Business ideas and customer value

1. Business Ideas andBusiness Ideas and
Customer ValueCustomer Value
Oslo University
2007-08-28
Martin Edlund, Ph.D.
martin@kebbison.com

2. Challenges
• Find the right users (customers)
• Overcome different perceptions
• Penetrate different types of
needs
• Provide the right competence
where needed
• Resources/willingness to invest
in ”customer knowledge”
• Put the new knowledge into
the design process

3. Innovation
Each step involves customer need discovery
and verification
creationcreation demonstrationdemonstration sustentionsustentionpromotionpromotionincubationincubation
An idea that potentially create
value for customers in a new
way (business idea
formulation, problem
description)
Analysis the
value that can be created
(the business plan, VoC, market
size estimation)
Funcitionality test
of value creation
e.g. (test installation)
Feedback from users
(actual sales, warranty,
surveys)
The first real test: Who
buys for how much?
(launch and initial sales)

4. We want to create customer
value
Customer ValueCustomer Value
=
PerceivedPerceived
benefitsbenefits
ΣΣ (Customer(Customer
Costs)Costs)

5. A Chain of Customers with
Different and Conflicting Needs

6. Linking Technology and Market
- Functional analysis -
Functions
and performance
Solutions
and features
Needs
basic, spoken and
latent
ProvideSatisfy

7. Customer Needs
Three types that are revealed in
different ways

8. Customer Needs
- Example: Bilge Pump/Rule Industries
• Reliable pump function
• Easy to install in bilge
• Easy to replace
• Less residual water in
bilge
• Maintenance free
• Long service life
• High pump capacity
• Non-clogging
• Reasonable price
• Durable
• Appealing design
• Trusted brand
• Manual functionality test
• Mounting flexibility
• Good information to
understand the system
• Low impact on boat
battery
• Health status of system
available remotely

9. Functionality of a system
Definition of functions: A=>B
(Noun) - Verb - Noun
- The car signals image.
- The bottle contains water
- The watch tells time.
Functional performance characteristics
Ex. the function to “show time” can be measured as:
- Accuracy (how many minutes +/- in a year?)
- Exactness (hours, minutes, seconds…)
- How many time zones (three in parallel)
Hammer Nail
HITS

10. Analysing a multilevel open system
What system-levels and functions are
relevant?
system
supersystem
subsystems
subsystems
subsystems
Environment
customer/user

11. Linking customer value and
functions
Main Functions Additional Function Unwanted Functions
Customer Value = Perceived Benefits
Total Customer Costs
Purchasing Costs Operating Costs Decommissioning Costs

12. A structured process to
capture needs
- VoC -
1. Undertand your
invention/product (functional
analysis) and prepare
customer interviews
2. Set up meetings (hard work!)
3. Conduct and follow-up
interviews/visits
4. Analyze and compile results
5. Quantify via surveys (if
necessary)

13. Voice of the customer (VOC)
- Two vital steps for generation of new
knowledge
Exploration Verification
(Testing of our hypothesis)

14. business
idea
Need or Solution to a Problem
Market Business
Model
AA
BB CC
Customer needs are
created in different areas

15. The Dominant Managerial
Logic
• Overuse of existing knowledge
• Which are the basic potential
customer needs?
• Who is the customer?
• The difficult process of unlearning
• The limit of a core competence
approach to innovation and
business extension

16. The IBE Phenomenon
- An Example
1980s: Digital X-ray
1984: Magnetic Resonance Imaging
1976: Computer Tomography
1979: Nuclear Cameras
1965-1970: Heart Monitors
1990: Ultrasound Imaging
1913: X-rayTubes
1920s: X-ray Systems
1965-1976: Pacemakers
1970-1973: Artificial lungs
1965-1970s: Blood Gas Analyzers
Business
diversity
time

17. Generic strategies to increase customer
value
- What is the long-term survival
strategy?
• Increase functionality
• Influence the customers
perception of value
• Sell to the right
customer
• Lower the price
Creation of
Customer
Value
Costs
Needs
Functionality
Perception

18. User-driven
innovation ?
• Value for users is a driver
through the innovation
process
• User-decisions is a driver for
growth
• End-users drive the
commercial chain in the long-
run
• But, entrepreneurs/venture
teams drive innovation

19. The Creativity Aspect
[Viktor Fey, TRIZ-group]

20. Market and Industry Analysis
2007-09-04
Oslo University
Martin Edlund

21. Market Size Estimation

22. A ten-step bottom-up approach to
market estimation
1. See the product in the users hands (”Viceralization”) – who will use it?
2. Discuss value and customer needs – how many are interested?
3. Understand the customer chain – who win/who loose/who pay?
4. Price in relationship to competition and substitution - how much will
be paid and what will you get paid?
5. How large is the population of potential buyers at that price
(maximum size of market)?
6. Adoption rate – how fast will customers buy?
7. Life cycle of products – how long will sales last?
8. Influence of competition – how will the buying pattern change?
9. Product range extension and product differentiation – how can the
market be develop further?
10. Risk analysis: identify threats, consequences and how to mediate –
what is the best, most likely and worst case?

23. Example: Market Estimation
• Use the step-wise process to guide your
discussion
• Estimate the market size of a wave-driven
bailer for small boats in Norway

24. 1. See the product in the users hands
(”Viceralization”) – who will use it?
• Links to the VoC work
• A choice
• Example: Automatic Welding Helmets
– For everyone?
– Indoor/outdoor
– Type of welding (MIG, TIG...)
– Large/small companies
– Safety culture in different countries

25. 2. Discuss value and customer needs – how
many are interested?
• The customer value equation: how does it apply for
the different users?
• What is the customer value in economic and other
terms?
• Use the functional analysis to penetrate this question
• Example: The RV Maserator
– Very unwanted funtions eliminated
– Vacation and RV is expensive, Maserator cheap...

26. 3. Understand the customer chain – who
win/who loose/who pay?
• It is your sales figures that are of interest!
• Use the Five forces model
• Who provides what in the customer chain
from a customer value perspective?
• Example: A new fuel-level sensor to the
automobile industry
– Car dealer, manufacturer, supplier, sub-supplier...
– Low bargaining power?

27. 4. Price - how much will be paid and what
will you get paid?
• Cost-based or Value-based
• Competition
• Substitites
• Currency-rates/local buing power
• Total costs for customer
• Example: RV Maserator, oil detection tool,
and composite wave guide

28. 5. How large is the population of potential
buyers at that price?
• Stick to the right level of analysis when using macro
data
• Creativity is needed in most cases to extrapolate
from known sources of statistics
• Focus on the first target market that can prove your
case
• Example: Ultrasound diagnostics Logiq
700/500/400
– Known statistics on health-care operations
– Known standard of living/buying power
– A model of the market was created to make estimatins on
size

29. 6-7. Adoption rate and Life cycle– how fast
will customers buy and for how long?
• The adoption curve
• Installed-base
• Substitution curve
• Crossing the chasm

30. 8. Influence of competition
• Price pressure
• Economies of scale and scope
• Substitutes

31. 9. Product range extensions
• Next version
• Range
• Price-differentiation
• Modular offer

32. ““I was seldom able to see an opportunityI was seldom able to see an opportunity
until it had ceased to be one”until it had ceased to be one”
Mark Twain