of their business ideas. When they feel concerned about the risks and the best approach to use for launching a new product or service, or starting a new commercial initiative, he complements their gut and instinct bringing on the table latest methodologies and proven best practices. For 12 years he has been a manager of General Electric and previously for 2 years, an engineer in the R&D. Flavio was part of the team that brought to the Oil & Gas market some of the most fascinating technologies of the last decades, gaining a deep understanding of New Product Introduction, Business Process Re-engineering and Project Management methodologies. And became passionate of the challenges offered by this industry, having fun discovering new solutions and ideas for his Clients. You can find some of them here: www.business-exploration.com, or you can call Flavio at: +39 349 648 2225 for a preliminary talk, without any obligation. Preface to this release: In the last 4 years as an independent consultant I had to find solutions to my clients that forced me to add new concepts to my approach to go-to-market. I was looking to something in line with my understandings, something that was capable to add to classic marketing, positioning and sales models, few concepts about market’s dynamic of innovation, evolution of technology trajectories, search and developing of markets. I found them into Prof. Christensen books, that give me a fully complementary point of view with my principles, best practices and key assumptions. So I decide to take the go-to-market’s key points from these new concepts and synthesize them into the Roadmap to Market. I added a First Part: that will help define where your innovation lays in a competitive and evolving contest, and decide if you are in the position to pursue it. And a Third part: that shall give key principles about exploring for new Customers. This is not my favorite starting point, but I have to admit that sometime you may come up with an idea –before- to have defined who your customer is. Here you will find few idea on how to explore to find him. The Second part: just optimizes and adds some clarification to the Roadmap to Market previous releases. So it is almost unchanged. As usual: your comments and suggestions and questions will be really appreciated: send them to flavio.tosi@business-exploration.com. Thanks!
  8. 8. © 2013 – www.business-exploration.com – all rights reserved Ing. Flavio Tosi, Albo Ingg. Firenze n° 3581 – via 8 marzo, 22 - Castelfiorentino – 50051 Firenze 7/86 Foreword If you just had a brilliant idea for your next product or service, probably now you are asking yourself if: Is my new idea worth a try? Someone takes this decision just by gut feeling. I envy them a lot. I never understand if it is pure courage, insane madness or just a matter of faith. What I know is that, statistically, more than nine out of ten of those guys fail miserably. And not many of the remaining can sing hurrah! as master of the markets. Probably for this reason, Companies that survive recessions, wars, and technology decay have developed guiding principles and techniques to identify and assess the variables involved in this risky decision. But when I started to look around for them, I found a mess of ideas and tools that confounded and embarrassed. Marketing means a lot of different things to different people, and probably for this reason is a word that has no translation in any language, even its own. I needed something workable. As you do. I found it when I decided to stop search for tools and methodologies capable to give answers and started concentrating on Questions. The right ones. And here they are. A list of questions that will guide you in finding all the elements you need to reduce the risk of failure of your next business venture and maximize the chance to make it accepted to the right customer. Following this Roadmap to Market You can be comfortable to touch most ( if not all ) the key points in taking the final decision. How You answer each question of the Roadmap is up to you. Can be a simple consideration taken around a coffee with a friend, or a complex statistical study commissioned to top International agencies. But I assure You (for having tested it for years in General Electric as Marketing Manager and as a Business Consultant thereafter) that the Roadmap is complete and lean. It will keep You on track and build the understanding of the market in order to make the right decision. Then, to make that decision, You will need a bit of gut. But this is up to You. Buon Lavoro! Flavio
  9. 9. © 2013 – www.business-exploration.com – all rights reserved 8/86 Ing. Flavio Tosi, Albo Ingg. Firenze n° 3581 – via 8 marzo, 22 - Castelfiorentino – 50051 Firenze Introduction: “innovating”, and not: “innovation”. This book is about “innovating”, not about: “innovation”. More precisely, it tries to help a good idea hit the market and get sold. This part of the innovation’s journey, the one that goes from when an idea has been invented (found, identified) to when it becomes adopted and creates value, is not really well documented in literature. Is just since few years (since 1997, precisely) that Clayton Christensen has described the path of innovation to market and has characterized some typical routes that are made by the successful ones. Failing to understand the differences among those paths, when they should alternatively pursued, and why making the wrong choice leads to failure, causes to most of the Innovators to waste time and resources. The questions collected here should help you to decipher the circumstances in which you are and make the right decisions about whether and how to proceed toward the market. But when we do innovate? Innovation is: “a new way to reach a goal”. I found this definition about innovating in a paper of Benoit Godin, of INRS – Canada, who explained how the concept of “innovation” evolved in time. It started meaning: “Change” (of the established behaviors of the user who will “adopt” the invention), then it added: “Rupture” (with the past, not just detaching from it, but more profoundly destroying it, to achieve a new and diverse “status”) and lately, in the past few centuries, the word “innovation” has been connoted with 2 modern elements: “creativity” and “utility”. Today we assign to an “invention” ( the combining of elements that creates a new value) the status of “innovation” only if the invention brings-in an “utility”. “Utility” involves both an “adoption” by a Customer ( a change in his behaviors) and the ability of the invention to be “marketable” (capable to generate an exchange of value).
  10. 10. © 2013 – www.business-exploration.com – all rights reserved Ing. Flavio Tosi, Albo Ingg. Firenze n° 3581 – via 8 marzo, 22 - Castelfiorentino – 50051 Firenze 9/86 Under this light it becomes clear that the starting point of any innovating attempt is in “the Customer”. Without him, there is no “Utility”. This is why this book starts with the question: Do you have a Customer? There are only two the options: 1) or you do have a Customer: you have an idea about who is him, and you already bargain with this fellow. 2) or you have no idea at all, and you have to hope to find him. This entitles to two different kind of problems: In the first case your task is to minimize the chance of failure for your investments. There is a huge set of best practices that companies around the world have collected in order to make the initiative of bringing a new idea to existing Customers, safer. The second option is more tricky: because the only way to discover your Customer is to try. Learn your way to him by trial and error, being ready to change your path when a better way is encountered. In other words is a matter of experimenting: maximize the opportunities to learn, while using the minimum amount of money and avoiding the chains that can tear down your flight. These two courses of action seems self-evident. And in reality they are equally viable in principle. What Christensen has highlighted, has been that there are precise circumstances that indicate when each one is worth to be pursued. Failing to identify them may lead to dead-ends, fighting against wind-mills, struggling with resources, find yourself alone half the way etc. The “Roadmap to Market” will try to guide you to the right path, and help you identify all the signs that lead to success.
  11. 11. © 2013 – www.business-exploration.com – all rights reserved 10/86 Ing. Flavio Tosi, Albo Ingg. Firenze n° 3581 – via 8 marzo, 22 - Castelfiorentino – 50051 Firenze Summary: The Roadmap to Market aims at collecting all the information you need, to answer to 3 basic questions: 1) Is there a Client for my idea? 2) if Yes, can I minimize the risk of failure for my new product or Service? 3) if No, can I maximize the chances to find the right one? The First Question will help you recognize the signs to the right Road to market, avoiding dead-end paths that have been proven (by others’ failure) to have the lowest chances of success – if any. The Second one is aimed at planning the route you should take if you own the Clients and you just want to beat competition and leverage your competitive position to get the most out of your idea, with the lowest chances of failure. To do so you need to answer 4 basic questions: Is my product: Appealing? Accessible? Marketable? Profitable? In the 2nd Part of the book you find the right hints to answer. The last one is the most risky but also the most rewarding. Because, if you do not have a Client, you may then discover that your idea is worth to someone you never thought before, and he was really just waiting to it to solve his pressing problems. To make you swim in this Blue Ocean of opportunities, you need to ask yourself how you can discover the route to the Eldorado. And because no-one have been there before, maximizing the result of every trial is the real job that brings you there. Caveat: This book collects lessons of several leading Scholars in the Field of Game Theory ( e.g.: Dixit-Nalebuff), Strategy (Porter, Christensen, Kim-Mauborgne) and Marketing (Trout, Reeves, Bly, Stokes, Choun). I sacked wildly their ideas and tried to build a roadmap for innovators, bridging their theories where I saw possible joints. Therefore this book is not intended for beginners. You should have a basic understanding of marketing and be familiar of the common jargons used. In this way you will multiply the effectiveness of this Roadmap, that organizes sound marketing models. Furthermore I not intended to give you a “reading companion”, but a working tool where to find rapidly hints about marketing innovation. You will not find many examples. Just brief explanations of what each voice should mean.
  12. 12. © 2013 – www.business-exploration.com – all rights reserved Ing. Flavio Tosi, Albo Ingg. Firenze n° 3581 – via 8 marzo, 22 - Castelfiorentino – 50051 Firenze 11/86 The Roadmap to Market: PART 1. DO YOU HAVE A CUSTOMER? Do you have a Customer? Whenever a friend comes to me telling: “I have a business idea…” the first question I make him is “ do you have a Client?”. But the real way to put the question should be. “ Does any Customer owns you?”. Because is not enough that you have an idea of your target Client. You should have bargained with him. Your potential Client should have been able to experience your service, or at least experience you. Recognizing you as a solution provider. Someone who has the ability to solve his pressing problem, or to allow him to achieve his goal. If this is the case, probably you are not alone. You move into a trajectory with others like you, ready to serve that client at the best of their capability. The Customer dictates his needs and requisites, if not even asks a well defined performance level to an attribute of your solution. If yes, which part of the market are you thinking to serve? In case you know your target customer, he can give clear indications about the level of performance needed. But be careful. Not always what he ask for is what he really is going to use. Listening too much to Client’s requests may end up pushing your offer toward the high-end of the market.
  13. 13. © 2013 – www.business-exploration.com – all rights reserved 12/86 Ing. Flavio Tosi, Albo Ingg. Firenze n° 3581 – via 8 marzo, 22 - Castelfiorentino – 50051 Firenze This is a very attractive segment of Customers. They are never satisfied and ask always more. And are even willing to pay this “plus”. But the higher the performance level, the less are the Clients to be satisfied. The distribution of the Clients within the market may resemble a Gauss Bell shape: With few at the low and high ends, and a mass concentrating around the median performance. Are you underperforming, or are you over performing? Taking as a target the median customer, if the performances offered by the market are below the expectation, all the competitors are “fighting for the top”. Fighting for the top: They strive to sell a better product into an established market, and each time someone come-up with a better solution, he causes the immediate competitors reaction. The prize at stake is huge, because usually the mass of the clients are still to be tackled, and the opportunities to sell grow the better the product is. Furthermore the Client does not find a better solution on the market, so is willing to pay for the best. What you really are fighting for is to make your customer achieve a better result, not really to assure that your product reach a better performance. In this race you can not stand still. You will be left behind fighting with a hard to differentiate product, and against competitors with similar cost structures. You are going to look for those idea capable to improve or at least maintain your profit margins, exploiting your organization’s processes, cost structure and competitive advantages. All the inventions that can not deliver improved profit margins relative to the current cost structure, are discarded. Because the cost structure is most probably an heavy one. The architecture needed to manage the
  14. 14. © 2013 – www.business-exploration.com – all rights reserved Ing. Flavio Tosi, Albo Ingg. Firenze n° 3581 – via 8 marzo, 22 - Castelfiorentino – 50051 Firenze 13/86 complexity and the uncertainty underlying the research of a better performance is a huge and costly one. If you intend to take part to the race, better be equipped. Integrated architecture: What you need is an integrated architecture. An organization that is a platform capable to achieve new levels in terms of Performance and Reliability of your offer. Is a matter of “concurrent efforts”: you need the ability to develop the components of your offer simultaneously, solving the un-know and un-predictable interdependencies among them. It requires Experience, Talents, ability to manage risks and time. And the willing to sustain these efforts for long periods. An integrated architecture can be only proprietary. Is a unique enterprise that demand high Capital Expenditure to cover R&D costs, back-up inventories, talented human resources. All this command huge margins from each sale. The high capital expenditure and capital on operating costs ratio of an integrated architecture is the source of differentiation, and the first barrier to entry for new competitors into the offering trajectory. The second barrier to entry is given by the steep economy of scale that is generated by an integrated architecture. This is why trying to bring a new invention into an existing trajectory could not be a good idea, unless you do have the integrated architecture and the Clients to serve. The race you would willing to participate would not be a race to succeed, but a race to not fail. Carefully planning not to fail: Companies that play this game have organizations, processes, values, resources, that are committed to stay on track and sustain themselves. Their strategic efforts are dedicated to filter out inventions with lower chances to succeed, with expected margins insufficient to sustain their cost-structure. They are optimized to extract the most out of the existing customer base, and in doing so they fight to scale up the existing solution towards higher margins segment of customers: the high end of the market. A new idea that has the potential will never be just added to the offer. Most probably embedding it into the offering trajectory will require sound practices and experience in managing the interdependencies with all other components. And the more high-tech is the idea, e.g. if is an invention coming out of a research laboratory, the more resources are needed to govern it. No wonder that only large corporations can dare to bring on the market the most sophisticated scientific discoveries. They are the only one designed to manage the complexity and costs of such a challenge. This race has a toll: the quest for higher margins may distract from understanding where the median market is. Listening to customers who ask for more (and promise
  15. 15. © 2013 – www.business-exploration.com – all rights reserved 14/86 Ing. Flavio Tosi, Albo Ingg. Firenze n° 3581 – via 8 marzo, 22 - Castelfiorentino – 50051 Firenze to pay for it) may end up surpassing the level of performance required by the mass. For these Customers, the marginal increase in price that a Company can sustain for an improved product slowly approaches to zero. This suggests that the marginal utility that Customers derive from using the product also is approaching zero. Your product is actually over-performing. Are you over-performing? How you can recognize if the offer is over-performing respect what the Customer is willing to buy? After all, Customers are those who ask for “more” in all the questionnaires, survey, feedbacks and requests for quotation you receive. At least it seems so. On one side, in fact, there is a psychological stiffness of the customer in conforming to the high-end “luxury tastes”, a kind of irrational wishful thinking, that for a certain period may help your customer feel better, when asked about his needs. On the other side your organization tend to report as feedback, only those that are aligned with what the Company want to hear: more margins.
  16. 16. © 2013 – www.business-exploration.com – all rights reserved Ing. Flavio Tosi, Albo Ingg. Firenze n° 3581 – via 8 marzo, 22 - Castelfiorentino – 50051 Firenze 15/86 And more margins can be found only in the high-end minority of the market demand. Its feedback is therefore the only one that survive the filtering screening of the Company probes: its middle management. A better look may show that Median Customers are starting not willing to pay for the marginal increment in performance. Suddenly they shift their interest from performance, to “Reliability”. They have enough of what your product range can offer. They want that the product perform the same way as long as possible. Later on, when also this requirement becomes more than satisfied, their interest shift again. It moves to “Convenience”: the preferred product becomes the one that is easier to get and use. Finally when also this feature becomes a “given”, the last criterium of choice among competitive offerings remains “Price”. When you are still on the performance trajectory, you may start notice that your customers are starting to buy the entry-level products of your product range, or of the market products range. All of the competitors are started to be treated alike. Price becomes an interesting gauge of choice. Is in this situation that a threats materialize:
  17. 17. © 2013 – www.business-exploration.com – all rights reserved 16/86 Ing. Flavio Tosi, Albo Ingg. Firenze n° 3581 – via 8 marzo, 22 - Castelfiorentino – 50051 Firenze Are you leaving room to a New Entrant? This is the question from a Competitor stand point. You may see that new competitors with a better pricing can undermine your offer. If such a new player is able to capture customers’ attention, and has a lower cost structure he is going to benefit of high margins until the last competitor of the Performance trajectory, will stay in the market, sustaining the price levels towards the high-end of the market. The competitors in the Performance trajectory, are even incentivated in their rush toward higher margins, to leave the low-end segment, moving their offering portfolio towards the high end customers. In so doing their portfolio’s margin tend to increase on average, so making this attraction to the top even financially justified (at least until someone start to see that higher prices by lower volumes do not coop with company’s growth). Is there a Threat or an Opportunity? If from the competitors’ pack, over-performing could be seen as a threat, from the point of view of someone with a good new idea, this situation is more of an opportunity. An observation of the low-end customers may lead to discover not only a way to penetrate the market, but even to expand it. Among the low-end customers there are surely users who are perfectly fine with the low-end products range. But a close look may show that among them there are Clients who, yes are satisfied with the minimum performance, but in reality they are “using” other features of the product. Features that are considered not important or not considered at all by the rest of the Market.
  18. 18. © 2013 – www.business-exploration.com – all rights reserved Ing. Flavio Tosi, Albo Ingg. Firenze n° 3581 – via 8 marzo, 22 - Castelfiorentino – 50051 Firenze 17/86 Some of these low-end customers need help to make the product work for them. They may need expert consultants who help them adjust and fit the product for their need. They lack of the competences or the infrastructure: tools, systems, information, to just plug and play the product to solve their problem or achieve their goals. All of them are looking for “Simplicity”. Others travel a long distance just to get the product. They use only 10% of it, but that 10% is worth a long trip. If someone could be able to offer the same, just a little more “Conveniently”, would become instantaneously their preferred supplier. Other Customers would love to get the product but they can barely afford the “Price”. Some time they just bounce back and go away and make without it. If they are lucky they try to make with an “emergency” solution, something that make half of the work, but is better than nothing. If your brand new idea can change the cost structure of the offering, reshuffling it to make the product more simple to get, more convenient, and sellable at lower prices: all of these customers are yours. Can my idea disrupt the Performance’s trajectory game? If among your Customers you find someone that behaves as said before: looking for simplicity, convenience and price, or just bouncing away, chance are there that a larger crowd of the same type may be served. Unfortunately many time the people that spot these opportunity, lack of fantasy. I have seen people spinning off one of the competitors, just to rephrase the same offer, at lower price, or for just some ”opportunist” customer, but really without bringing anything new on the market. Just giving away margin, and trying to make their way cutting fixed costs (branding, service, R&D…) from the original-competitor cost structure. This is quite easy to see happening from the service side of the original competitor. It is quite easy to spot the huge margins that the company is making with its service business, stole a few of the best service men doubling their salary, promise lower prices to some friend-customer and denting for a while the sales of the original company. This may work in an up-swing economy, where the service offering capacity may be not fully satisfied. But generally does not last the shake out of a downturn, or of a company that had it enough of those “bites” to its revenue base. So if you spotted the opportunity, better to make a sanity check and verify if the move is backed-up by a new idea capable to bring the same value, but with a new type of cost structure. The people that succeed in grabbing the opportunity, generally have spotted that the products on the market are far more complex than what is needed to deliver the performance “used” by the Customer. ( remember: customers tend to ask for more,
  19. 19. © 2013 – www.business-exploration.com – all rights reserved 18/86 Ing. Flavio Tosi, Albo Ingg. Firenze n° 3581 – via 8 marzo, 22 - Castelfiorentino – 50051 Firenze even when in reality use less than what you offer ) so they find a way to pull together the key components of the product on to a more simpler and standardized architecture. A modular system where the interfaces are fixed, and the components can be plugged in to achieve the sufficient level of performance. This performance becomes a “given” for the Customer: what he is really looking for is speed, responsiveness, convenience and price. If my idea is built on a modular architecture, and this is an invention that can deliver the low-end performance level required: there are chances that more of the almost- customers will switch to this new solution. If this invention can achieve a level of performance that can satisfy the median customers, with a faster, simpler and cheaper solution. The are very good chances that the majority of the Customers will move to your innovation. Disrupting the original market. Is my idea built on a new (modular) architecture? In theory the new idea architecture, should not necessarily be modular. For sure is new – different respect the one in use by the competitors on the market. But if it is an integrated, complex one, the chances that the cost structure will allow a lower price are few. The chances that a start-up new entrant, can manage the complexity, without the experience, and collect resources without a customer base, are few. So before to move, let’s check if the idea is built on a (new) modular architecture. The key point here is that the components of the product shall be plugged in the supporting architecture without have to tune it to the other components. In other words the modular architecture interfaces shall not have unpredictable ( not yet know) interdependencies. In this way each component can be developed separately as long as they meet the interfaces specifications. The components’ specifications limit the degree of freedom of the whole product, so they tend to lead to a sub- optimization of its performance. But this is not a problem as long the performance achievable are enough to satisfy the low-end customers ( better if: the median Customer). What counts to make the final product performance, is not how the components integrate (coordinate), but how well each of them performs. The great advantage is that the performance of each component can be optimized, without having to reinvent the entire product. Furthermore the modular architecture allows outsourcing, leveraging in this way the economy of scale of the supplier. You can do so if your architecture meets the criteria of “Specificability” ( you know what is crucial for each component), “verificability” ( you are able to specify it and to measure it), “Predictability” ( you can say that there are no poorly understood or unpredictable interdependencies among components)
  20. 20. © 2013 – www.business-exploration.com – all rights reserved Ing. Flavio Tosi, Albo Ingg. Firenze n° 3581 – via 8 marzo, 22 - Castelfiorentino – 50051 Firenze 19/86 Is it the right type of modular architecture? Not all the modular architectures are equally interesting, from a business point of view. If it is a proprietary modular architecture the owner of it, will retain most of the margin, at the expenses of his components suppliers. He can specify the components interfaces, in a unique way. His suppliers can only build a product to fit them, without being capable to offer the same product to other Clients. The Owner of the proprietary architecture will make the money, while the suppliers will fight with competitors to give the best price possible. ( this is the case for example of a Gas turbine manufacturer, that can specify the blades of its turbine, and suppliers compete to satisfy those specs without having the chance to offer the same blade to other turbines manufacturers) If on the contrary, the modular architecture is an industry standard, and other players can use the same, the owner of the architecture becomes a low-cost integrator, and the supplier makes the money. (see what happen with industry packagers of simple industrial skids) In both case, the modular architecture allows lower costs structures ( R&D, Inventory, HR…) and permits to sell at lower prices to a larger pool of customers. The difference is where the money goes. Who is the customer of a new modular architecture? If your idea has passed the test for architecture, is worth to recap the battle you are going to fight, before to proceed, and be sure you understand who are the customers you are looking for.
  21. 21. © 2013 – www.business-exploration.com – all rights reserved 20/86 Ing. Flavio Tosi, Albo Ingg. Firenze n° 3581 – via 8 marzo, 22 - Castelfiorentino – 50051 Firenze You are going to offer your innovation, based on a new kind of cost structure and architecture, to an existing customer base. You are a new entrant on an existing performance trajectory. You compete for customers that are already consuming a product, and the large majority of them are well over-served by the existing offer. Your entry customers are the low-end segment of the market. Are those that are the most over-served, the least profitable, and therefore less wanted by the incumbent competition. You are going to propose to those customers a lower cost solution. Your strategy leverages a modular architecture that grant you a Cost Advantage. This advantage is there only till the same customers are also served by the incumbent competition. As long as the last of the competitors owning the original architecture abandone the fight: your competitive advantage will fade away. You will find yourself fighting against equally equipped (remember: you most probably have an industry standard modular architecture…) competitors a tough price war. So be ready to enjoy the margins until the last incumbent competitor is still there. Your only way to enjoy margins is to precede the abandonment of the last incumbent competitor, invading his space. Your next target is therefore higher tire customers. And to do so you must be ready to extend your modular architecture stretching its performance until you satisfy those higher tire customers. To do so you can only count on your supplier. You must be ready to incorporate whatever advancement they can offer for their component, that can allow to increase your system performance. The architecture in fact is a given, and you can not count on it to increase the performance or gain competitiveness. Speed in adopting the new components is of maximum importance: in order to be the first to reach the new market segment, while the incumbents retreat from it. Are you giving away your business to your suppliers? The other side of this mechanism is that the only way to gain something in terms of architecture optimization is to outsource to the suppliers areas always more large of your platform. In this way the supplier can integrated the area and offer an enlarged sub-system, optimized not only in terms of price, but also in terms of performance. And you have very good reason to do this: your cost structure will benefit, cause architecture’s base costs get squeezed. The natural path is that while you are tackling the higher tire customers served by interdependent architecture players, simultaneously you give away always larger chunks of your architecture to suppliers. They expand the scope of their (interdependent) architecture to fulfill all the requirements of all the possible subsystems of your product. They will finally end up offering to your client a solution that is fully commoditized: is affordable, un-differentiated, over-performing, reliable and convenient.
  22. 22. © 2013 – www.business-exploration.com – all rights reserved Ing. Flavio Tosi, Albo Ingg. Firenze n° 3581 – via 8 marzo, 22 - Castelfiorentino – 50051 Firenze 21/86 At that point the only differentiation left, goes into the distributing channel: and among them: the only capable to provide anything – anytime will prevail. This is what happened with the sport cloths industry: where the tailor made solution, are now superseded by large retail chain, offering products branded with the channel name (Decathlon, to make an example). The game therefore never ends, is a token passing hands: the interdependent architecture is pulled towards the high end niches, until the market is disintegrated and superseded by a modular architecture that is then superseded by a commoditized integrated architecture with a differentiating distribution channel...etc. Can you avoid it? Not really. What you can do, if you are a savvy competitor using an interdependent architecture, is to recognize the emergence of a modular architecture, and anticipate the moves of the new entrant, de-structuring your offer into the key components, standardizing their interfaces and selling them to the new entrant, that in this way is pushed into a industry standard architecture, before that he fully develop its own, and reduce him to the status of a low-cost packager. You will retain the technology of the key components, and with it, the largest share of margin the new value chain generates.
  23. 23. © 2013 – www.business-exploration.com – all rights reserved 22/86 Ing. Flavio Tosi, Albo Ingg. Firenze n° 3581 – via 8 marzo, 22 - Castelfiorentino – 50051 Firenze Confess: you do not have a Customer, don’t you? If you are not sure who your Client can be, probably you are one of those guy that after being immersed into a technology trajectory for a while, you saw a way to find the same thing but much more simply. You probably belongs to the engineering, marketing or service department of one of the leading players. Something trigged your attention and you pulled together pieces of the solution assembling out of the shelf components on a modular architecture and obtaining what it looks like a not-enough performing abort. But it’s way more cheap, fast to build, easy to purchase. And the suppliers belongs to a totally different value chain, generally speaking, much less demanding and branded. The abort, sorry: idea, that you pulled together does not work for the usual customers belonging to your performance trajectory. At maximum can almost serve the lowest end of your customers segments. Your boss has ridiculized the idea. Customer’s feedback is like to have presented them a toy. Your solution does not show to have the margin required to be able to contribute to the existing product portfolio. But it has a very important attribute: it works. Furthermore its simple. Anyone can use it, it’s much cheaper, because there are not in-house built precious components: everything was available on the market. If you only had a Client! Who the hell may want it? This is the problem with good ideas that are cheaper and simpler, but do not perform enough. Your usual customers do not want it, and you do not know who may. Your colleague, instead, the one that has proposed the big investment needed to improve of the 1% the performance of the existing product line, passed the test. His idea, was risky, difficult to realize, but was in line with what customers were demanding. And what Customer ask for: get precedence. His problem was to make all the plan to mitigate the risk of failure. What the company has done is to carefully check, and eliminate any risk of promising to customers something the company is not able to deliver. Your idea is different. Is there. It works. Just need to find a Customer. The problem is the opposite: is not a matter of reducing the chance of failure. You need to maximize the opportunities to bump into the right customer. And one thing is sure: is not the customer that you already know. Probably is someone that is striving to do a job, where the type of solution you propose may help a lot. But today is not offered. These potential customers probably use something different, a sub-optimal product, that performs unsatisfactorily. On those respects, your idea would be a substitute product. Probably your product would enable those potential ( non yet consuming) Customers, that lacked the money, the skills or could not easily reach the solution.
  24. 24. © 2013 – www.business-exploration.com – all rights reserved Ing. Flavio Tosi, Albo Ingg. Firenze n° 3581 – via 8 marzo, 22 - Castelfiorentino – 50051 Firenze 23/86 Who are those customers and how many, nobody knows. The only way to find them is to design a set of experiments capable to identify them and the best way to serve them. And because they are not know, you do not even know through which channel you can reach them. You know only that, because they are asking something cheaper, easier and faster, speed and responsiveness will be a key feature of the right channel. And can not be the same channel used by your company’s for its products. Because you can not offer the same share of margins to them. You need to find a channel to market that can be happy with your lower margins: for which your product may offer higher margins respect their existing portfolio. Someone that will be enthusiast to add your product to their offering. There are good news for you, however: first: there is a methodology to help you find the right customer. Is called “Discovery planning” and is summarized in the 3dt part of this book. Second: you are a substitute product: this means that you compete against “doing nothing and live with it” or, at worst, against a temporary, sub- optimal solution. Third: you are going to use a value network that nobody is using now. You are the first, the only one that has envisaged the modular architecture that can solve the problem, and even if you are going to steal few customers from the original market, the competition will not even notice it, because they are the one with lowest margins (for them). You just need a plan to discover the right path to Customers, and learning by doing, adjusting your way up to higher volumes and better profits, into a new Blue Ocean of opportunities.
  25. 25. © 2013 – www.business-exploration.com – all rights reserved 24/86 Ing. Flavio Tosi, Albo Ingg. Firenze n° 3581 – via 8 marzo, 22 - Castelfiorentino – 50051 Firenze The Roadmap to Market: PART 2. HOW MANY CHANCES THIS INVENTION HAS? How many chances this invention has? The decision three in part.1, should have routed you to one of the 2 possible course of actions when dealing with innovation: - Minimize risks. - Maximize opportunities. These 2 seem quite parallel paths, applicable to any kind of new venture. But It’s not so. The set of circumstances described above solicit to go from idea to money, using one of these two mindsets, as an alternative to the other one. Part.2 is dedicated to the first type of path: the one to be pursued with a risk avoidance mindset. This means that most probably you are in a well identifiable technology trajectory that takes the markets needs as a given and is supported by a well defined value network of concurrent suppliers. That all the innovations funneled into this trajectory are targeted at a well identified group of Customers. that these customers ( or at least a sizable and interesting part of them ) are still looking for a performance level that none of the competitors can actually match. That the next level of performance will be achieved in a price per performance’s unit lower than the past level of performance reached and that you own the architecture of a value chain platform that still requires a great deal of integration in order to solve the interdependent problems that arouse simultaneously when bringing together the element of the solution you want to offer to the Client. All this set of circumstances favor the “established” organization. An organization with the capability, ability and resources to play the game with the competition. It’s scope is to extract the most out of the existing customer base and maximizing profits in doing so. Its problem becomes to generate, select, evaluate, prioritize and launch the invention that will beat the competition and conquer market share. The following pages take for granted that this organization has been able to generate the right idea for a new product or service, and bring you through the questions you should answer in order to be able to evaluate the potential of your idea and assure you design a marketing plan that will minimize the risk of failure in launching it on the market.
  26. 26. © 2013 – www.business-exploration.com – all rights reserved Ing. Flavio Tosi, Albo Ingg. Firenze n° 3581 – via 8 marzo, 22 - Castelfiorentino – 50051 Firenze 25/86 Classic Marketing: when you know your Customer The Framework of analysis and design outlined in this 2nd Part can be referred to the “Classic Marketing”: It has been developed by several Scholars like Prof. Michael Porter, and even if there are more recent ways to size a market, I still prefer to start here. Classic Marketing, if properly managed, is very effective to explore the further potential of your B2B business model, it works well to handle the key drivers of established industries, and to keep control of the variables involved in Sustaining innovation’s trajectories. Its aim is to filter out any initiative that is too risky or not enough profitable. I would recommend it when you have a clear understanding of how you do business now and you have absolutely identified who are your Customers, and want to understand how much business you can further gain exploiting it. E.g. you may want to understand: how much you business you can gain in: LENGHT: increasing the performances of your product line WIDTH: extending your product line:
  27. 27. © 2013 – www.business-exploration.com – all rights reserved 26/86 Ing. Flavio Tosi, Albo Ingg. Firenze n° 3581 – via 8 marzo, 22 - Castelfiorentino – 50051 Firenze
  28. 28. © 2013 – www.business-exploration.com – all rights reserved Ing. Flavio Tosi, Albo Ingg. Firenze n° 3581 – via 8 marzo, 22 - Castelfiorentino – 50051 Firenze 27/86 1 / 4 - Is the solution appealing? The nicest part of having a new great idea is that it is self-evident that it will be sold in millions and Customers will fight to grab it from our hands. Unfortunately our bank will not see it in the same way. So, unless you are ready to bet your own money, we are always asked to prove that Customer will pay for it. And this will happen only if our idea creates value for the Customer. Better: if creates an affordable value, and if this value is greater than the one of equally demanding alternatives. This step of the Roadmap to Market qualifies and quantifies the value delivered to the Customer and tries to understand how much value the Customer will give in return of the solution. The difference between Value Generated for the Customer and Value Spent by the Customer ( i.e. the Price paid + the Costs sustained to be able to use the solution ) is called the Appeal of the solution. We are going to investigate these three components: Value generated, Price paid and incurred Costs. A - How much value our idea creates to the Customer? Understanding the value that the Customer gives to our idea starts with understanding who our customer is and which is the situation or the process he is involved in. The Customer is in that situation because he wants to achieve a certain goal (job to be done). If the goal is beyond his reach, this is a problem that needs a (our) solution. Any solution caries some characteristic (attribute) that has specific ability (features) that make possible to make a further step (get a benefit) towards the ultimate goal of the Customer.
  29. 29. © 2013 – www.business-exploration.com – all rights reserved 28/86 Ing. Flavio Tosi, Albo Ingg. Firenze n° 3581 – via 8 marzo, 22 - Castelfiorentino – 50051 Firenze A Customer may be in 2 situations: or it has a GOAL, or it has a PROBLEM 1) he knows where he want to be in the future, but do not know how to get there 2) he has envisaged how to get there and is looking to the best way to fill a gap between where he is now and where he wants to be. In the first case he is actively looking to pursue a GOAL, and need a hand to understand which is the best way to go there. In the second case he fully understand how to go there, he knows the PROBLEM he has to solve and he just miss the right solution: piece of equipment, service or information. The second case (the PROBLEM case) is a bit tricky for a supplier, because Customer will tend to propose his vision of the solution needed. But in reality he most often does not have the competences to define it. This is way collecting Voice of the Customer inputs about what the attributes he expects from the solution can lead to disaster. Even collecting his inputs about the features is not enough, cause he may describe just part of the problem (the interfaces where the solution has to plug in), what we really need is what benefits he wants to achieve: how he will measure how well his goal has been reached. What we really need to understand is what the Customers wants to achieve: his GOAL: which is the job that he has to be done, and how, by which variables, he measures how well the job is getting done. Let’s start from the protagonist. “Who is the Customer?”: From Customer’s “needs” to Customer’s “Goals” A Customer is someone that has a Goal, someone that aspire to achieve something. But he has a gap that separates him from his Goal. This gap is his need. And we as suppliers are the one that have the solution to clear out that gap. To make an example think this situation: image to be an owner of a Restaurant. You get a call from a man asking for a “table for two”. You may immediately think to your menu prices and which of your table can fit them. You are going to solve his problem, offering a solution for a price. Or you can think what is the ultimate Goal of your Customer. Thinking what he is really saying: “ …I need a comfortable place, a bit of romance, an impeccable service, a soft music…”. In this case you may think to the Value you can offer, and make sure you are going to great him by name at the entrance, be attentive to the partner needs, and win over a couple for the rest of their life’s anniversaries. You understood the ultimate goal of your Client: “a Dream for two”.
  30. 30. © 2013 – www.business-exploration.com – all rights reserved Ing. Flavio Tosi, Albo Ingg. Firenze n° 3581 – via 8 marzo, 22 - Castelfiorentino – 50051 Firenze 29/86 “What Customer dreams of” Customers are those that have a Goal and a problem. Suppliers are those that have solutions. And yes: there is a bit of “chicken and eggs game” here: you need to know who is the customer if you want to address his problems. But at the same time the problem and why Customer need to solve it, are the starting point to clearly identify and describe the Customer. In B2C this may require a customer segmentation, or “grouping” Customers in 3-4 categories that can be univocally described, considering what is the ultimate goal each individual Client wants to achieve and addressing together the ones with closer desires. In B2B, understanding who is the Customer may require to search the actors of the “purchasing process”. Each person involved into this process has its importance to influence the final decision. The roles in the process are: Initiator (who identifies the needs) – Specificator (who defines what is needed) – Decision maker (the one that will get the benefit) – the Buyer (the one who tries to cut down your prices ) – the User (the one that will utilize the solution). I am happy only after I have been able to list the customers (or describe them, based on some characteristics) and group together those that have a common reason to want their problem solved. Where does the solution fit? What problem it solves? Who is the Customer is now clear. And we have even understood his ultimate goal. Things do not run smoothly for him. But we can help. At least we think so.
  31. 31. © 2013 – www.business-exploration.com – all rights reserved 30/86 Ing. Flavio Tosi, Albo Ingg. Firenze n° 3581 – via 8 marzo, 22 - Castelfiorentino – 50051 Firenze To be sure, I take a closer look and try to clearly identify the utilization situation that makes our idea a great fit. You can always get surprises if you touch by hand instead making a guess. This is true for B2C (your pumpkin could end up in a risotto or look fabulous as a Halloween lamp ); it has a special meaning in B2B, where most of your product and services are injected in the flow of a customer’s process and Companies tend to jealously keep secret the way they “really” work. In B2C: “understanding the Customer problem; what solutions did they look at and ultimately reject; why did they choose our product as the solution; how did they install our product or implement our solution; how is the customer using our product right now and what results have they attained with it” is the path that make you understand where your product fits and why. In B2B: Understanding the customer process where the solution will be used and mapping out its logical steps, is important to correctly understand the ultimate goals of the Customer. Knowing its goals makes you understand and prioritize the benefit that your solution delivers and help quantify the value of the benefits sought by the Customer. If we are able to understand what job the Customer is trying to accomplish, then we can group (segment) our customer by those trying to do a particular kind of job. We should be able to describe the circumstances in which the Customer is, when his necessity appears, and define the causalty that made the phenomenon occur. In this way we should be able to predict when and why Customer may require our help. If you fail to be able to describe this causalty, your segmentation will end on being based on attributes: you are not going to describe why a customer has a need but only how he needs. So your forecasts will be based only on the past, and not will be able to build a model of the future. At your discharge, is the fact that ther are at least 4 mighty forces that drive you to segment your customers by the attributes of your product, instead by the reason behind their need: 4 reasons why you segment in the wrong way: 1) Your fear that “focusing” your product on a customer need, you will loose the opportunity to sell to other customers, with different needs. In reality is the contrary: a focused product steals customers from undifferentiated products. 2) You (or your Boss) ask for market “size” (for which the IT has data ) instead of what customers needs to accomplish ( for which the IT don’t have data ) 3) Your retail channel structure is “attribute” based: they ask you for “300 strawberry milkshakes “ to put on their shelf, and not “send me milkshake for kids parties” 4) all the advertising is “Customer” based: Young, old, females , men, and not on the circumstances on which you have a job-to-be-done based: when you are preparing a marathon, when you are cleaning a home…
  32. 32. © 2013 – www.business-exploration.com – all rights reserved Ing. Flavio Tosi, Albo Ingg. Firenze n° 3581 – via 8 marzo, 22 - Castelfiorentino – 50051 Firenze 31/86 A snapshot on process mapping: You may find several good books about process mapping. But here are my recommendations: 1) Start with the end: i.e. any process transforms something into a product or service that is delivered to someone. Find that someone, this is the starting point of your process map. 2) Map only the logical steps, not the activities. The distinction is that the logical steps define the change in status of the resources processed. Do not bother about how you make the change of status happen. i.e: if you have to go to Paris and You are in Rome, you change your status independently if you go to Paris by feet, car, train or airplane. 3) Track the deliverables at the end of each step: not the logical step itself. Deliverables at the end of a step: have changed status. Tracking the deliverables status, you track the logical step completion. (More on process mapping on my “six sigma short course for green belts”, ask for it) Which solution do we deliver, and how? (S.O.R.C.) This question may seems offensive. After all, our fantastic idea is so simple! But try to explain it to a Customer. I always need to develop very convincing arguments. This is the reason why I start describing the idea immerging it in its “utilization situation”: it becomes easier. I start with its attributes (e.g “here is a lamp”), then I describe its features (e.g. “ that gives light”) and ultimately I identify the benefits achieved through them (e.g. “so You can see”). You may want to qualify the benefits delivered by each attribute. Doing so, I occasionally discover gaps versus the expected results, or opportunities to expand the product from its physical attributes to its service content. Sometime You can even expand it to function as a platform for further solutions. A good way to scrutinize and properly describe our idea is always to compare it with what others provide to solve the same problem. A look to what the Customer has used in the past, is using now, or will going to use in the foreseeable future will help you refine what our solution actually delivers, how is really made, and if it’s supported by other products, services, or systems as others are. Sometime the competitive solutions go beyond solving the problem, and associate to themselves ideas, feelings, beliefs, and myths that are even stronger than the solution itself in re-assuring the customer of having reached his ultimate goal. So, going from attributes to features till benefits give a great opportunity to understand the ultimate goal of the customer. This will help you later on, when looking to make your idea memorable to him. How much value our solution delivers? (in B2B)
  33. 33. © 2013 – www.business-exploration.com – all rights reserved 32/86 Ing. Flavio Tosi, Albo Ingg. Firenze n° 3581 – via 8 marzo, 22 - Castelfiorentino – 50051 Firenze We must be honest here. We do not know how much our idea is worth. Even when I think I know, I discover later on that Customer has totally different opinions. And not always it’s a bad surprise. More often than not, Customers are ready to pay higher prices for our idea, then the one we are just happy to ask. From bad and good lessons, I learned to check with him directly…after a bit of homework. Just not to spoil our price from the beginning. After all there are very few Mecenate out there, ready to recognize fully the value of our work. There are countless ways that aim at identifying and measuring how much value Customer gives to our idea. And a lot is complicated by the definition of “Value”: classic marketing manuals can refine the meaning up to search for ultimate customer beliefs or stay a bit more comfortable in searching for the immediate benefits and attributes that a specific offer delivers. Whatever the way selected, I proceed in two steps: First I “qualify” the value, looking at how it is generated, then I “quantify” the value for each category I’ve identified. When dealing with B2C, to qualify and quantify the value of an idea, I saw people go very plain and just trust their personal feeling, as well as companies go for complicated statistical analysis as Conjoint and Design of Experiment. Is a tough argument where I ventured only seldom. What I can say is that the American Marketers have invented the pilot testing of new ideas. And I think that is a good move. When in the B2B arena, things get simpler. There are basically 4 types of “value” that our idea can deliver: S.O.R.C. 1) Generate more Sales 2) Reduce Operating costs (financial costs included ) 3) Reduce the overall Risks associated to the business of Your Customers (starting with the risk of using an unknown supplier) 4) Reduce Capital Costs ( Capex) Each of this Value’s Components can be investigated, referring to the Customer process our solution is intended to impact: - The “more SALES” Value’s component. Our solution can help Customer sales in several ways. But we can cluster them into 2 big categories: 1) The ones that increase the Number of goods sold by Customer.
  34. 34. © 2013 – www.business-exploration.com – all rights reserved Ing. Flavio Tosi, Albo Ingg. Firenze n° 3581 – via 8 marzo, 22 - Castelfiorentino – 50051 Firenze 33/86 2) The ones that increase the Price of the goods sold by Customer. For example: You may propose an office automation tool that dramatically reduce the average lead time of your customer goods. This means more pieces sold per period. Or you may introduce a software solution that dramatically enhance the satisfaction of Your final customer, leading to command better prices. Here is a list of places where to look for “more sales” Value component. - performance - time to first production/delivery - availability - reliability - off design conditions - performance degradation - services & emergencies - The “less OPEX” Value’s component: Again, by opening the customer balance sheet and income statement we may find clear suggestions to understand how much our idea is worth. When I look at this Value component I give a large meaning to Operating Costs: all the costs that change as the Customer sales change. Check out how much man-hours, direct materials, supervisory man-hours, consumables etc our solution can save. Here are some example: - direct materials - man hours / head-count - training / professionalism / head-quality - fuel costs - consumable costs - underpinning costs - tax - eco-costs - stocks levels/inventory - The “less RISKS” Value’s Component. This voice is a bit trickier to describe. But this is the meaning: whatever makes your customer’s business more risky, automatically reduces the value of the business itself. To make an example: our customer may be able to sell 100 pieces, but if his customers pay only 80% of the times, our customer sales are worth only 80 times (if
  35. 35. © 2013 – www.business-exploration.com – all rights reserved 34/86 Ing. Flavio Tosi, Albo Ingg. Firenze n° 3581 – via 8 marzo, 22 - Castelfiorentino – 50051 Firenze not less) the average price. Therefore Customer should appreciate any solution that reduces his business risk and makes that “probable 100%” a more likely realized figure. I say “should” because Risk should not only be there, but shall even be recognized by the Customer. It is not always so: people have different level of risk understanding, and risk tolerance. Assumed our Customer feels Damocles pain, if our idea helps reduce Customer risks, it creates value to him. As an example: just think to the lower insurance fee a Customer can pay, thanks to a new security system. Here You may want to go creative. And Probably you will make your customer discover risks that he was under looking. Here are some example: - full tested supply - reach-ability (service level) - Know-How costs - returns in technology - personal relationship - brand leveraging vs top management - integrity - evaluation risks - financial risks - political impacts - The “less CAPEX” Value’s component Few pages ago we have defined the situation where the Customer is in and the processes the Customer is using to achieve his goals. Now we go a level down and look at the infrastructure the Customer has created to make his process deliver. Some time a quick look at Customer Balance Sheet can give an idea of the status of his infrastructure: how much has it been used so far (depreciation), what recent investments have been done, which is the biggest infrastructure piece (where his attention is focused) and alike. Then we can think at different ways our idea can reduce those investments costs. Here are some example: - solution price (this is easy…) - spare parts price - duration/depreciation
  36. 36. © 2013 – www.business-exploration.com – all rights reserved Ing. Flavio Tosi, Albo Ingg. Firenze n° 3581 – via 8 marzo, 22 - Castelfiorentino – 50051 Firenze 35/86 - parts commonality - Terms & Condition costs - warranties costs - installation costs - plant induced costs (a simple example: the parking for the employees) - financial aids - taxes and incentives - upgrades and options capabilities - customization/standardization - bundle buy - eco-compliance costs - expediting costs /Quality Control Summary: Thinking where,(among SALES, CAPEX, OPEX and RISK abatement), our idea can have an impact, makes easier qualify and quantify the value it has for the Customer. I keep track of any new type of impacts I find as long as I identify them, ‘cause in B2B the ultimate goal remains to make money and this attitude leads to common approaches in different industries. And sometime cross linking this categories can help identify some unexpected value and new ways to convince customer to buy.
  37. 37. © 2013 – www.business-exploration.com – all rights reserved 36/86 Ing. Flavio Tosi, Albo Ingg. Firenze n° 3581 – via 8 marzo, 22 - Castelfiorentino – 50051 Firenze How much does Customer needs it? At this point of our Roadmap we know who our Customer is, when and why he may be interested in our idea. We have articulated our idea and associated a potential value it can deliver to our Customer. Nevertheless our Customer do not show any sign of interest. The Value that our Customer place into a solution to problem does not depend only on the amount of value or the size of the benefit it can deliver. It depends also on the urgency, the perceived risk, and the availability of budget. For this last reason only, many prefer to make business with rich people. To gauge the interest of a potential Customer to my idea, I find useful to use KANO’s analysis, even if Kano itself, probably would not use his model this way… KANO’s model clusters the “feeling” toward a solution in 4 baskets: Solutions that customer feels as: INDIFFERENT: something that do not really change his life. MUST HAVE: is something critical, and must be performed in a way or another. NICE TO HAVE: something that is nice and cool, but Customer can live without it. THE MORE - THE BETTER: something that is of value and Customer will get great benefit right now. You may have the perfect solution, but Customer may feel solve his problem not necessary, not urgent, too risky to tackle or the problem improbable to happen, or simply not having the budget to solve it. Another way to understand the Customer purchasing intention is to test them: collecting his comments, asking him directly, looking for what are the tendencies, rumors, and feelings in his community. Most of the time the problem is already been tackled by the Customer. Trying to understand what solutions he used in the past, what alternative routes he took to solve the problem, what level of benefit he got till now, (assuming he had any) and the main difficulties encountered so far, are good information to understand the urgency and the Budget availability. Furthermore, listening to the Voice of the Customer (VOC) allows me to test proof much of the assumptions made and discover unexpected feedbacks and considerations.
  38. 38. © 2013 – www.business-exploration.com – all rights reserved Ing. Flavio Tosi, Albo Ingg. Firenze n° 3581 – via 8 marzo, 22 - Castelfiorentino – 50051 Firenze 37/86 What advantages gives our solution vs others’ solutions? Now we can compare our solution to the one of the Competition. You can go to Michael Porter books for an overview of the problem. What I tend to do is to look at competition in relative terms. I look for gaps. Looking at what the ideas have in common, it is not a customer’s selection criteria. The first gap is versus the “do Nothing” competitor. What is the real damage of not tackling the problem? If we are so lucky that Customer has not tried anything till now, he probably is not aware of the problem… often not a good sign of appreciation for the solution. Then I compare what Customer is doing now and what has done in the past. I especially try to understand why he is unsatisfied of the results obtained so far. Finally it comes the time for Real Competition: alternative and competitive solutions. Alternative solutions are more subtle: think at the difference between a vaccine and a daily cure for allergy symptoms. The two are competing, but they solve the problem in different ways. Competitive solutions are those that can replace yours right now. Porter describes two types of difference in “competitiveness” or relative value: The first refers to those attributes that impact the Effectiveness of our solution. Our ideas carry some attribute that “work better” and the customer will get greater Benefits (creating more Value for the Customer). The second refers to the Efficiency of the solution: how much value our idea takes out from Customer’s pockets (destroying less Customer’s Value), while solving the problem in a decent way. Porter refers to “price“ competitiveness. We are going to investigate it in the second chapter of this section. Summary: Customer will compare two solutions based on the net Value he will receive. Value generated – Value destroyed. I.e. Effectiveness vs Efficiency When comparing the differences between competing solutions I tend to keep note only of the Delta: what is in one that is not in another. This forces to focus on tangible differences. B - What Price will be paid? The second component of attractiveness is Price. The more we take from customer pockets, the less value we leave in his pocket. The greatest the value/price ratio, the highest the probability that Your product will be sold. As a first move we can check out this ratio roughly. A ratio of 25 ( i.e. customer will gain 25 times the price spent)
  39. 39. © 2013 – www.business-exploration.com – all rights reserved 38/86 Ing. Flavio Tosi, Albo Ingg. Firenze n° 3581 – via 8 marzo, 22 - Castelfiorentino – 50051 Firenze is a good minimum threshold. Consider that when we will talk about the 3rd attractiveness component (Costs), this ratio will be reduced by the costs Customer will incur to use our solution. How to set prices? Strategically: Before to think to “the” price of a new product, I look at it from a distance. I take a moment to think to the segment, cluster or industry where my idea will be proposed. Is it wealth? Is it trendy? Is my Company brand positioned as premium or luxury? Or is it a follower? And what have been the trends of prices? Are being squeezed by the market, or high demand can command high prices? A bird eye point of view and a comparison with what happens in other adjacent segments or industries can help a lot to set a direction in your Price setting. Competitively: The next step is to look up to the competition. A new solution and its new price has to confront with other solutions, the simple fact of add a solution/price to the Customer’s choices list has an impact on each price on the same list. Proposing on the market the wrong price can destroy a niche or an industry, initiating an iteration of competitive moves that become easily out of control of the price owners. It’s the price/demand elasticity. And the easiest way to summarize it is: beware of crowded markets. Every company should tend to be the monopolist. Transactionally: Finally I start thinking about the negotiation process that my product will go through when put on the market (even if You set a fixed price, actually you have pre- negotiated it…). The steps that the negotiation process will be made of, will actually set the final cash you will get. This is the real price you have to confront to. “How much”? How much is definitively the Question: Price is “the” marketing variable. Is one of the few things you can always change abruptly to achieve your sales goals. Price is your resource when you need to counteract or deploy some competitive strategy. It’s even there to protect some salesman from poor sales results. To set Price for a new idea I make reference to three (and a half) ways to do it. As a first option, I check if I can define a price based on the benefit (Value) my Customer will achieve using my idea (value pricing). Then I know I have to take competition into the game, so I check out how they price (market pricing). As a last
  40. 40. © 2013 – www.business-exploration.com – all rights reserved Ing. Flavio Tosi, Albo Ingg. Firenze n° 3581 – via 8 marzo, 22 - Castelfiorentino – 50051 Firenze 39/86 resource I do the simple thing, and add a profit to my solution costs: probably not the best way to do it but at least a safe way (cost plus pricing). Sometime I appeal to an ultimate resource: an “half way” to set a reference price: I ask Customer to set the price. Not my preferred choice but, with a “walk away option” embedded in the negotiation process, You can even have some very nice surprise. Value pricing If you made all the Roadmap steps till now You should already have the elements to gauge the value that your solution brings to the Customer. You can now check out the industry or competitive multiples to set the Price. You can go to similar solution offered in other industry and check out the ratios used. This is good practice anyhow, because Customer buys other stuff too. And those prices help him to build his expected price. Market pricing As said, most of the times we are not alone on the market. Customer can have several solutions at his reach and this forces to think in terms of Price Parity: i.e. try to set a price in line with the competition. It sounds a bit collusive, but it’s a starting point. Assuming I am able to figure out a Price benchmark among competing solutions, the next step is to choose among: a strict price parity; sell my idea at a premium price or at discounted price. In a market, often one of the competitors is the price maker. The price decision has to be taken taking his goals into account. If, for example, I want to try a discounted price tactic to enter the market, I give clear signs to the competition that this price is an interim price, to try avoiding price wars. Customer get the message too, and must be clear that the price is not carved in stone, but an encouragement to a trial. Cost pricing Placing a mark-up above the purchasing cost is a common practice for distributors. The logic is: “first: cover the costs”, or you give away wealth for free. For this reason “define a price” requires to have a clear idea of the cost incurred in creating the product and bring it to market. This is not an easy task, especially when huge capital costs and investments are involved and then goods are sold at small price. A trick I use in preliminary analysis, when all the costs are not clear, is to refer to the cost of similar goods, for which I have better data. Can be the previous release of the product or something that I can buy on the market and for which I have company information that can estimate Contribution Margin.
  41. 41. © 2013 – www.business-exploration.com – all rights reserved 40/86 Ing. Flavio Tosi, Albo Ingg. Firenze n° 3581 – via 8 marzo, 22 - Castelfiorentino – 50051 Firenze Sometime selling at break-even prices is necessary to step beyond a demand crisis, but on the long run working for free becomes challenged by moving in other business activities. So I prefer not to set a breakeven price, without considering the life-time value of the business initiative. In other words: is not the break even of the last quarter, but the total life cycle break even of the business venture we are starting. Transactional pricing Till here: theory. But sometime it happens I have to start a negotiation without having a price in mind. We always do business in a hurry and we are not always ready. In this case we may want to test proof our assumptions asking the customer to help us setting the product price. Not my preferred strategy, but this way to set price can give nice surprises (when Customer values our idea much more than what we suppose – and would be very interesting to know why…) or strong delusions (when customer forward a price below our expectation – again: take a better look). This procedure of asking the Customer a Price, can be very annoying if the Customer has a strong competitive negotiation style. So would it would be preferably used with customer that demonstrate a cooperative attitude. Customer’s negotiation style shall be taken into account in price setting, because a price can be defined for each transaction. The negotiation phase of the business can greatly affect the cash ultimately will reach our pockets. There is a decay from List price, Invoice price and Pocket price. Setting the price should mean set the tolerances of each phase of the negotiation process, cause every percentage point of price gained, goes directly into our Profit. How does the price change? Price don’t change just during negotiations, to get the order signed. It has to be modified to extol the most, in different situations. Not all Customers value our idea in the same way. If we are able to package the idea differently for each Customer segment, we can try to command different prices for the same solution. If we are going to use different distribution channels to reach the customers, each channel may be served with a different price that takes into account the shopping convenience. Price of a product changes during product lifetime: for example high tech products have to harvest the most at the beginning of the business life, to assure fast investment recovery when competition can’t copy it. While at the end of their business life cycle, price could be reduced to make it affordable to anybody. (Attention not to cannibalize your next idea, tough…) Price changes depending on season: sale periods, special events and anniversaries.
  42. 42. © 2013 – www.business-exploration.com – all rights reserved Ing. Flavio Tosi, Albo Ingg. Firenze n° 3581 – via 8 marzo, 22 - Castelfiorentino – 50051 Firenze 41/86 I give a thought since the beginning to the effects of promotional or competitive tactics like discounts, trials, refund policies, customer retentions and customer satisfaction activities. I give a look at price components too: how to break-down down-payments, pro-rata and collection policies may help the business. Summary: Setting Price is never easy, especially for new products. Your industry , Your Competitors, Your supply chain and Your Customer may help you find the right one. And Price is a very strong tool to maneuver into the market arena Having a clear understanding of how far we can play with it, may help a lot, later on. C - What additional costs will be sustained by the Customer? Price is not the only thing our Customer will pay for our solution. She will sustain costs to make our product part of her world. Not only she will have to modify her habits, or change the way she thinks to the problem, but will need new investments, new infrastructures and systems. Sometime she has been able to externalize the costs of the problem. Our solution could bring these costs back. In this case the assumed value of our idea can be much lower than what we can think. Investments: Implementing our idea inside Customer process may require several investments on her side. A part the “hard Stuff” capital equipment related to our product, our idea can bring into the game a change in technology standards, so causing the need of spending time and attention to make it fit with her world: her physical and her social environment. Adopting a new solution could require to our Customer to adjust her image (or brand) to the new solution adopted. For this reason I think carefully how this new idea can impact her brand or public reputation. Systems: I make a distinction between the investment needed to assure the interface of the new idea in the customer process and other costs related to services linked to the new solution. Making this distinction helps me generate more ideas for complementary product and services, thinking the way to extend the idea from its basic functionality to the services that can be sold separately, to the systems and platform could be needed and ultimately to the emotional and sensorial part of the offering. For example: Customer may need training, may need help for installing, connecting or just setting-up the attributes of our product. She may need to pay for new taxes (or get some incentives) new insurances, new licenses. Later on she may need maintenance and upgrades or modifications. The advantage of thinking from the beginning to a service plan is that when the sales will have generated a fleet of
  43. 43. © 2013 – www.business-exploration.com – all rights reserved 42/86 Ing. Flavio Tosi, Albo Ingg. Firenze n° 3581 – via 8 marzo, 22 - Castelfiorentino – 50051 Firenze installations, applying the service model to this fleet will give a clear indication of the potential service market. Switch Costs: One of the annoying thing about innovation is that there is always the need to convince customer to leave her old world for the new world. Customer has (or at least she think she has) always found a way to cope with the problem: has found a partial solution, a less efficient solution or simply found a way to transfer the costs incurred for not having solved the problem. Adopting our new idea can bring back some of this costs. Making her switch to the new solution shall give an advantage not only in terms of greater value but many times the additional value shall be so great that can cover the costs already “digested” by the customer. D - Summary: A new solution does not bring only advantages. Customer will need to pay a price and to bear some additional costs, to change her world and adopt our idea. So the real value we can assure shall discount our Price and the new Costs. To have a chance to sell our idea, the remaining value shall be several times the value destroyed in Price and additional Costs. Gauging this ratio in other similar situation the Customer has been involved, can give a way to define the final Price we can legitimately ask. 2/4 - Is the Solution accessible? The second step of the roadmap to market checks the accessibility of the solution. Customers must be able to acknowledge the existence of the solution and the solution shall be physically in their reach. Possibly they should love the solution so much to prefer it over anything else, whenever they need it. Everybody else is trying to do the same, making any effort to get Access to the Customer’s mind and assuring their products are readily available to the hands of the Customers. But the real goal is to make Customer’s Mind get access to the idea of the solution itself. If Customer’s mind has not easy access to the image of the solution, the solutions is not existent. Think this point in this terms: We need to get Access to the Customer’s mind, Clearly communicating the benefits of our offer, specifying its uniqueness, and why it is important for achieving the Customer Goal. But when inside of Customer’s mind we need to help his mind find our solution among a lot of other ideas that are
  44. 44. © 2013 – www.business-exploration.com – all rights reserved Ing. Flavio Tosi, Albo Ingg. Firenze n° 3581 – via 8 marzo, 22 - Castelfiorentino – 50051 Firenze 43/86 crowding his brain. Is exactly the same as being in a Supermarket. If You want your product get found you have to put it in the right shelve. You have to associate your solution to the right mental category. And when on it you have to make it different enough to be immediately spotted among others. The better way to put our product on the right shelve and make it the brightest on it, is to build our own shelve, and make sure our product is the only one on it. As those cardboard dispensers at your favorite corner shop. This sounds familiar, doesn’t? “a mind getting access…” A - How will the Customer know about the solution? Being able to capture the customer attention and let him decide to bring home our solution is part of the game of making our Idea attractive. How the customer is pulled to our offer is a process that involves several parts of our organization. I start identifying how the customer will get in contact with the idea that the solution may be a good fit for his problem. Do we have a clear Unique Selling Proposition (USP)? Even the brightest idea does not sell by itself. It must be proposed to a Customer. And every time we make a proposal to a customer we must say: “buy this product – you will get this specific Benefit”. This proposition must be something that the competition either cannot, will not or does not offer. It must be unique. It can be a unique feature that delivers an
  45. 45. © 2013 – www.business-exploration.com – all rights reserved 44/86 Ing. Flavio Tosi, Albo Ingg. Firenze n° 3581 – via 8 marzo, 22 - Castelfiorentino – 50051 Firenze important benefit to the Customer, it can be a claim not otherwise made by others before, it can be the effect of a Brand that carries its own USP. And it must be selling: must be of importance for the Customer, meets some existing desire, be able to tackle what is moving the customer. And it must have a Feeling: a personal note that make it memorable. (Dear Reeves, I beg You pardon)-- There are 3 main ways to identify the right USP: 1) find the USP into the product, 2) Build a USP into the product, 3) tell something about the product that has never been told before. Once you have identified the USP, be sure not to confound it with other messages, jingles and all those things that can distract the attention of your Customer from it. Is our proposition different from any other one in the customer mind? It’s not enough that we make a “unique” proposition to our customer. It must be clearly different than the other propositions on the market. And because this is a “push” market era, we must be able to position our idea in the Customer’s mind as different compared to the others. It’s in the Customer’s mind that we fight our battle for being selected. The Customer mind is a very crowded place. It’s a parking with a finite number of places. Each place is a solution ready to be deployed to solve a particular problem. The brain is a valet that has to remember where the right car is for the right problem. The Customer served faster are the one whose car is parked on a memorable spot. I park my car always in the same parking space. It’s a parking space that is clearly recognizable. If I cannot identify a parking space that is easy to find, I park in an area of the Parking, that I can easily find. And I Park in the first spot: the one that is easier to be seen from a distance. This is because I do not like to waste my time looking everywhere for my car.. The parking space of an idea are “mental Categories”. If people are looking for a “fast” car they will probably think immediately “Ferrari”. “Fast car” is the mental category where the product “Ferrari” is parked in our mind. For those that have a big brain, with lots of parking space, the “fast car” category is an area. But still the first car that can be seen from a distance is that one colored with a bright “Ferrari” red. And only with an effort we can see the Porsche parked just behind. When I want that my Idea is being remembered, I try to find a bright new mental category, and if it is a broad one, I try to rank my idea in the first place. To find the right mental category, I start with what the people already name my new Idea. “Good evening Mr Flavio: You will find the car in the usual spot place...”.

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