From Pricing Management To Value Managementv3

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From Pricing Management To Value Managementv3

  1. 1. From Pricing Management to Value Management: the Next Big Leap<br />September 23, 2009<br />
  2. 2. Discussion Flow<br />Value Management—What is it? <br />How is Value Measured in Practical Terms?<br />Business Cases<br /><ul><li>Value Management for New Products
  3. 3. ….for Market Management
  4. 4. ….for Key Accounts</li></ul>How do you institutionalize Value Management across a business?<br />Wrap-up<br />
  5. 5. Value Capture is usually the missing link…<br />1. Creating measurable, differential value for the value chain<br />2. Maximizing the profit captured by the enterprise<br />
  6. 6. Diagnosing Organization Capability: Value vs. Price Management<br />Value Management<br />T<br />R<br />A<br />N<br />S<br />A<br />C<br />T<br />
  7. 7. Diagnosing Price Capture<br />
  8. 8. Diagnosing Value Capture<br />
  9. 9. Sample Diagnostic Results for an Industrial Mfg Co.<br />
  10. 10. Discussion Flow<br />Value Management—What is it? <br />How is Value Measured in Practical Terms?<br />Business Cases<br /><ul><li>Value Management for New Products
  11. 11. ….for Market Management
  12. 12. ….for Key Accounts</li></ul>How do you institutionalize Value Management across a business?<br />Wrap-up<br />
  13. 13. How is value measured?<br />Two Schools of Thought<br />“Value is Relative”- -<br />Perceived Value<br />“Value is Quantifiable”- -<br />Calculated Value<br />Decision to use oneor both dependingon the uniquesituation<br />Value maps<br />Price vs. performance<br />Relative market position<br />Waterfall charts<br />Economic Value Analysis<br />Return on investment<br />Tools<br />Alignment of Price and Value<br />
  14. 14. School #1: Perceived Value<br /> Premium<br />Higher Cost<br />Relative Price<br />Lower Cost<br />Average<br />Worse Value<br />Economy<br />Better Value<br />Fair Value Line<br />Inferior Superior<br />Relative Perceived Value<br />The Value Map shows the position of each competitor in terms of the overall cost versus the overall benefit. <br />
  15. 15. School #2: Calculated Value<br />A Value Waterfall is used for estimating the economic value-in-use of solutions.  This tool is most effective when your business has a clear economic advantage over a specific competitor or when you are weighing purchase decision (e.g. as a consumer)<br />$ Variance Benefit vs. CurrentSolution<br />Savings<br />Break Even<br />Current Solution<br />
  16. 16. Discussion Flow<br />Value Management—What is it? <br />How is Value Measured in Practical Terms?<br />Business Cases<br /><ul><li>Value Management for Market Management
  17. 17. ….for New Product Launch
  18. 18. ….for Large, High Stakes Proposals</li></ul>How do you institutionalize Value Management across a business?<br />Wrap-up<br />
  19. 19. Case #1: New Material for Home Insulation<br />54% of energy in the US is consumed by buildings (residential and commercial) and their construction<br />Department of Energy reports that over 40% of the cost of heating and cooling is lost through uncontrolled leakage through the building envelope<br />Sharp spikes in energy prices in 2008 increased homeowner awareness related to insulation solutions<br />Energy-efficient, or “green” construction is the main trend in the building and construction sector<br />A new technology is available which reduces energy leakage through the building envelope while maintaining or increasing the R value of the insulation in the wall and roof space in conventional homes, relative to traditional fiberglass insulation<br />
  20. 20. ValueDrivers<br />One Offer. Four Value Propositions.<br />Scope of enterprise<br />BasicMaterialsManufacturer <br />ResidentialInsulationManufacturer<br />InsulationInstaller<br />ResidentialHome Builder<br />Homeowner<br />CalculatedTotal cost of ownership over an expanding time frame (2-5 years)<br />CalculatedFair trade on order fulfillment activity performed by distributor in return for appropriate margin and inventory turnover<br />CalculatedApplication training and technical support augmented by cooperative marketing spend and effectiveness<br />CalculatedReturn on investment for labor and material inputs during home construction process leading to maximum retail price capture<br />Perceived Value: functional and emotional benefits of reliability“My home is ‘green”<br />
  21. 21. Value proposition to the homeowner is clear…<br />“install better insulation in your home and save 25-40% on your monthly energy bill…”<br />Present Value of Future Energy Savings<br />Additional Installed cost of Insulation<br />Elimination of Humidifier <br />HVACSizing <br />Variance Cost/Profit vs. Fiberglass<br />Break Even in x months<br />Current Option: Fiberglass Insulation<br />
  22. 22. …but big problem for the Homebuilder<br />Problem: homebuilders don’t understand how to cover the costs of better insulation<br />“Build your homes with our insulation….and increase your cost/home?”<br />Raw Material & Installation Costs<br />Elimination of Humidifier <br />Construction Site Disruption<br />Price Markup on House<br />HVAC Sizing <br />Extra Ventilation <br />Variance Cost/Profit vs. Fiberglass<br />Profit<br />Break Even<br />Current Option: Fiberglass Insulation<br />Homebuilders select and install the majority of insulation used in homes across North America!<br />
  23. 23. Case #2: Beyond Hot & Cold: Ideal Home Environment<br />Launch<br /><ul><li>2 Different Products
  24. 24. ‘Bolt-on’ air cleaner
  25. 25. Integrated air cleaner
  26. 26. $1400 MSRP</li></ul>Solution<br /><ul><li>Exclusive, proprietary technology
  27. 27. 99.98% efficient at 0.1 microns
  28. 28. Removes the flu virus!
  29. 29. Highest available CleanAir Delivery Rate (CADR)</li></ul>CleanEffectstm<br />CADR<br />Room Air Purifier<br />Typical HVAC System<br />Electronic Air Cleaner<br />Clean Air Technology<br />Clean Air is a Big Deal<br /><ul><li>45% households with respiratory problems
  30. 30. 20M with asthma
  31. 31. Indoor Air 5x worse than Outdoor Air (EPA study)
  32. 32. Consumers willing to pay for proven solution</li></ul>Results<br /><ul><li>Tremendous positive consumer experience
  33. 33. ‘Bolt on’ configuration hit targets
  34. 34. Integrated configuration under performed</li></li></ul><li>…Not as rosy for Integrated Clean Air<br />HVACOEM<br />Distributor<br />Dealer orContractor<br />Homeowner<br />Value Drain Across the Tiered Channels<br />
  35. 35. “The enemy”<br />x<br />Us????<br />x<br />x<br />price<br />x<br />Relative perceived performance<br />Case #3: Large, high stakes proposal<br />What is the slope of the line for this particular customer scenario?<br />“How does the customer decision making team weigh price vs. non-price decision drivers”<br />How do we assess our “Relative Perceived Performance” for this deal?<br />“What are the non-price decision drivers?” and “What is the relative importance of each decision driver?”<br />How will price be measured by the customer on decision day?<br />“How will the customer evaluate pricing at the moment of truth?”<br />
  36. 36. What is the process for acquiring the insight to achieve the right(eous) price?<br />Listening Event<br />
  37. 37. Do we understand Big Helicopter Co.<br />’<br />s needs?<br />Relationship/Trust<br />5%<br />Acquisition Cost<br />50%<br />Engagement Process<br />The details behind the decision drivers at Big <br />5%<br />Helicopter Co.<br />…<br />.<br />Capability to bring <br />Which means<br />..<br />Need<br />…<br />new technology<br />15%<br />Price<br />Cost = price/unit<br />would be willing to consider impact of significant , <br />…<br />Risk Assurance<br />quantifiable issues related to cost<br />-<br />in<br />-<br />use<br />25%<br />Risk Assurance<br />Technical support needs to be focused on improving the quality o<br />f <br />prototype testing prior to deployment on the new helicopter plat<br />form. <br />Development of mutually agreed test methodology will go a long w<br />ay <br />Absolutes = Product performance and quality<br />toward reducing Big Helicopter Co..<br />s risk. Must address personal <br />’<br />risk<br />s of the buying team as well<br />backup support. <br />’<br />—<br />Capability to bring new <br />New technology needs to add <br />saleable<br />features to Big Helicopter<br />‘<br />’<br />23<br />Inc.<br />s products or cost reductions in their process. Being active an<br />d <br />’<br />technology<br />involved in cutting edge research has huge perceptual value.<br />Engagement Process<br />Huge issue. They would like a supplier that can explain their <br />systemic <br />approach to full scale implementation. Also, having a dedicated<br />team <br />to support Big Helicopter Co.’s.<br />s team is key. Team members must <br />’<br />have <br />been around the block<br />with respect to rotary wing industry.<br />‘<br />’<br />Relationship and Trust<br />Critical to know who key management are on ongoing basis<br />would <br />—<br />be important to make commitment to executive review on semi<br />-<br />annual <br />basis<br />meetings probably need to be hosted at Big Helicopter Co..<br />s <br />…<br />’<br />European HQ<br />s<br />’<br />24<br />Share your analysis with the customer…<br />
  38. 38. Outcomes of a typical ‘Listening Event’…<br />Ratio of price vs. non-price drivers is almost always quantified<br />“They tell us the slope of their fair value line”<br />The non-price decision drivers are characterized in detail and the relative weights are quantified rigorously<br />“They tell us what their critical non-price decision drivers and trade-offs will be at deal time”<br />They specify the relative importance of list price versus other price values (such as payment terms, currency of payment, etc.)<br />“They tell us how price will likely be evaluated down to the last detail”<br />x<br />“They tell us how to win without leaving money on the table or over-engineering our value proposition”<br />x<br />price<br />x<br />x<br />x<br />performance<br />
  39. 39. Discussion Flow<br />Value Management—What is it? <br />How is Value Measured in Practical Terms?<br />Business Cases<br /><ul><li>Value Management for New Products
  40. 40. ….for Market Management
  41. 41. ….for Key Accounts</li></ul>How do you institutionalize Value Management across a business?<br />Wrap-up<br />
  42. 42. 1 Capability  6 Competencies<br />Value Management<br />6 Competencies<br />1 Capability<br />Value Proposition Development<br />Value Chain Analysis<br />To ensure that the positioning of our products and services results in the optimum price/benefit equation relative to competitive alternatives<br />Customer Needs Assessment<br />Perceived Value<br />Tailored Offers<br />Economic Value<br />
  43. 43. Mapping VM Capability to individual roles and competencies…<br />
  44. 44. Discussion Flow<br />Value Management—What is it? <br />How is Value Measured in Practical Terms?<br />Business Cases<br /><ul><li>Value Management for New Products
  45. 45. ….for Market Management
  46. 46. ….for Key Accounts</li></ul>How do you institutionalize Value Management across a business?<br />Wrap-up<br />
  47. 47. Contact Information<br />Brian Sharp<br />brian.sharp@kalypso.com<br />919.428.4495<br />
  48. 48. Background on Kalypso<br />
  49. 49. www.kalypso.com<br />9/23/2009<br />The Kalypso Difference<br />Kalypso is a consulting firm focused exclusively on innovation. Our people are leading business professionals who combine experience in select industries with product and process innovation expertise. <br />
  50. 50. www.kalypso.com<br />9/23/2009<br />Kalypso Capabilities<br />Our services are designed to help companies become more innovative and provide a systemic view of new product & service development.<br />

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