Quantifying Initiative Value & Prioritizing New Concepts Seminar
Quantifying value: Working Through the Math
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Transcript of Quantifying value: Working Through the Math
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Copyright © 2012 by LeveragePoint Innovations Inc. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means —
electronic, mechanical, photocopying, recording, or otherwise — without the permission of LeveragePoint Innovations Inc. This document provides an outline of a presentation and is incomplete without the accompanying oral commentary and discussion.
COMPANY CONFIDENTIAL
Quantifying Value: Working Through the Math
Monthly Webinar Series – December 12, 2012
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Sponsored by LeveragePoint the Software Solution for Value-based Pricing
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Today’s Presenters Quantifying Value: Working Through the Math
Ed Arnold is Vice President of Product Management at
LeveragePoint. Previously, he held senior positions at Communispace, Diamond Management & Technology Consultants, and OmniTech Consulting Group. He directs product design and development and drives the go-to-market strategy for LeveragePoint. Mr. Arnold holds an MBA in Marketing from New York University and MA and BA degrees in Political Science from Boston University.
Roberto Rivera is Director of Professional Services at
LeveragePoint. Previously, he was a pricing consultant at the Strategic Pricing Group and Zilliant. At LeveragePoint, he helps our customers understand and capture the value of their products and services. Mr. Rivera has an MBA and Economics degrees from Clark University, where he guest lectures future marketing professionals on the practical application of pricing strategies and tactics.
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Agenda
• Why Quantify Value?
• Scenario: Intangible Value
• Scenario: Bundled Offers
• Q & A
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Why Quantify Value?
Product Focus “What do we offer?”
Application Focus “Why should the
customer care?”
Customer Focus “What is that worth?”
Features
$ Value
Benefit
Cost Revenue
Shifting the Focus from Product to Customer Economic Impacts
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Polling question
• Which of these challenges have you experienced when quantifying value? [Select all that apply]
– How to quantify “intangible” value
– How to quantify the value of a bundled solution
– How to compare value versus an in-house (free) alternative
– How to estimate the value of a new product or innovation
– How to defend value of a mature, commoditized product
– OTHER (please specify in chat window)
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Quantifying Intangible Value
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Insights for Quantifying Intangible Value
• It’s important: because the “intangibles” may comprise a significant amount of your value of your offer.
• It’s not binary, i.e., “Hard” versus “Soft” value: Actually it’s a continuum ranging from easy-to-measure to very-expensive to measure.
• It’s not impossible: often broad customer benefit statements can be broken down into very tangible customer benefits
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Breaking Down a Broad Customer Benefit
We have a strong brand!
What does your brand mean to a
typical customer?
(why do they buy from you?)
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Breaking Down a Broad Customer Benefit
Why is that important to the
customer?
It means we have the most
reliable product in the industry.
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Breaking Down a Broad Customer Benefit
How often does it happen with your competitor?
Because unplanned
downtime is a big issue for
them.
How does that impact the customer’s cost of operation?
How do you measure the cost of unplanned downtime?
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Defining the Economic Logic
Our solution reduces your
unplanned downtime
Reduces cost of non-productive labor
Hourly rate X Hours of downtime per year X Number of workers X % Reduction
Reduces cost of emergency repairs
Average cost per service call X Number of calls per year X % Reduction
Reduces amount of potential lost sales
Quantity of production lost X Average per unit margin X % Reduction
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Customer Examples
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Customer Examples
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Another Example
We provide superior industry
expertise!
How does this benefit a typical
customer?
(why should the customer care?)
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Another Example of Defining the Economic Logic
Our expertise improves
your efficiency and
customer service
Increases production output
Incremental volume X Average margin per unit
Reduces customer service issues
Average cost per service call X Number of calls per year X % Reduction
Reduces incidence of customer churn
Average churn rate X Value of customer per period X % Reduction
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Customer Example
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Quantifying Bundled Offers
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Insights for Bundling
• It’s natural for customers to want a discount for bundled offers. This effect is known as “Total Expenditure price sensitivity”, i.e., the more I buy, the bigger the volume discount I deserve.
• It’s important to understand the distinction between cost efficiencies of volume versus the value of an integrated solution, i.e., 1+1=3.
• It’s about providing customers with viable and fair trade-offs of products and services, e.g., not volume discount, but free delivery with certain level order.
• It’s useful to look at bundling best practices in other industries, including consumer. Examples of good bundlers are for software, cable TV, new car packages.
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Copyright © 2012 Value Management Advisors, Inc. Confidential
Tiered Offers
Software
Pro Version
$649.99
Personal
Version
$74.99
Automotive Cable TV
20
Xfinity Triple Play
$99/mo
Xfinity TV
$39/mo
Standard Corolla
$17,025
With spoiler, bumper protector,
body side moldings
$18,167
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Customer Example – A Tale of 2 Value Models
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How to Bundle for large OEM customer?
1 + 1
Specialty Catalyst – 1 Year Volume Commodity Catalyst – 1 Year Volume
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How to Bundle for large OEM customer?
1 + 1 = 3
Bundled 3 Year Contract
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How to Bundle for large OEM customer?
Multi-Year View
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Conclusion
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Our Next Webinar – January 2013
• Stephan Liozu
• Value Modeling in the Innovation Process
• January 23, 2013 – Noon EDT
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Thanks for Watching!
www.leveragepoint.com
(617) 252-2876