Uncovering the Future Drivers of Customer Demand

Transcription

1 Uncovering the Future Drivers of Customer Demand Senior managers must make an array of high-stakes bets in their quest for profitable revenue growth. To succeed, they need practical insights and a way to quickly reach consensus and execute their next moves. Oliver Wyman s Customer Value EngineeringTM platform uses cutting-edge demand simulation and decision support techniques that integrate the insights of future customer demand with the microeconomics of the business. This allows our clients to make highly informed decisions with minimal risk, driving significant growth in revenues, margins, sales close rates, and average deal size.

2 There is gold to be mined in understanding the customer s decision-making process. In their quest for revenue and earnings growth, senior managers must place a daunting array of make-or-break bets. They have to develop new offers; make brand, channel, and marketing moves; differentiate themselves against low-cost competitors; and fight for market share. In today s fast-moving, hyper-competitive marketplace, there s less margin for error, so executives need more than the right answers. They also need a more effective process to reach consensus and push for fast and successful execution. The success or failure of these bets will be determined in each case by how the customer responds. But trying to anticipate shifts in customers priorities is a tricky proposition. The challenge is to discover the next big thing that customers will value; it could be different pricing or financing, better support, an extended warranty, speed of delivery, or some other factor. That s why there is gold to be mined by getting inside the customer s head. For example, corporate buyers care about price and product features. But beyond price and features, they also value reliability, ease of deployment, delivery date, and maintenance and service arrangements. Moreover, buyers are influenced by users inside their organization, functional peers in their own and other industries, and expert analysts at trade magazines and rating firms. Cumulatively, these surrounding factors may account for 70% to 80% of the purchase decision, as Exhibit 1 shows. Yet many companies spend at least 80% of their resources solely on price and product features. The trick is to cut through the day-to-day business of Exhibit 1 Decision factors for a technology product 100% Interoperability with existing environment User interface New/advanced features Financing options Brand External/market endorsement Quality of demo/trial Source: Oliver Wyman client example Product availability/ delivery time Ease of install Remote management Automatic feature upgrades Support coverage and responsiveness 40 Core features Price 20 0 Performance and reliabiity Internal/user opinion Quality of sales team Installation support services Warranty coverage and duration % Product specifications Price Brand Influencers Sales process Time to value Ongoing support 2

3 transactional negotiations and find the real drivers of value. In this regard, the classic combination of market research plus business case analysis falls short. It can miss important drivers of value, it rarely links those drivers with the company s microeconomics, and it offers limited means for building organizational consensus. Managers need an effective process to play out the many potential moves and competitive reactions, determine the impact on the bottom line, and reach a consensus to execute the strategy quickly and successfully. To that end, Oliver Wyman has spent three years integrating a range of advanced analytic marketing science, decision support, and strategy development techniques into one cohesive decision-making platform. Our proprietary Customer Value Engineering TM (CVE) methodology allows companies to identify and quantify the true emerging drivers of customer value those things that customers will actually pay for in a competitive context and evaluate the bottom-line impact of alternative strategies. Customer Value Engineering uses sophisticated demand simulation techniques, including the ability to observe customer behavior in future-defining market scenarios, which allow managers to effectively see the future by testing different strategic moves. At the same time, the approach uncovers powerful short-term operational levers, such as pricing moves by customer segment or changes to the warranty duration. A platform with many uses Customer Value Engineering serves as a platform for senior managers to answer a broad array of critical questions: Optimizing offers What should I do to: Optimize the value associated with the next product release? Understand customers priorities and tradeoff mentality? Break into a new space, such as small and medium businesses? Overcome the switching cost advantage of the incumbent? Ensure that I m making the right pricing moves? Shift from product to solution? Reducing the risk of major business design moves and investments What should I do to: Test alternative scenarios and choose the right strategic path? Get the organization aligned with the chosen strategy? Ensure that the planned $1 billion investment will yield the desired return? Identifying next-generation value spaces What should I do to: Drive profitable growth in our mature or low-growth businesses? Most effectively counter a major competitor s move? 3

4 The Customer Value Engineering platform works through four capabilities: Listening to the voice of the customer. Oliver Wyman s proprietary customer science methodologies, such as Strategic Choice Analysis and Information Acceleration, get inside the buyer s head to uncover which considerations will drive and create demand for future goods and services. Our conditioning techniques place customers in a realistic and relevant purchase environment and ask the right questions (so outcomes are actionable) in the right way (so buyers reveal what really makes them tick). We can quantify the value and interaction effects of brand, outside influencers, or downstream services. This goes well beyond traditional market research techniques. Modeling the drivers of business economics. It s not enough to know what makes demand happen. Executives also need to know the variable costs of acting on that information so that they can determine whether a given move will make or lose money. Customer Value Engineering links the information about each demand driver directly to the microeconomics of the business. This analysis answers questions such as: If the brand matters most, where should we invest to improve brand equity, and what will it cost? If external influencers matter, should we shift the marketing mix away from golf tournaments and toward better relations with trade journalists? If customer service matters, what exactly merits investment a shorter wait on the phone, the knowledge of call center representatives, or the speed of technician response? If the customer is asking for 24-hour delivery of a turbine, what are the economic implications? Creating a robust strategy platform. The next step is to embed the key value drivers and business economics data into what we call an Interactive Strategy Model TM, or ISM. Managers can use the graphical ISM dashboard, as shown in Exhibit 2, to evaluate the impact of possible initiatives on various financial metrics and game out how competitive countermoves will affect the half-life of any given strategy. This allows companies to turn strategy into action with minimal risk. Accelerating the time to value. To arrive at a high-stakes business decision, the senior management team must be engaged throughout the process, as their contributions and consensus are critical to a successful outcome and rapid execution. We collaborate closely with clients in workshop settings to identify the big plays and the tactical moves for exploration, and to translate those hypothesized moves into the relevant customer research and interactive decision-making tools. For executives evaluating large strategic investments, searching for the next wave of opportunities to drive profitable growth, or considering the best way to optimize products in the marketplace, Customer Value Engineering provides the necessary discipline to reduce the risk of and maximize the return from these make-or-break decisions. 4

5 Exhibit 2 Interactive Strategy Model TM sample dashboard page (disguised) What Oliver Wyman clients say Two years after the work was finished, we still rely on the CVE insights. Market Intelligence VP, global technology firm Anyone who has a big make-or-break business decision must be eating this up. Head of B2B Pricing, North American telecommunications operator Every division above a certain size should do this every couple of years. Head of Corporate Strategy, global technology firm We have to fundamentally change how we go to market, and this looks like what we need. CMO, North American communications company 5

6 Oliver Wyman experience Redesign of a computer server business go-to-market strategy: A global computer equipment manufacturer and services firm began to experience erosion in one of its key server divisions. Senior management faced two key questions: What unusual offer attributes could jump-start the business and create a differentiated value proposition? And how could the firm effectively counter a set of big moves by competitors? We worked with management and other industry experts to identify potential moves and to quantify customers reactions to these moves. Within two quarters of project completion (and after five years of slow or negative revenue growth), the prescribed go-to-market strategy helped drive double-digit revenue growth in the business. IT equipment offer optimization and differentiation: An international IT equipment firm saw price erosion and fierce competition from domestic and international competitors in one of its main product lines, which was rapidly losing market share. Senior management wanted to discern which offer elements beyond price could help the line make substantial improvement. Our CVE effort identified clear and differentiating moves that could turn around the business and help displace the competition at key target accounts. One year after project completion, this multi-billion-dollar business posted sharp revenue growth, including a quarter with almost 40% revenue growth over the prior year. Telephony provider growth strategy: A North American telephony provider faced increasing competition in its broadband service offerings to small and medium business customers and was using reduced prices as the primary lever to preserve its leading market share. We helped develop a robust understanding of buying preferences and tradeoffs, which allowed the company to reposition its offer mix and promote value in order to drive subscription and revenue growth. The strategy was tailored to each defined customer segment and then quickly executed in the market. Telecommunications network investment decision: A telecommunications firm was considering a substantial investment to upgrade its networks for TV over DSL to offer a triple play of Internet, TV, and voice services over one network. Management was divided over demand for these bundled services and thus the payback of the investment. To estimate demand, we created a future market with audiovisual simulation of the services for consumers. We were able to isolate the demand, revenue, and profit impact of bundled offers, pricing changes, and brand equity, all in the context of competitive alternatives. Our approach challenged conventional wisdom and helped senior management understand how demand and profitability would be affected by each offer design and investment alternative, so they could concentrate on those elements that have the greatest impact on value growth. The firm decided against a $1.5 billion infrastructure investment and focused instead on partnerships and offer enhancements that could yield $1.4 billion in incremental revenue profitably. 6

7 Telecommunications pricing and go-to-market strategy: Senior management at a U.S. telecommunications services provider suspected that the business network solutions sales force was too reliant on price discounts to drive sales and not focused enough on other differentiating characteristics. We analyzed how customers traded off various offer elements including price, service level agreements, technology features, and functionality. The analysis confirmed management s intuition: Deep price discounts did not increase the sales rate, and other offer elements had more influence on customers purchase decisions. The sales force quickly refocused the sales messaging and tightened controls around discounting. After these changes took effect, the company saw an increase in revenue per deal with virtually no decline in the sales close rate, dropping the incremental revenue straight to the bottom line. Broadband offer optimization: A U.S. Internet service provider wanted to optimize its offering for existing broadband subscribers and those migrating to broadband. It needed to understand which services (digital music, anti-virus software, and so on) drive demand, and whether bundling, upselling, or other tactics would create the most value. We addressed these questions through demand research and interactive modeling, revealing that bundling two additional features with the base offer and using one to upsell could increase subscribers by more than 60% and raise subscription revenues by 30%. Software company future business design and strategic investment: A global software developer and services provider faced the challenge of needing to make a number of big bets with limited resources for its future systems management software platform. After generating numerous hypotheses around potential directions, Oliver Wyman and the client team tested a wide range of alternatives. We determined the value associated with each element of the business, from brand strength to pricing models, user interfaces, and emerging systems management capabilities. Then we designed the optimal set of investments and strategic moves. The transparent CVE process was instrumental in coalescing and mobilizing the organization. What Oliver Wyman clients say We all saw what we need to do; so now we can move forward, and we re not going to keep revisiting the question. COO, communications equipment manufacturer Now we can t say we don t know the answers to our critical business questions are all here. Marketing and Strategy EVP, global information technology firm 7

8 About Oliver Wyman Oliver Wyman is building the leading global management consultancy, combining deep industry knowledge with specialized expertise in strategy, operations, risk management, organizational transformation, and leadership development. The firm works with clients across a range of industries to deliver sustained shareholder value growth. We help managers to anticipate changes in customer priorities and the competitive environment, and then design their businesses, improve their operations and risk profile, and accelerate their organizational performance to seize the most attractive opportunities. For more information, please contact our global coordinator, George Faigen, who is based in the U.S , george.faigen@oliverwyman.com Copyright, Oliver Wyman. All rights reserved.