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95 Cards in this Set
- Front
- Back
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With commodity drift, power moves...
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From suppliers to customers
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2 broad reasons commodity drift occurs
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competitive dynamics
customer dynamics |
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4 types of competitive dynamics
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more competitors
more sophisticated & specialized competitors more responsive & aggressive competitors |
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horizontal axis of the commodity drift matrix
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solution breadth expanding
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4 proactive strategies for delaying commodity drift
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1. increase margins by cutting unvalued services
2. increase prices & margins for select value segments 3. regularly add highly valued, differentiated services 4. enhance marketing & communication of valued services |
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5 reactive strategies for delaying commodity drift
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same 4 as above PLUS
5. consider giving up on selected, intensely competitive customer segments with unredeemable profit margins |
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2 critical characteristics of good brand value driver contributors
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differentiated
sustainable |
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5 dimensions of sustainability
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1. technological advantages
2. cost advantages 3. scale and experience advantages 4. supply control advantages 5. market position advantage |
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5 types of customer on the continuum of potentially enhanced relationships to counter commodity drift
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1. transaction customer
2. procurement customer 3. supply management customer 4. fully partnered customer 5. enterprise customer (in order) |
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transactional customer
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buyer & seller have adversarial, arm's length, win-lose relationship; price drives vendor/supplier choice
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procurement customers
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modest cooperative arrangements with suppliers to enhance quality, inventory planning, etc; more trust
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supply management customers
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extensive partnering & data sharing with suppliers
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fully partnered customers
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may include permanent in-plant presence, extensive transparent sharing of product development/inventory/sales/distribution data
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enterprise customer
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customer actively desires to access any differential advantage the supplier may offer; may go beyond specific flexible market solution
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3 ways to use the business case
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1. performance enhancement tool
2. planning tool 3. selling tool |
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6 ways business case can be used as a selling tool
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1. brings objectivity for market analysis
2. better perspective of true strengths 3. develop attractive value propositions 4. uncover market solution deficiencies 5. help identify attractive & unattractive market segments 6. provide sources for pricing leverage |
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3 ways business case can be used as a selling tool
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1. communicating differential value
2. justifying premium margins 3. building financial vision |
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2 parts to the overall market solution
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naked solution plus the surrounds
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3 potential 'surrounds' in the overall market solution
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1. superior solution leadership
2. superior solution service & support 3. superior solution value |
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4 requirements for target customer to qualify
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1. in target segment
2. new task purchaser 3. no established relationship 4. not looking |
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5 reasons customer not currently looking for an alternative
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1. satisficing
2. too busy 3. past decision 4. past failure 5. horror stories |
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key generic advantages
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generic capabilities of your soloution that provide a significant operating advantage and related financial benefits over the primary generic competitive solultion now in use by the target segment and customer
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key generic advantage links
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primary financial issues - primary operating issues - multiple causes of primary operating issues - key generic advantages that will solve operating issues - operating benefit resulting from each key generic advantage - financial benefit resulting from each operating benefit of each key generic advantage
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3 types of costs
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cost savings
costs in use investment costs |
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3 types of potential cost savings
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displaced costs
avoided costs redirected costs |
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displaced costs
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eliminating or reducing an existing ongoing cost
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avoided costs
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not having to incur otherwise ongoing increasing costs
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redirected costs
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freeing resources - ongoing existing cost that can be used elsewhere - ex. cutting back current employee positions
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true or false:
focus on cost savings where you have a brand advantage |
false
focus on cost savings that are most important (80/20 rule) whether you have brand advantage or not |
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5 potential sources of revenue enhancements
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1. customer acquisition
2. customer retention 3. better market solution maintains sales that would've been lost 4. use of new cost efficiencies to lower price & increase revenue 5. proceeds of sale of displaced assets (count against investment cost) |
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costs in use
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new ongoing costs a customer would incur if adopting new solution; essentially generic disadvantages
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5 examples of typical costs in use
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1. ongoing new licensing and/or service fees
2. ongoing new/added manpower costs 3. ongoing new/added facilities costs 4. ongoing new/added supply costs 5. ongoing new/added maintenance cost |
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2 types of BIU advantages
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cost savings
revenue enhancements |
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placeholders
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temporary value related components that have not yet estimated and integrated into our business case framework
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true or false
all value related components start off as placeholders |
true
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3 reasons for placeholders
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not yet able to develop realistic formula
not yet able to separate from other value related components not yet able to make initial value estimate |
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what are the two value components?
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benefits in use
costs in use |
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purpose of the customer usage profile
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enables us to quickly and easily scale our solution to each specific customer in any given target segment
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where and how do we get the information for the customer usage profile?
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during customer audit
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BIU =
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cost savings + revenue enhancements
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questions to ask in customer audit
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-placeholder value add estimates
-primary competitor's price -relevant time horizon -hurdle rate -discount rate -typical industry OPM -risk adjustment |
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what is the relationship between directness of BIU & CIU, and difficulty of estimation?
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negative relationship; less direct = more difficult to estimate
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costs in use =
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new ongoing costs
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NVIU(f) =
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BIU(f) - CIU(f)
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NVIU
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Net Value In Use
your value in use advantage or VIUA vs. primary generic competitor |
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P(c)
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estimated price for primary competitive brand
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IP
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indifference price to our offer
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IP =
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VIUA + P(c)
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P(f)
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our price
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How is P(f) determined?
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-based on pricing strategy factors
-flows from pricing strategy choice regarding % of VIUA we keep for ourselves |
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CITP =
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IP - P(f)
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Value Pillar Components
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-total customer desired value drivers
-value drivers not offered -indifference price for our solution & our provable VIUA -customer incentive to purchase our offer -price of our solution competitor's price -placeholders -communications gap |
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3 reasons value drivers may not be offered
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1. technology not available
2. too costly 3. not sustainably differentiable |
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communications gap
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non-optimal communicatin of our provable VIUA and related CITP
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4 components of customer perceived value
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1. indifference price
2. our price 3. CITP 4. primary brand competitor's price |
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2 ways to improve communication of current value drivers
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1. reduce communications gap
2. quantify placeholders |
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3 results of quantifying our placeholders
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1. increases indifference price
2. lets us raise our price w/o reducing CITP 3. allows us to increase CITP if we don't choose to increase our price |
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CITP =
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IP - P(f)
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what is the primary price strategy decision?
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what % of provable VIUA do we take for ourselves, and what % do we leave for CITP?
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Value Pillar Components
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-total customer desired value drivers
-value drivers not offered -indifference price for our solution & our provable VIUA -customer incentive to purchase our offer -price of our solution competitor's price -placeholders -communications gap |
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12 factors affecting pricing strategy choice
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1. P(c)
2. VIUA 3. sustainability 4. communications gap 5. placeholders 6. skimming or penetrating price strategy 7. other competitors' prices 8. customer desired ROI 9. customer desired BEPP 10. pricing dynamics 11. real world 12. pricing alternatives |
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3 reasons value drivers may not be offered
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1. technology not available
2. too costly 3. not sustainably differentiable |
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how to use customer desired ROI in determining pricing strategy
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back into max price acceptable given risk adjusted hurdle rate
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communications gap
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non-optimal communicatin of our provable VIUA and related CITP
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4 components of customer perceived value
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1. indifference price
2. our price 3. CITP 4. primary brand competitor's price |
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2 ways to improve communication of current value drivers
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1. reduce communications gap
2. quantify placeholders |
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3 results of quantifying our placeholders
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1. increases indifference price
2. lets us raise our price w/o reducing CITP 3. allows us to increase CITP if we don't choose to increase our price |
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what is the primary price strategy decision?
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what % of provable VIUA do we take for ourselves, and what % do we leave for CITP?
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12 factors affecting pricing strategy choice
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1. P(c)
2. VIUA 3. sustainability 4. communications gap 5. placeholders 6. skimming or penetrating price strategy 7. other competitors' prices 8. customer desired ROI 9. customer desired BEPP 10. pricing dynamics 11. real world 12. pricing alternatives |
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how to use customer desired ROI in determining pricing strategy
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back into max price acceptable given risk adjusted hurdle rate
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how to use customer desired BEPP to determing pricing strategy
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back into max price acceptable given max expected BEPP - this is risk adjusted
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pricing dynamics and pricing strategy decision
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potential change in company's pricing strategy over time - can you realistically slide down the demand curve?
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real world and pricing strategy decision
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can you actually raise company's price to value justified price?
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true or false
all BIU and CIU start out as intangibles |
true - intangibles are placeholders
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3 rules for remaining placeholders
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1. make transparent
2. make flexible with spinners 3. determine rank order of importance |
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flexible placeholders
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placholders the seller can try to fill in while talking with customer
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estimate communications gap size as a % of what?
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as a % of VIUA vs. brand competitor
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3 types of investment costs
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1. price charged for the solution
2. evaluation investment costs 3. transition & implementation investment costs |
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price charged for the solution
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-up front price
-license/maintenance fees as price charged -usage charges as price charged |
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evaluation investment costs
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financial value of time, energy, & resources required by customer to evaluate solution
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evaluation investment costs may include direct & indirect one time investment costs associated with efforts for:
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-evaluating/comparing new solution with current system
-performing detailed customer company audit |
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transition & implementation investment costs
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one time, up front efforts & related direct & indirect costs required to transition from old to new solution
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transition & implementation investment costs may include efforts and related costs to:
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-adjust to disruptions to status quo
-implement initial training programs -reprogram existing solutions to integrate with new one -educate/integrate customers, suppliers, etc. |
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ROI =
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[(PV of NVIU Flow over relevant project life)-(investment cost)]/(investment cost)
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BEPP
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time to recoup investment costs
-usually expressed in months |
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when is OPM an appropriate primary criterion?
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when significant up front investment cost is not relevant, thereby making ROI and BEPP also irrelevant
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if primary cost incurred is ongoing new cost in use, use ROI or OPM?
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OPM
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OPM =
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[(annual BIU)-(annual CIU)]/(annual CIU)
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hurdle rate reflects what?
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systematic consideration of 'what else could we do with this money'?
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how is hurlde rate raised or lowered?
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reflecting preceived risk of prospective commitment
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purpose of verbal value proposition
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word equations intended to enable you to translate your framework results into everyday language for non-financially oriented
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definition of value proposition
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word equation that summarizes your primary value drivers against specified competitor
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two types of value proposition
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generic
brand |
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3 factors in monitoring key success criteria
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-monitor projected changes projected to be most important success contributors
-identify specific time frame for monitoring -contingency plan |
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3 ways to counter commodity drift
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-proactive strategies
-reactive strategies -relationship management |
