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Use Value-based Design to Drive New Product Success

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Creating profitable new products is the foundation for every company's growth strategy. Nevertheless, 3 out of 4 new products fall short of their sales targets because customers don't value the product enough to justify the price.

Join us as best-selling author Dr. John Hogan shows how value-based design can dramatically improve new product success rates. He will show how to prioritize new features based on their value creation and value capture potential. He will also share a compelling case study of how one firm used value-based design to re-build their product portfolio.

During this 30 minute webinar you will learn:
- Why your current development process misses profit creation opportunities
- The three value-based metrics that define the "profit zone" for new products
- How to prioritize and select new features based on customer value

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Use Value-based Design to Drive New Product Success

  1. 1. Copyright © 2013 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 CONFIDENTIALUse Value-Based Design to DriveNew Product SuccessMonthly Webinar Series – May 22, 2013
  2. 2. 2Sponsored by LeveragePointthe Software Solution for Value-based Pricing
  3. 3. 3Today’s PresenterUse Value-Based Design to Drive New Product SuccessDr. John Hogan is co-author of The Strategy andTactics of Pricing and is a recognized thought leaderand speaker on the topic of strategic pricing andvalue-based marketing strategies.As founder of Value Management Advisors, he workswith clients in a range of industries includingtechnology, healthcare, and manufacturing.Previously, John was a Partner at Monitor Group, aglobal management consulting firm, and managedcorporate pricing strategies for General Motors.
  4. 4. © John E. Hogan 2013There is Room for Improvement in NPD Processes5A 2013 PDMA benchmarking study found that NPD processes aresuccessful less than 25% of the time.020406080100% of new products that hitrevenue targetsOur development process isdata driven2012201076% “Failure”Rate
  5. 5. © John E. Hogan 2013Common Problems with New Product Launches6Lack of Value:Process yields gold-plated productswith high performance that don’tcreate enough value to justify thepriceWrong Pricing:Cost-plus pricing leaves money on thetable or underprices new product relativeto valueHigh Development Costs:The development process, driven bythe wrong metrics, requires additionaldevelopment cycles
  6. 6. © John E. Hogan 2013Three Leverage Points for Improving the NPD Process7ScopingGate1BusinessCaseGate2Develop. Gate3Testing &ValidationGate4LaunchThe Stage-Gate ProcessData Analytics MetricsDo we have the rightdata for each stageof the process?Are we using theright tools andanalytics?Which KPI’s aredriving developmentchoices?
  7. 7. © John E. Hogan 2013The Three Key NPD MetricsValuePotential FeatureCostPrice• Customer Value: establish therevenue potential for a feature• Price: determined by the abilityto capture a feature’s value• Tangible vs. Intangible• New vs. known technology• Low vs. high risk• Cost: ultimately determines theprofit potential for feature8
  8. 8. © John E. Hogan 2013The Choice of Metrics Drives the Development Decision9Selecting features based on value seems like a prudent choice...The first three featureswould be prioritized basedon value
  9. 9. © John E. Hogan 2013Adding a Value-based Price Metric Leads to Different Choices10Adding a realistic pricemetric uncovers missedrevenue potential
  10. 10. © John E. Hogan 2013Design Choices Must Leverage Value, Price and Cost11The combination of metricsreveals feature #3 as a gooddevelopment candidate
  11. 11. © John E. Hogan 2013Value-based Design Case Study12Situation: Tech Co, a a global electronicsfirm, was facing marketdisruptions caused by new, lessexpensive technologies Competition was eroding marginsand taking share from newproducts The management team believedthat the future health of companywas at riskObjective:Improve new product profitability with a value-based development process
  12. 12. © John E. Hogan 2013The New Approach was Tested on an Advanced Signal Generator13$2,100$1,600$4,500$1,100$2,850$2,900$3,100$1,200$ 8,200IntegratedPackage$ 6,850FasterProcessorAdvanced SignalProcessing$ 4,300The new features createdsignificant valueLess Auxiliary EquipmentLess Down TimeValue DriversFaster Set Up
  13. 13. © John E. Hogan 2013Value Drivers Were Evaluated for Value Capture PotentialLessAuxiliaryEquipmentLessDown TimeFasterSetupEstimatedValue Capture RationaleClear savingsfrom lowerequipment costs75%Claim is credible,but hard to verifyat purchase50%Not clear ifsavings are fullyrealizable15%There was much lowerability to capture somevalue for one value driver14
  14. 14. © John E. Hogan 2013The Revenue Analysis Created an Interesting Discussion15$315$800$3,375$165$1,425$2,175$465$600Less Auxiliary EquipmentLess Down Time$ 4,490Value DriversIntegratedPackage$ 3,765FasterProcessorAdvanced SignalProcessing$ 1,065 Faster Set UpThe analysis showed muchlower revenue potential forsoftware
  15. 15. © John E. Hogan 2013% PriceIncreaseB/EVolumeExpectedVol. LossProfitImpact10% - 17% < 7% $8.3 m15% - 23% < 9% $12.5 m20% - 25% < 15% $13.1 m25% - 33% < 18% $15.2 m30% - 38% < 25% $ 10.8 mThe value and revenue analysis gave the team the confidence totake a substantial price increase on new productThe Analysis Led to an Aggressive Launch Price16
  16. 16. © John E. Hogan 2013Results17• The new analytics gave confidence andfocus to the product managers whilemaking the process more efficient• The number of features rejectedincreased across products – loweringdevelopment costs• Sales had a much clearer value story tosupport launch pricing – increasingclose rates• Average margins increased as a resultof better pricing and lower costs
  17. 17. © John E. Hogan 2013Some Key Learnings Take a disciplined approach toanalyzing customer value Start early in the process and be clearabout your value-based metrics Invest time in educating all thestakeholders – it takes 2-3 timesthrough the process for it to stick18
  18. 18. © John E. Hogan 2013Our Next WebinarJune 26, 2013 – NOON EDT Design to Value: How to Deliver Value-Based Innovations Bill Poston, Founder & Managing Partner Reed Shelger, CPP, Senior Consultant Registration Opens Next Week
  19. 19. 20Thanks for Watching!sales@leveragepoint.comwww.leveragepoint.com(617) 945-7075John E. Hogan, PhDjhogan@valuemanagementadvisors.comwww.ValueImperative.com