Monday, July 5, 2010

Four Steps to Deliver Product Value

Businesses must be responsive to how customer's tastes change. For example, in the early days of cell phones customer's wanted small and light-weight phones. Today's phones must possess a balance between functionality, usability, size, and durability. What makes the task increasingly difficult is that there are several different markets of consumers with different expectations and willingness-to-pay for each of these attributes. The many cell-phone manufacturers have come up with their solutions over time and the consumers show their preferences with their purchase decisions. Some of the manufacturers have found ways to satisfy certain target markets, but these guys fight hard for every point of market share.

Product planners can make deliver big gains in market share and profitability by taking four major steps:

1. Identify sources of product value
2. Make changes to goods and services that increase net value (product value minus product cost)
3. Promote the changes
4. Assess the product value delivered

Identify Sources of Product Value
The first step in identifying sources of product value is to measure the current product's value to the customer. Measuring product value is how the business measures how its solution measures up against the competition and serves as a source of ideas for integrated communications to the customer to remind them of the solution's benefits. The key to Step #1 is exploring the voice of the customer for adding or changing attribute levels for which consumers are willing to pay. Although many product planners and executives use their gut to identify the sources of product value, it doesn't have to be this way. The competitive landscape is just too tough to rely on gut feels alone.

Increase Net Value
Competing on both product value and product cost is the key to creating value for the customer and value for the business. Studies have shown that successful businesses (in terms of profitability and market share) are the ones that focus on creating valuable products AND keeping costs down simultaneously. Generally, when making these tradeoff decisions, analysts will come up with cost forecasts and leave it to the product planner to use "the gut" to figure out if the change will be a net value winner (net value losers are the ideas where the change in willingness-to-pay does not cover the change in product cost). Again, making the net value decisions doesn't have to be this way. There are ways to make these calculations rapidly to support better decisions.

Promote the Changes
If changes are made that give the consumers more for the money--TELL THEM. The metric of product value is based largely on perception, so its important the product changes are communicated so that the consumer know how your product is better than the competition (and how to explain it to their friends).

Assess the Value Changes
The last step is measuring the value changes using actual purchase data. Actual sales data is the only way to obtain a metric of product value that truly measures how consumers vote with their dollars. Using survey data to forecast value changes is a necessary step in determining what product changes will help net value, but using real sales data to measure changes in product value is the only way to assess the innovative power of product changes.

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