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
Using Value-Based Innovation for New Product Introductions
1. February 24, 2014
Jose A. Briones, Ph.D.
SpyroTek Performance Solutions
Twitter: @Brioneja
www.Brioneja.com
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
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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
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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
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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.
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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
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7. Relationship Between Innovation and
Value Creation
Disruptive
Radical
• Value Co-Creation
• Joint Value Development
Incremental • Value Sharing/Split
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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.
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9. 3 Types of Voice of the
Customer
Unmet needs
Job to be done
Product features
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10. Gillette’s Custom Plus Disposable
Amazon’s price of 3
Pack with 10
razors/pack: $10.61
Cost/razor: $0.35
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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
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13. 3M Scotch® Tape
Amazon price: $1.00
300’ length
Cost per inch: $0.003
Cost to hang a poster:
$0.01
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14. 3M Command® Strips
Amazon Price: $1.95
12 strips
Cost per strip: $0.15
Cost to hang a poster:
$0.60
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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
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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
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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.
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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)
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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
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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
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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
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29. iPad MPQP vs. Competition
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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
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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.
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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)
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a.com
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
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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
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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
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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
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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
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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
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Time
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
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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
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www.spyrotek.com
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
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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.
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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
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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
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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
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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
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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.
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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
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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
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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?
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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
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