Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

Using Value-Based Innovation for New Product Introductions


Published on

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

Published in: Business

Using Value-Based Innovation for New Product Introductions

  1. 1. February 24, 2014 Jose A. Briones, Ph.D. SpyroTek Performance Solutions Twitter: @Brioneja
  2. 2. Background  In this chapter of the Beyond Stage Gate series we describe to how use value-based innovation for new product introductions to increase the probability of commercial success Twitter: @Brioneja
  3. 3. Pricing of a New Product  There are multiple ways to approach pricing for a new product        Cost-plus Competition-driven pricing. Customer-driven pricing Minimum Return on Investment (ROI) Cost in use analysis Value in use analysis We must move away from cost-based pricing to value-based pricing Twitter: @Brioneja
  4. 4. Definition of Value  Value is   A measure of the magnitude of how much an unmet need is met ○ Desirability ○ Functionality Innovation is not a measure of the change you make. It is a measure of the need you address  Maslow's hierarchy of needs       Physiological Safety Love and Belonging Esteem Self-actualization Self-trascendence Twitter: @Brioneja
  5. 5. Value and Innovation  Innovation exists at the intersection of invention and value  If your new product/invention/service does not offer value, it is just new - not innovative. Twitter: @Brioneja
  6. 6. How Do We Capture Value?  Value is captured through  Pricing  Market share  Brand awareness  In order to capture value, we must first be able to measure value Twitter: @Brioneja
  7. 7. Relationship Between Innovation and Value Creation Disruptive Radical • Value Co-Creation • Joint Value Development Incremental • Value Sharing/Split Twitter: @Brioneja
  8. 8. Value in Use Analysis  Clayton Christensen: Customers do not buy products, they hire products to do a job.  Define the job your product is hired to do and the benefit your customer gets from it  Absolute price/unit is irrelevant. We must compare cost in use and value in use. Twitter: @Brioneja
  9. 9. 3 Types of Voice of the Customer  Unmet needs  Job to be done  Product features Twitter: @Brioneja
  10. 10. Gillette’s Custom Plus Disposable   Amazon’s price of 3 Pack with 10 razors/pack: $10.61 Cost/razor: $0.35 Twitter: @Brioneja
  11. 11. Gillette’s Fusion    Amazon’s price: $16.95 8 Cartridges Cost/cartridge: $2.12 Twitter: @Brioneja
  12. 12. Gillette’s Custom Plus vs. Fusion  Price of product  $10.61 vs. 16.95  Fusion package is 50% more expensive  The custom plus package has 30 units vs. 8 for the Fusion  Cost in use  $2.12. vs $0.35 per razor.  Fusion has a unit product cost 6 times higher than Custom Plus  The customer believes that the additional value in use that the Fusion provides justifies the additional cost in use  Durability of blade  Comfort  Less irritation Twitter: @Brioneja
  13. 13. 3M Scotch® Tape     Amazon price: $1.00 300’ length Cost per inch: $0.003 Cost to hang a poster:  $0.01 Twitter: @Brioneja
  14. 14. 3M Command® Strips     Amazon Price: $1.95 12 strips Cost per strip: $0.15 Cost to hang a poster:  $0.60 Twitter: @Brioneja
  15. 15. Scotch Tape vs. Command Strips  Price of product  $0.99 vs. $1.95  Scotch tape sells for half the price of Commander strips  Using Scotch tape, the user can hang 75 posters vs. 3 for the command strips  Cost in use  $0.01 vs $0.60 to hang one poster  Commander strips have a product cost twice as high as Scotch tape but 60 times the cost in use to hang up a poster.  Why would a customer choose to buy a product that has a cost in use 60 times higher?  The customer believes that the additional value in use that Commander provides justifies the additional cost in use ○ Less damage to walls ○ Simplicity to remove ○ Durability Twitter: @Brioneja
  16. 16. Economic Value Definition  Reference Value (RV): The cost of the competing product that the customer views as the best alternative to our product  Differentiation Value: (DV) The value to the customer (both positive and negative) of any differences between our offering and the reference product.  Economic value (EV): The price of the customer best alternative (reference value) plus the value of whatever differentiates the offering from the alternative (differentiation value).  EV=RV+DV Twitter: @Brioneja
  17. 17. Economic Value Analysis  Step 1: Identify the cost in use of the competitive product or process that the customer views as the best alternative  Step 2: Identify all factors that differentiate your product from the competitive offering  Step 3: Determine the value to the customer of these differentiating factors. Sources of value can be subjective or objective.  Step 4: Add up the reference value and the differentiation value to determine the economic value. Twitter: @Brioneja
  18. 18. The Concept of “Hard” vs. “Soft” Value in Use  Hard or objective value in use is value which can be readily quantified by the customer: “cash out the door” ○ ○ ○ ○  Raw material savings Energy savings Reduction in spare parts cost Product Features Soft or subjective value in use are benefits that, while real, can not be quickly quantified or monetized immediately by the customer. ○ ○ ○ ○ ○ Improved safety Improved quality Environmental/Green benefits Ease of use User Experience (UX) Twitter: @Brioneja
  19. 19. Value Split   Value must be shared between seller and customer Customer will not switch from alternative technology unless new offering carries enough value to make the switch worthwhile Twitter: @Brioneja
  20. 20. PaperBoard Value Split Example What should be the price of the additive? Twitter: @Brioneja
  21. 21. PaperBoard Value Split Twitter: @Brioneja
  22. 22. Value Maximization  In order to maximize value, we must determine the value in use associated with our product by using mapping tools  There is no “perfect” value analysis technique. All techniques will have advantages and disadvantages.  The value captured by of your product will also depend on the number of players in the value chain that will split the value of the product  Stop talking about attributes and start talking about benefits Twitter: @Brioneja
  23. 23. Tools for Product Attribute Value Analysis Level 1 •Market Perceived Quality Profile Level 2 •Kano Analysis Level 3 •Conjoint Analysis 23 Twitter: @Brioneja
  24. 24. Market Perceived Quality Profile (MPQP) Rank the importance of attributes on a 1-10 scale or by distributing a fixed number of points (i.e. 100)  Rank comparative performance of each attribute  Multiply performance by weight to obtain overall product rating  Twitter: @Brioneja
  25. 25. MPQP Scooter Twitter: @Brioneja
  26. 26. MPQP Segway Twitter: @Brioneja
  27. 27. MPQP Example for Adhesive Attributes Importance Rating Performance Rating Performance Rating Durability 8 7 56 High Temperature Resistance 9 8 72 High Quality 8 10 80 High Water Resistance 9 6 54 Low Price 10 8 80 Overall Rating 342 Twitter: @Brioneja
  28. 28. iPad vs. Competitor’s Tablets Twitter: @Brioneja Source: 10/29/10
  29. 29. iPad MPQP vs. Competition Twitter: @Brioneja
  30. 30. MPQP Issues  Advantages  Good for a first discussion with the customer and to generate a basic list of requirements when little is known about the market  Provides overall product rating comparison  Disadvantages      No clear differentiation between important variables “Everything is important” “We want everything” Hard to quantify usability/ease of use We need further differentiation of the importance of attributes to achieve sub-segmentation based on real customer needs  Kano Analysis  Attribute Map Twitter: @Brioneja
  31. 31. Kano Analysis  Kano analysis is a tool which can be used to classify and prioritize customer needs.  Customer needs are not all of the same kind, not all have the same importance, and are different for different populations  Kano stated that there are four types of customer needs, or reactions to product characteristics / attributes: 1. The 'Surprise & Delight' factors. These really make your product stand out from the others. Example, a passenger jet that could take off vertically 2. The 'More is Better'. E.g. a jet airliner that uses a little less fuel than the competition. 3. The 'must be' things. Without this, you'll never sell the product. E.g. A jet airliner that cannot meet airport noise regulations. 4. Finally, there are the 'dissatisfiers', the things that cause your customers not to like your product. E.g. a jet airliner that is uncomfortable to ride in. Twitter: @Brioneja
  32. 32. Kano Example: Banking Twitter: @Brioneja
  33. 33. Attribute Map Attribute of Product or Service, Relative to Competing Offerings Basic Discriminator Energizer Positive Non Negotiable: Performs at least as Differentiator: Performs well as the better than competition Exciter: Performs better competition where it counts than competitors Negative Tolerable: Performs no worse than the competition Dissatisfier: Performs below the level of competitors Neutral So What?: Does not affect the purchasing decision in a meaningful way Parallel: Influences segment attitudes but is not directly related to product or service performance Enrager: Must be corrected at any cost( to capitalize on competitor's negatives) Twitter: @Brioneja www.Brionej
  34. 34. Limitations of Attribute Map and Kano  The Kano model and the Attribute Map can be used to help identify customer segments, based on the relative priority of each segment's requirements.  Disadvantages  Kano analysis determines value of individual product attribute but does not provide value of specific level within the attribute  Customers choose products based on the overall profile of properties, rarely on one single property.  Ranking of combination of properties may differ from individual property rankings  Conjoint analysis may be needed for breaking ties Twitter: @Brioneja
  35. 35. Conjoint Analysis  Rather than directly ask customers what they prefer in a product, or what attributes they find most important, Conjoint Analysis employs the more realistic context of respondents evaluating potential product profiles with different combinations of attributes.  By varying the combinations attributes and observing the responses we can determine the real value of each attribute and the magnitude of the value within each attribute  Forces the customer to make choices of what they are willing to trade-off Twitter: @Brioneja
  36. 36. Types of Conjoint Strategies  Conjoint Value Analysis (CVA) ○ Full-profile approach: Useful for measuring up to six attributes  Adaptive Conjoint Analysis (ACA) ○ Respondents do not evaluate all attributes at the same time, which helps solve the problem of "information overload"  Choice-based Conjoint (CBC) ○ Respondents are shown a set of products on the screen (in full-profiles) and asked to indicate which one they would purchase Twitter: @Brioneja
  37. 37. Conjoint Techniques Application ACA CBC CVA Six or fewer attributes X X X More than six attributes X X(a) More than nine levels per attribute Computerized questionnaire X X X X(b) Paper questionnaire X(c) X Interactions X Small sample size X X Individual-level utilities X X Twitter: @Brioneja
  38. 38. CVA Conjoint Analysis Example Attributes Durability, years Product A Product B Product C 2 2.5 1.5 High Temperature Resistance, C 240 220 260 High Quality, Impurities/lb 0.05 0.1 0.07 24 48 64 1.25 0.95 1.40 8 7 9 High Water Resistance, hrs. Price, $/lb Customers’ Rating The exercise is repeated for multiple combinations and the analyst or the computer can statistically deduce what product features are most desired and which attributes have the most impact on choice Twitter: @Brioneja
  39. 39. The Value Box© Concept  The Value Box is a tool to assess strategy based on an overall picture of the value space  The total cost of manufacture is the lower level of the box  The minimum desirable ROI targets for the product form the next lower levels of the box.  Intermediate levels are set by the cost in use of competitive technologies.  The upper levels are set by the degree of value in use of the new product  The right axis can be the number of players in the value chain or number of value sub-segments Twitter: @Brioneja
  40. 40. The Product Value Box© Concept Number of players in the value chain Price Full Value in Use Price Cost in Use Competing Technology Minimum Floor Price Total Cost of Manufacture Time Twitter: @Brioneja
  41. 41. The Product Value Box© Concept for a Price Number of players Generic Product in the value chain “Hard + Soft” Value in Use Price Retailer “Hard” Value in Use Price Cost in Use Competitive Technology Converter Target Return on Investment Manufacturer Minimum ROI Total Cost of Manufacture Twitter: @Brioneja Time
  42. 42. Value Box for PaperBoard Example $5/lb Price 100% Full Value in Use Capture $2.5/lb $1.3/lb $1/lb 50% Split Value in Use Pricing 25% Value Capture Pricing Cost of Production Twitter: @Brioneja Time
  43. 43. iPad Value Box Price $499 $489 $399 $279 $270 $259 iPad’s 16G Price Kindle DX Price Archos Droid Tablet Price Dell’s Mini 10 Netbook Price iPad’s Cost of Manufacture Kindle’s Price Twitter: @Brioneja Time
  44. 44. Pharmaceutical Pricing  Return on Investment  Price must compensate for entire investment in R&D, trials – Well above cost of production  $700 MM to bring a new drug to market  The fewer patients a drug helps, the more it costs  Value in Use Pricing  What is the cost of alternative treatment?  Pill vs. Surgery Twitter: @Brioneja
  45. 45. The Product Value Box© Concept a Concept Pharmaceutical Price Full Cost of Surgery to Treat Ailment $50,000 $30,000 $10,000 $1000 50% Split Value in Use Pricing Price at Full Return of Investment including R&D and Trials Cost of Production/dose Twitter: @Brioneja Time
  46. 46. Hybrids vs. Non-Hybrids Is buying a hybrid car worth it?  Gas savings vs. higher monthly payment   Depends on ○ Gas mileage difference ○ Price of gasoline ○ Mileage driven/yr ○ Price differential of comparable models Twitter: @Brioneja
  47. 47. The Product Value Box© Concept for Toyota Prius Price Full “Hard + Soft” Value in Use Price $21,000 $13,500 Full “Hard” Value in Use Price (Break even hard value for customer) $12,000 Price of Competitive Technology, 40mpg economy car $11,000 Discount Pricing Approach Twitter: @Brioneja Time
  48. 48. Guar Gum for Fracking  Guar gum is a hydrophilic polysaccharide from the seed of the guar plant. It is a galactomannan type of saccharide that is highly dispersible into water and brines of various types and salinity.  Its water solutions are non-Newtonian and also can be cross-linked by borax to give very high gel strength for suspension.  Such a structure is easily broken by breakers in fracturing fluids, so it serves as a carrier for placing sand far back into fractures. It is also used as a tophole drilling fluid Twitter: @Brioneja
  49. 49. Guar Gum Use in Fracking  Guar gum and its derivatives have found a broad range of application in petroleum industry as additives for aqueous and water / methanol based fracturing fluids. They serve as water loss control, viscosity control, suspensions, friction reduction or mobility control agent.  Hydraulic fracturing is a method used to create fractures that extend from a borehole into rock formations, which are typically maintained by a proppant, a material such as grains of sand or other material which prevent the fractures from closing. The method is informally called fracking or hydro-fracking  Hydraulic fracturing requires that a large volume of fluid be pumped very rapidly in to the well to separate the rock layers mechanically hence friction reduction by addition of water soluble polymers is practiced routinely  The same polymers usually aid in suspending the proppant agent such as sand. Guar gum based product in aqueous fluids is used in drilling shallow wells. These applications utilize the gum’s properties to increase viscosity, reduce fluid loss and decrease fluid friction. Twitter: @Brioneja
  50. 50. Guar Gum Grades: New Product Positioning Guar Gum FANN Viscosity FANN Viscosity Brookfield Viscosity   Slow Hydrating Fast Hydrating 31727 31708 3 minutes 24 (minimum) 35 (minimum) 1 Hour 30 (minimum) 40 (minimum) 2 Hour 5000-6000 6000-7500 Ultra Fast Hydrating 31709 38 (minimum) 47 (minimum) 8000-8500 Higher viscosity = Better performance in Fracking but higher price Problem: Fast Hydrating grade has a lot of competition and has commoditized Twitter: @Brioneja
  51. 51. Guar Gum Grades – New Product Positioning FANN Viscosity 3 min Slow Hydration Grade 35 32 37 Fast Hydration Grade 37 42 Ultra Fast Hydration Grade  28 Medium Hydration Grade  60 min 42 48 Solution: Create two new grades and segment customers. Straddle commodity spec. Sell improved grade to quality-oriented customers, lower grade to price-oriented csutomers Twitter: @Brioneja
  52. 52. Value Co-Creation Case Study  Value is co-created with customers when a customer is able to personalize his/her experience using a firm’s product-service proposition to a level that is best suited to get his/her job(s) or tasks done. – Wim Rampen Twitter: @Brioneja
  53. 53. Augmented & Alternative Communication  Augmentative and Alternative Communication (AAC) refers to methods and devices that supplement or replace speech and writing when these are temporarily or permanently impaired  Until a few years ago AAC communication devices consisted of bulky electronic boards costing over $7 K each  Best known example:  Stephen Hawking Twitter: @Brioneja
  54. 54. Disruptive Innovation: iPad and AAC  iPad apps are being used by special needs children, such as those who have speech impediments as a communication tool  New apps give a person the ability to communicate basic needs and interests through the use of pictured images and corresponding audio. Twitter: @Brioneja
  55. 55. Features vs. UX/UI  Features             Images & Symbols Can add more images # of Audio Voices Can Record Voices Create phrases Can add categories Text to speech Quality of audio Automatic conjugations Word prediction In-App expansion UX/UI  Usability/Navigation (UI)  Customization  Communication capability  Visual appeal Twitter: @Brioneja
  56. 56. Customization  Customization to the individual’s communication level and needs is critical for usability Twitter: @Brioneja
  57. 57. AAC Apps – Features Analysis Features Images & Can add # of Audio Can Record Create Can add Text to Quality of Automatic Word in-App Symbols more images Voices Voices Phrases categories Speech Audio Conjugations Prediction Expansion TouchChat 10,000 Proloquo2Go 8,000 Expressive One Voice iComunicate Grace 650 100 10,000 100 Y Y 3 3 Y Y Y Y Y Y Y Y High High Y Y Y Y Y N/A Y Y 2 4 Y Y Y Y Y Y N/A Y High High N/A N/A N/A N/A N/A N/A Y N/A 1 N/A Y N/A N/A N/A N/A N/A Y N/A Low N/A N/A N/A N/A N/A N/A N/A Twitter: @Brioneja
  58. 58. UX/UI  How easy is it to use, navigate?  How much knowledge is required about programming or manuals?  How simple and intuitive is to setup and customize to the individual’s communication level and needs?  What is the level of communication capability that the app can provide? Twitter: @Brioneja
  59. 59. UX/UI Capability Ratings User Experience Usability Setup Communication Navigation Customization Capability TouchChat Complex Proloquo2Go Complex Visual Appeal Complex Complex Advanced Advanced Medium Excellent Expressive One Voice Easy Medium Easy Easy Medium Low Excellent Excellent iComunicate Grace Easy Easy Minimal Minimal Entry Level Entry Level Low Good Twitter: @Brioneja
  60. 60. Features vs. UX/UI Features/ Capability TouchChat Proloquo2Go Area of Opportunity Expressive OneVoice iCommunicate Grace UX/UI Twitter: @Brioneja
  61. 61. Summary To be successful in the marketplace and create innovations, products must deliver clear value that addresses unmet needs  Value in use can be measured and quantified  Pricing is a tool used to share the value with the customer  The Value Box© is a new tool to facilitate the mapping of the value space and determine the best commercial strategy  Twitter: @Brioneja
  62. 62. Contact Information   Twitter: @Brioneja  Twitter: @Brioneja