From Pricing Management to Value Management: the Next Big Leap

Transcription

1 From Pricing Management to Value Management: the Next Big Leap September 18,

2 Discussion Flow Value Management What is it? How is Value Measured in Practical Terms? Business Cases Value Management for New Products.for Market Management.for Key Accounts How do you institutionalize Value Management across a business? Wrap-up 2

3 Value Capture is usually the missing link 1. Creating measurable, differential value for the value chain 2. Maximizing the profit captured by the enterprise 3

4 Diagnosing Organization Capability: Value vs. Price Management Value Management T R A N S A C T 4

5 Sample Diagnostic Results: Industrial Mfg Co. 5

6 Discussion Flow Value Management What is it? How is Value Measured in Practical Terms? Business Cases Value Management for New Products.for Market Management.for Key Accounts How do you institutionalize Value Management across a business? Wrap-up 6

7 How is value measured? Two Schools of Thought Value is Quantifiable - - Calculated Value Decision to use one or both depending on the unique situation Value is Relative - - Perceived Value Waterfall charts Economic Value Analysis Return on investment Tools Value maps Price vs. performance Relative market position Alignment of Price and Value 7

8 School #1: Perceived Value The Value Map shows the position of each competitor in terms of the overall cost versus the overall benefit. Higher Cost Worse Value Premium Relative Price Average Lower Cost Inferior Economy Better Value Fair Value Line Relative Perceived Value Superior 8

9 School #2: Calculated Value 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) $ Variance Benefit vs. Current Solution Savings Break Even Current Solution 9

10 Discussion Flow Value Management What is it? How is Value Measured in Practical Terms? Business Cases Value Management for Market Management.for New Product Launch.for Large, High Stakes Proposals How do you institutionalize Value Management across a business? Wrap-up 10

11 Case #1: New Material for Home Insulation 54% of energy in the US is consumed by buildings (residential and commercial) and their construction Department of Energy reports that over 40% of the cost of heating and cooling is lost through uncontrolled leakage through the building envelope Sharp spikes in energy prices in 2008 increased homeowner awareness related to insulation solutions Energy-efficient, or green construction is the main trend in the building and construction sector 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 11

12 One Offer. Four Value Propositions. Scope of enterprise Basic Materials Manufacturer Residential Insulation Manufacturer Insulation Installer Residential Home Builder Homeowner Value Drivers Calculated Fair trade on order fulfillment activity performed by distributor in return for appropriate margin and inventory turnover Calculated Application training and technical support augmented by cooperative marketing spend and effectiveness Calculated Return on investment for labor and material inputs during home construction process leading to maximum retail price capture Calculated Total cost of ownership over an expanding time frame (2-5 years) Perceived Value: functional and emotional benefits of reliability My home is green 12

13 Value proposition to the homeowner is clear install better insulation in your home and save 25-40% on your monthly energy bill Variance Cost/Profit vs. Fiberglass Additional Installed cost of Insulation HVAC Sizing Elimination of Humidifier Present Value of Future Energy Savings Break Even in x months Current Option: Fiberglass Insulation 13

14 but big problem for the Homebuilder Build your homes with our insulation.and increase your cost/home? Raw Material & Installation Costs HVAC Sizing Eliminatio n of Humidifier Extra Ventilation Construction Site Disruption Price Markup on House Variance Cost/Profit vs. Fiberglass Break Even Profit Current Option: Fiberglass Insulation Homebuilders select and install the majority of insulation used in homes across North America! Problem: homebuilders don t understand how to cover the costs of better insulation 14

15 Case #2: Beyond Hot & Cold: Ideal Home Environment Clean Air is a Big Deal 45% households with respiratory problems 20M with asthma Indoor Air 5x worse than Outdoor Air (EPA study) Consumers willing to pay for proven solution Launch 2 Different Products Bolt-on air cleaner Integrated air cleaner $1400 MSRP CADR Solution Exclusive, proprietary technology 99.98% efficient at 0.1 microns Removes the flu virus! Highest available Clean Air Delivery Rate (CADR) CleanEffects tm Results Tremendous positive consumer experience Bolt on configuration hit targets Integrated configuration under performed Room Air Purifier Typical HVAC System Electronic Air Cleaner Clean Air Technology 15

16 Not as rosy for Integrated Clean Air HVAC OEM Distributor Dealer or Contractor Homeowner Value Promise Extension of successful clean air launch Premium price to dealer (vs bolt-on solution) Significant installation labor savings (time, $) Compact design needed for some applications Wants clean air Willing to pay $1400+ for technology Value Reality Extra SKUs drove extra carrying cost Low % of dealers who get it Didn t adjust price to homeowner to reflect labor savings Cost-plus mentality Still wants/needs clean air Opted for bolt-on solution Value Drain Across the Tiered Channels 16

17 Case #3: Large, high stakes proposal What is the slope of the line for this particular customer scenario? How does the customer decision making team weigh price vs. non-price decision drivers How do we assess our Relative Perceived Performance for this deal? What are the non-price decision drivers? and What is the relative importance of each decision driver? How will price be measured by the customer on decision day? How will the customer evaluate pricing at the moment of truth? The enemy price x x x Us???? x Relative perceived performance 17

18 The listening event helps clarify what is valued and what is not Listening Event 18

19 Share your mental model of the Value Map? Do we understand Big Helicopter Co. s needs? Relationship/Trust 5% Acquisition Cost The 50% details behind the decision drivers at Big Helicopter Co.. Engagement Process 5% Capability to bring new technology 15% Risk Assurance 25% Need Which means.. Price Cost = price/unit would be willing to consider impact of significant, quantifiable issues related to cost-in-use Risk Assurance Technical support needs to be focused on improving the quality of prototype testing prior to deployment on the new helicopter platform. Development of mutually agreed test methodology will go a long way toward reducing Big Helicopter Co.. s risk. Must address personal risk s of the buying team as well backup support. Absolutes = Product performance and Capability quality to bring new technology New technology needs to add saleable features to Big Helicopter Inc. s products or cost reductions in their process. Being active and involved in cutting edge research has huge perceptual value. Engagement Process Huge issue. They would like a supplier that can explain theirsystemic approach to full scale implementation. Also, having a dedicatedteam to support Big Helicopter Co. s. s team is key. Team members must have been around the block with respect to rotary wing industry. Relationship and Trust Critical to know who key management are on ongoing basis would be important to make commitment to executive review on semi-annual basis meetings probably need to be hosted at Big Helicopter Co.. s European HQ s 19

20 Outcomes of a typical Listening Event Ratio of price vs. non-price drivers is almost always quantified They tell us the slope of their fair value line The non-price decision drivers are characterized in detail and the relative weights are quantified rigorously They tell us what their critical non-price decision drivers and trade-offs will be at deal time They specify the relative importance of list price versus other price values (such as payment terms, currency of payment, etc.) They tell us how price will likely be evaluated down to the last detail x x price x x x They tell us how to win without leaving money on the table or overengineering our value proposition performance 20

21 Discussion Flow Value Management What is it? How is Value Measured in Practical Terms? Business Cases Value Management for New Products.for Market Management.for Key Accounts How do you institutionalize Value Management across a business? Wrap-up 21

22 1 Capability 6 Competencies 1 Capability Value Management To ensure that the positioning of our products and services results in the optimum price/benefit equation relative to competitive alternatives 6 Competencies Value Proposition Development Value Chain Analysis Customer Needs Assessment Perceived Value Tailored Offers Economic Value 22

23 Mapping VM Capability to individual roles and competencies 23

24 Discussion Flow Value Management What is it? How is Value Measured in Practical Terms? Business Cases Value Management for New Products.for Market Management.for Key Accounts How do you institutionalize Value Management across a business? Wrap-up 24

25 Contact Information Brian Sharp

26 Background on Kalypso

27 The Kalypso Difference 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. 9/17/

28 Kalypso Capabilities Our services are designed to help companies become more innovative and provide a systemic view of new product & service development. 9/17/