Value Propositions through Innovation for High Technology Companies. Gestione dell Innovazione a.a. 2004/2005 AB

Transcription

1 Value Propositions through Innovation for High Technology Companies Gestione dell Innovazione a.a. 2004/2005 AB

2 Agenda What is a value proposition? High technology market segmentation Product functional capabilities and customer benefits What is a whole product? Value propositions through Innovation

3 Challenge: Create a Value Proposition Technology Product Benefits Value Proposition Problem Market Need

4 The Value Proposition A combination of a product s functional capabilities, customer benefits and a business model which creates a value for a specific customer segment Solves a market need Its what you sell

5 High Technology - Market Segmentation What is a Market Segment? Set of potential customers Who have similar needs Who reference each other when buying Are alike in the way they: View and evaluate products Perceive value Purchase products

6 Housing Market Segments Apartments Condos Trailer homes Single family tract homes Custom built luxury homes Manufactured home Hotels Motels Prisons Retirement homes Nursing homes Military bases College dorms

7 Why Define a Market Segment? Easier to understand customer needs Can design the product to a narrower set of customer requirements Easier to become a leader in a smaller market (Big fish in small pond) More effective use of marketing dollars Generally more profitable

8 Profit Impact of Marketing Strategies (PIMS) 1/2 Originally a General Electric study Now the Strategic Planning Institute Studied 2600 business units since1960s Evaluated 28 factors related to ROI Determined the factor that most affected ROI was market share

9 Profit Impact of Marketing Strategies (PIMS) 2/2 ROI = profit return on invested capital Firms with market shares over 40% have an average ROI of 2 1/2 times more than firms with market shares under 10% Increasing market share by 10% results in an additional 5% increase in ROI

10 Profitability Increases with Market Share 1/2 Market share of up to 10% = 13.2% ROI 10% - 20%, ROI = 18.0% 20% - 30%, = 23.6% 30% - 40%, = 24.4% Over 40% market share, ROI = 32.3%

11 Profitability Increases with Market Share 1/2

12 Strategy: Define market segment small enough to allow you to capture 25% to 30% share in a few years Be a Big fish in small pond Don t enter a market that already has more than 3 or 4 strong competitors

13 A Market Segmentation - Example Do You Recognize any of these U.S. Firms? Codar Technology Elta Electronics Datametrics Raymond Engineering Option Computers In what market segment do they compete?

14 Industrial, Ruggedized Personal Computers Segment of the worldwide PC market Industrial Military PCs to military forces worldwide Installed in planes, tanks, vehicles, missile launchers, ships A well defined market segment $1 billion worldwide, 13% CAGR

15 Product Issues in Ruggedized PC Segment Precise design and military specs Environmental design requirements High reliability, MTBF performance Variety of power sources Stronger, sealed cases, rack mounted Extensive acceptance tests Military labeling in many languages

16 Product Packaging Ruggedized PC Segment Extensive documentation per mil-specs Spare parts programs Maintenance support Extensive and detailed warranty Physical packaging Shipping requirements

17 Sales Processes Ruggedized PC Segment - 1/2 Formal proposal, bidding process Very long, formal sales cycles Pricing may vary: cost plus fee, competitive fixed price, CPIF, etc. Federal acquisitions regulations apply in U.S.

18 Sales Processes Ruggedized PC Segment - 2/2 Extensive purchasing documentation Proximity to & contacts with the U.S. Pentagon and/or local military Sales team and management should be ex-military personnel Impacted by politics, budgets, foreign relations, trade restrictions Posting completion bond is common

19 Trade Journals for Ruggedized PC Segment Journal of Defense Electronics Government Computer News

20 Corporate Image in Ruggedized PCs Must have extensive high level contacts in military procurement & government Lobbyists in Washington and/or foreign capitals Must be profitable & financially stable

21 Selling PCs to the military is very different from selling typical PCs to a business Product requirements are different Product packaging is different Sales process is different Corporate imaging is different Each market segment has unique set of important requirements

22 Another example of a niche market Fanuc Painting Robot

23 Fanuc Robot Functional Capability 100% electric motors Explosion proof enclosure Positional repeatable accuracy is +/-.02 Powerful minicomputer Benefit Clean, no hydraulic fluid leaks Very safe to operate Very precise painting Fast execution, able to store many objects

24 Can Segment Markets by: Demographics Geography Application & Usage Platforms Technical Sophistication Price Distribution channel Customers Purchase volumes Hardware architecture Psychographics

25 Psychographics Segmentation using the Technology Adoption Curve Crossing the Chasm by Geoffrey Moore

26 Moore s Technology Adoption Curve Early Majority Late Majority Chasm Innovator 1/3 1/3 Laggard 1/6 Early Adopter

27 Moore s Segmentation: Technology Adoption Curve Normal population distribution of buyers Segmented into buying groups Uses standard deviation boundaries Based on psychographics: propensity to buy technology based products It s a metaphor, a model

28 Moore s Technology Adoption Curve Segments Innovators: (Techies) = first 4% Early Adopters (Visionaries) = 13% Early Majority (Pragmatists) = 33% Late Majority (Conservatives) = 33% Laggards (Skeptics) = 17%

29 Innovators / Techies Technology enthusiasts; they love it First to buy, even at high prices Willing to learn, very tolerant Gatekeeper role, but minimal buying power Will bug the heck out of you Problem: Not many of them 3%

30 Marketing to Innovators / Techies Product must be technically interesting Product must work functionally, not have to be perfect Draft manuals ok Have them beta test Want to talk with techie developers Deliver papers at conferences Publish in technical journals

31 Early Adopters /Visionaries Want new technology to dramatically improve their business in a strategic manner Want discontinuous breakthrough improvement in critical business process Goal: improve business, not use technology Builders not maintainers Project oriented Anxious, champions High risk/high reward types Make bet their career decisions Mountain Climbers

32 Marketing To Early Adopter / Visionaries Sell the dream, but clearly define scope & deliverables..watch out!! Relate directly to their business objective Have them reference other visionaries who have bought; your best salesmen Price is secondary: they want it right, complete, quickly & on time

33 Early Majority / Pragmatists Only want incremental improvement Evolutionary not revolutionary products Want proven, established products Can t sell them new, risky technology Can t sell them dreams, only reality Live with their decisions long time Hill climbers at best

34 Marketing To Early Majority / Pragmatists They want: Proven product, based on standards Many satisfied customers to reference in their own vertical industry To buy whole product from market leaders Competition: lower prices, other vendor alternatives

35 Late Majority / Conservatives Back side of curve = 1/3 population Significant opportunity for sales & profits Technology adverse; don t like change Want only mature whole products, fully packaged and supported...at a low price buy off the shelf Most technology products they buy are sold through retail distribution channels

36 Laggards / Skeptics Last 1/6 of population = 17% Don t buy any technology unless they are forced to Just now buying microwave ovens & VCRs Not worth talking about Not worth me making this slide! Enough said...

37 Initial Target or Beach head Market Target Market = 17% of Total Market Adoption goes from left to right, along the curve EA = 14% I = 3%

38 Early Stage Sales Strategy You first must sell to Innovators and Early Adopters/Visionaries Initial Target market is 17-20% of the Total Available Market You cannot initially sell to Early Majority/ Pragmatists don t waste your time & effort you can t skip over Early Adopters / Visionaries

39 Summary: Define initial market segment small enough to allow you to capture 25% to 30% market share in a few years Don t enter a market that already has more than 3 or 4 strong competitors First sell to Innovators & Early Adopters

40 Whole or Complete Products Technology to Customer Benefits Technology Functional Capabilities Customer Benefits

41 Example: Portable PCs Functional Capabilities Low weight Small size/volume Large storage media High processor speed Mhz High amp-hours /volume & /weight in battery Customer Benefits Ease of portability Adequate storage capacity Effective computing power Maximum battery time without power connection

42 Example: Fiber Optic Cable Functional Capabilities Low weight cable Small size cable Less signal loss/ft, attenuation High message volume capacity - MB/sec Immune to cross talk, RFI and EMI Customer Benefits Easier to install Fewer retransmission amplifiers Easier to trouble shoot & maintain Lower cost/ MB More clear signals

43 Example: DSL Lines Functional Capabilities Uses existing twisted pair copper telephone line times faster than 56kbps dial up modem Minimal additional modem hardware Customer Benefits Minimal installation time & cost No new phone line Minimal hardware Enables service operators to sell more broadband services Can be incrementally introduced to market

44 The Whole Product Includes The Device: Basic core product, invention, what engineers designed, what customers actually use Product Packaging is in addition to the device: Things, processes, services and extras that are wrapped around the device to produce a more attractive value proposition

45 3 Types of Product Packaging 1/2 1. Product related: Technology platform, technology standards, migration strategy, upgrade policies, ease of conversion, documentation 2. During the sale: Financing, warranty, trade-in allowance, sales process, pricing, terms & conditions

46 3 Types of Product Packaging 2/2 3. After the sale: Delivery, installation, training, customer support, user groups, maintenance & parts All of these topics need to be determined before: Selling the product Preferably before finalizing the product design

47 A Must Have Reason To Buy The value proposition is so good that you must have it. Examples? Critical to success of any new product Becomes the central theme of the overall marketing strategy, including advertising and promotion

48 If you have a technology based product: The strength of the value proposition must exceed the reluctance, fear and risk of buying a high technology product Most buyers initially resist buying new technology products Only a few innovators & early adopters

49 If you have a no tech or low tech product: The strength of the value proposition must exceed the comfort and habit of customer s current buying habits and choices You have to overcome buyers natural inertia to keep on buying the same products and buying them in the same way

50 Developing a Value Proposition Frequently the product is already defined Then have only 2 variables: Customer and functional capabilities/benefits Can use a spreadsheet analysis: Rows: Features that provide applications Columns: Customer target market segments

51 A Must Have Reason To Buy Critical to product launch success Without it you ll probably never get to see the chasm, let alone cross it The strength of the value proposition must exceed customer s fear and risks of buying a new, high technology discontinuous product

52 3 Sources of a Must Have Value Proposition #1 - Provides a dramatic competitive advantage #2 - Radically improves productivity #3 - Significantly reduces costs

53 Must Have #1: Provides a DRAMATIC Competitive Advantage Advantage not previously available Dramatic, significant, not minor In a major operational area Examples are ATM machine, CT scanner, ipod, itunes, Polaroid camera, Xerox 914 copier, laparoscopic surgery

54 Must Have #2: It RADICALLY Improves Productivity Improves productivity of a well-understood critical success factor Superior price-performance Examples are CAD software, , Internet search engines, word processing & spreadsheet software, Sun Sparc workstations, blade servers, laparascopic surgery

55 Must Have #3: It SIGNIFICANTLY Reduces Operating Costs Must be visible, verifiable, significant, quantifiable, easy to prove Free offers get attention Examples are ATM, laparoscopic surgery, Napster, spreadsheet & word processing software, online software distribution

56 Final Notes Difficult to cross the chasm if you only have 1 of the 3 sources of must have Better to have 2 of 3 sources Best to have all 3 sources ATMs Laparascopic surgery

57 Laparoscopic Surgery 1/3 Why has this method of surgery become so popular? Can you determine the sources of the Reason To Buy?

58 Laparoscopic Surgery 2/3 New procedure for hip replacement surgery Two 2 inch incisions replaces one 10 Minimal cutting of muscles Same prothesis Out patient basis versus five days in hospital Less pain and discomfort

59 Laparoscopic Surgery 3/3 Dramatic competitive advantage Faster patient recovery, reduced pain, safer Patients go to doctors & hospitals who do it Radically improves productivity Doctors spend less time per surgery & post op Significantly reduces costs Less time in hospital = less cost Insurance companies benefit, lower premiums

60 A Must Have value proposition for Automated Teller Machines Dramatic competitive advantage Open 24 hours, much faster transaction time Radically improves productivity Need fewer tellers per branch Focus on better service and selling new services Significantly reduces costs Less paperwork, labor costs 91 cents w/teller to 27 cents w/atm