Customer Value Mapping

VALUE MAPPING

Marketing Best Practices Forum

Mike Purcell

Topics

• Overview of Value Mapping & Value

Scorecard Tools

• Application of tools to Pricing & Positioning

Our New Product X in the Y market

• Implications for Innovation & Profitable

Growth

• Illustration of Tools to Minivan Market (if time)

Background / For Additional Info…

• Bradley Gale, Managing Customer Value, 1994

• McKinsey & Co., “Setting Value, Not Price”, 1997

• Smith & Nagle, “A Question of Value”, Marketing

Management, July/Aug 2005

• Smith & Nagle, “Pricing the Differential”,

Marketing Management, May/June 2005

• Others….

Overview of Value Mapping Tools

• Value Map measures effective selling prices

of competing products in a category versus

the composite performance ratings of the

products.

• Value Scorecard shows differential worth that

customers attribute to performance features

of products in a category.

• Basis for simulating market entry and

repositioning strategies and consequences of

competitive response.

Premises

• Customers evaluate the differential worth of

an offering by comparing the economic value

of its benefits against its selling price and also

against those of competitive offers.

• Performance attributes affecting customer

purchase decisions can be identified, ranked,

and weighted.

• Customer perception of relative performance

on these attributes can be measured.

The Fundamental Marketplace Economics

$

Product/Service Performance

Premium

Segment

Total Economic

Supply Cost

“Economy”

Segment

= The various products introduced to the market

Distribution of Value

$


Customer Surplus

Producer Surplus

(Economic Profit)

Total Economic

Surplus

Economic Value to

Customer Effective Price

of Offering

Total Economic

Supply Cost

The “Fair Value Line”

$


Economic Value to

Customer

Total Economic

Supply Cost

“Fair Value

Line”

Competitive Market Dynamics

$



$


Share-Gaining

Share-Losing


$



$


Share-Gaining

Share-Losing


$


In competitive markets, the value of a given

technology is relentlessly transferred over

time from the producers to the consumers,

absent a “legal monopoly” (e.g., temporary

patent protection or wine distributors in

South Carolina!).

Our proposed response

Entrant 4

Our Premium Product

Entrant 2

Entrant 1 Entrant 3

Conventional low-end

Product Technology

(several suppliers)

$0.000

$0.010

$0.020

$0.030

$0.040

$0.050

$0.060

$0.070

$0.080

$0.090

6.0 6.5 7.0 7.5 8.0 8.5 9.0 9.5 10.0

Composite Benefit Score

Ad

d-O

n C

ost

($/lb

)A Painful Real-World Example

Why did we lose share in Market Z? Should we respond with a “me-too”?

The Market Pre-2000

The New Reality

Market “disruption”: Entrance of new

products with “premium” performance at

lower effective cost in use (good for

customer).

But bad for us….No incentive to embrace this

early: lower total sales $, lower variable

contribution, and “me-too” technology that we

do not currently practice. Now what? ..…TBD

Using Value Mapping for

Product Pricing & Positioning

$


Cut Price …

Value-destroying

Enhance Product

at same price …

Value Destroying

Reposition Along the Value Line …

Value-preserving

Another Real-world Example:

Establishing Price and Positioning Strategy

for our New Product X in the Y Market

Inputs from Customer QFD’s

5%

5%

15%

15%

15%

15%

30%

Weight

Average Product

Benefit Score

Add-on Premium

to Customers’

Product

9.5

5.0¢

10

9

8

9

10

10

10

Our New

Product

6.1 6.2 7.7

2.0¢ 2.0¢ 5.5¢

10 8 8

10 10 10

7 10 10

5 9 9

4 6 6

10 2 2

4 4 9

Competitive

Product C

Competitive

Product B

Competitive

Product A

7.4

3.6¢

9.0

9.8

8.8

8.0

6.5

6.0

6.8

Average

Category

rating on

Benefit

Benefit G

Benefit F

Benefit E

Benefit D

Benefit C

Benefit B

Benefit A

Criteria

VALUE MAP

Product Category X in Market Y

Competitor C

Competitor A

Our New Product

Competitor B

Fair Value Line

1.0

2.0

3.0

4.0

5.0

6.0

7.0

5.0 5.5 6.0 6.5 7.0 7.5 8.0 8.5 9.0 9.5 10.0

Composite Benefit Score

CO

GS

Add-O

n (¢

/ lb) Differential

Worth =

2.2¢ Price

Differential

=1.4¢

Value

Advantage

=0.8¢

Customer captures 38%

of differential worth

We capture 62% of

differential worth

Competitor A Competitor C Our Product Competitor B

Benefit A 0.69 -0.85 1.00 -0.85

Benefit B -0.62 0.62 0.62 -0.62

Benefit C -0.08 -0.39 0.54 -0.08

Benefit D 0.15 -0.46 0.15 0.15

Benefit E 0.19 -0.27 -0.12 0.19

Benefit F 0.01 0.01 -0.04 0.01

Benefit G -0.05 0.05 0.05 -0.05

Differential Worth (FV - Avg P) 0.31 -1.29 2.21 -1.24

Price Advantage (Avg P-Selling P) -1.88 1.63 -1.38 1.63

Fair Value Price 3.93 2.34 5.84 2.39

Selling Price 5.50 2.00 5.00 2.00

Total Value Advantage -1.57 0.34 0.84 0.39

Value Scorecard / Sources of Value

Relative to Category Average (¢ / lb COGS Premium )

VALUE COMPARISONOur Product vs. Category

Benefit G

Benefit F

Benefit E

Benefit D

Benefit C

Benefit B

Benefit A

Total Differential Value

Effective Price

Differential

-0.500 0.000 0.500 1.000 1.500 2.000 2.500

Add-On Cost (¢ / lb)

The quantifiable sources of our value proposition

Relative to the X Category, and the primary elements

our positioning at each tier in the supply chain:

- Benefit A plays to brand-owners

- Benefit B plays to compounders & converters

- Benefit C plays to resin producers & converters

Our product…

Delivers higher differential value to the customer….

And is priced at premium relative to X Category…

But in a way that fairly distributes the value delivered

VALUE COMPARISON

Our Product vs. Competitor B

Benefit G

Benefit F

Benefit E

Benefit D

Benefit C

Benefit B

Benefit A


Effective Price

Differential

-0.500 0.000 0.500 1.000 1.500 2.000 2.500 3.000 3.500 4.000


Our product…


And is priced at premium relative to B….



Relative to Competitor B, and the primary elements

of our positioning relative to B – again, relative

emphasis and message is tailored to according to

target tier in the supply chain.

VALUE COMPARISONOur Product vs. Competitor A

Benefit G

Benefit F

Benefit E

Benefit D

Benefit C

Benefit B

Benefit A


Effective Price

Differential

-1.000 -0.500 0.000 0.500 1.000 1.500 2.000 2.500



Relative to Competitor A, and the primary elements

of our positioning relative to A in the Y segment

(Benefit B is major differentiator!)

Our product…


And is priced at discount relative to A)….


(A appears to be “mispriced” – this is why we are gaining share!)

Benefits of Value Mapping Tools

• Pricing guidance to balance profit margin and market share growth

• Estimate differential value of changes to product or service offering

• Clarified elements of value proposition

• Enhanced understanding of value and positioning of competitive offerings

• Aligned organizational view of market and positioning of products/services

• Framework by which to identify “white space” opportunities in markets.

Limitations of Value Mapping Tools

• Simplified model of economic realities and

dynamics of marketplace

• Encourages narrow definition of market

space

• May not capture switching barriers

• A tool; not the tool

Implications for Innovation & Growth

• For new products, deeply understanding what our

customers (and non-customers) need represents the

difference between mere invention and true

innovation.

• For existing businesses, we must continually and

candidly assess the value we deliver as products

mature through their life cycles.

• The only long-term sustainable competitive

advantage we can build is the ability to innovate!

Another Illustration (time permitting)

The Minivan Example

from Bradley Gale

Managing Customer Value, Bradley Gale, 1994

Price – Benefit Profile

5

11

10

12

6

15

19

11

3

8

100%

6.0

10.0

8.0

6.0

8.0

7.3

8.5

8.0

4.0

6.0

6.0

10.0

8.0

6.0

8.0

8.0

7.5

6.9

4.0

8.0

6.0

8.0

8.0

6.0

8.0

8.1

7.5

8.0

2.0

6.0

6.0

8.0

6.0

6.0

8.0

8.1

6.9

7.1

4.0

8.0

6.0

10.0

6.0

6.0

8.0

7.5

6.5

8.0

4.0

4.0

8.0

8.0

6.0

4.0

8.0

7.9

6.9

8.0

2.0

2.0

6.0

8.0

6.0

4.0

6.0

6.8

6.5

6.9

4.0

6.0

6.3

8.9

6.9

5.4

7.7

7.7

7.2

7.6

3.4

5.7

28,840 28,084 29,560 25,900 28,500 29,610 25,530 28,003

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%)

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Benefit Attributes

Acceleration

Transmission

Routine handling

Emergency handling

Braking

Ride comfort

Seating comfort

Convenience

Fuel economy

Reliability

Selling Price ($)

Market Share D

Source: Bradley Gale, Callaway Gardens POE Callaway, Feb 2002

Minivan Example

Identify Competitive Products

Determine Effective Selling Prices


5

11

10

12

6

15

19

11

3

8

100%

6.0

10.0

8.0

6.0

8.0

7.3

8.5

8.0

4.0

6.0

6.0

10.0

8.0

6.0

8.0

8.0

7.5

6.9

4.0

8.0

6.0

8.0

8.0

6.0

8.0

8.1

7.5

8.0

2.0

6.0

6.0

8.0

6.0

6.0

8.0

8.1

6.9

7.1

4.0

8.0

6.0

10.0

6.0

6.0

8.0

7.5

6.5

8.0

4.0

4.0

8.0

8.0

6.0

4.0

8.0

7.9

6.9

8.0

2.0

2.0

6.0

8.0

6.0

4.0

6.0

6.8

6.5

6.9

4.0

6.0

6.3

8.9

6.9

5.4

7.7

7.7

7.2

7.6

3.4

5.7

28,840 28,084 29,560 25,900 28,500 29,610 25,530 28,003

Hon

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Wei

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ts (

%)

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Benefit Attributes

Acceleration

Transmission

Routine handling

Emergency handling

Braking

Ride comfort

Seating comfort

Convenience

Fuel economy

Reliability

Selling Price ($)

Market Share D


Minivan Example

Identify Key Performance

Attributes

Determine importance

Weightings of Attributes

Customer Input !!!!


5

11

10

12

6

15

19

11

3

8

100%

6.0

10.0

8.0

6.0

8.0

7.3

8.5

8.0

4.0

6.0

6.0

10.0

8.0

6.0

8.0

8.0

7.5

6.9

4.0

8.0

6.0

8.0

8.0

6.0

8.0

8.1

7.5

8.0

2.0

6.0

6.0

8.0

6.0

6.0

8.0

8.1

6.9

7.1

4.0

8.0

6.0

10.0

6.0

6.0

8.0

7.5

6.5

8.0

4.0

4.0

8.0

8.0

6.0

4.0

8.0

7.9

6.9

8.0

2.0

2.0

6.0

8.0

6.0

4.0

6.0

6.8

6.5

6.9

4.0

6.0

6.3

8.9

6.9

5.4

7.7

7.7

7.2

7.6

3.4

5.7

28,840 28,084 29,560 25,900 28,500 29,610 25,530 28,003

Hon

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Toy

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Sie

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PV

Wei

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%)

Ch

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Ford

Win

dst

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Aver

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Benefit Attributes

Acceleration

Transmission

Routine handling

Emergency handling

Braking

Ride comfort

Seating comfort

Convenience

Fuel economy

Reliability

Selling Price ($)

Market Share D


Minivan Example

Collect Customer Ratings

Weighted Average


5

11

10

12

6

15

19

11

3

8

100%

6.0

10.0

8.0

6.0

8.0

7.3

8.5

8.0

4.0

6.0

6.0

10.0

8.0

6.0

8.0

8.0

7.5

6.9

4.0

8.0

6.0

8.0

8.0

6.0

8.0

8.1

7.5

8.0

2.0

6.0

6.0

8.0

6.0

6.0

8.0

8.1

6.9

7.1

4.0

8.0

6.0

10.0

6.0

6.0

8.0

7.5

6.5

8.0

4.0

4.0

8.0

8.0

6.0

4.0

8.0

7.9

6.9

8.0

2.0

2.0

6.0

8.0

6.0

4.0

6.0

6.8

6.5

6.9

4.0

6.0

6.3

8.9

6.9

5.4

7.7

7.7

7.2

7.6

3.4

5.7

28,840 28,084 29,560 25,900 28,500 29,610 25,530 28,003

Hon

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%)

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Benefit Attributes

Acceleration

Transmission

Routine handling

Emergency handling

Braking

Ride comfort

Seating comfort

Convenience

Fuel economy

Reliability

Selling Price ($)

Market Share D


Minivan Example

Data for the Value Map

Make/Model*

Honda Odyssey

Toyota Sienna

Dodge Grand Caravan

Mazda MPV

Chevrolet Venture

Ford Windstar

Mercury Villager

Average Model

28,840

28,084

29,560

25,900

28,500

29,610

25,530

28,003

7.60

7.54

7.24

7.06

6.88

6.44

6.24

7.00

Price

($)

Performance

(1-10)


Minivan Example

Value Map – Minivans

Mercury Villager

Ford Windstar

Chevrolet Venture

Mazda MPV

Honda Odyssey

Toyota Sienna

Dodge Grand Caravan

25,000

26,000

27,000

28,000

29,000

30,000

6.0 6.2 6.4 6.6 6.8 7.0 7.2 7.4 7.6 7.8

price

High

Low

benefit score Better Worse Slope of FV Line = $3,000 per benefit point

Fair-value line


Minivan Example

Average Category Price

Average Category Benefit

Value Map – Minivans

Mercury Villager

Ford Windstar

Chevrolet Venture

Mazda MPV

Honda Odyssey

Toyota Sienna

Dodge Grand Caravan

25,000

26,000

27,000

28,000

29,000

30,000

6.0 6.2 6.4 6.6 6.8 7.0 7.2 7.4 7.6 7.8

price

High

Low


Fair-value line


Minivan Example

Distribution of Value

Mercury Villager

Ford Windstar

Chevrolet Venture

Mazda MPV

Honda Odyssey

Toyota Sienna

Dodge Grand Caravan

25,000

26,000

27,000

28,000

29,000

30,000

6.0 6.2 6.4 6.6 6.8 7.0 7.2 7.4 7.6 7.8

price

High

Low


$29,803

- $28,803

$1,800 Fair-value line

$963

$837

$1,800

54%

46%

To Honda

To customers


Minivan Example

Differential Value: Amount by which

the “fair price” at a given benefit level

exceeds the average price for the

product category.

Relative Value: Amount of “fair value”

transferred to customer for a given

benefit level.

Value Metrics


Minivan Example

Make/Model

Honda Odyssey 1,800 29,803 28,840 963

Toyota Sienna 1,620 29,623 28,084 1,539

Dodge Grand Caravan 720 28,723 29,560 -837

Mazda MPV 180 28,183 25,900 2,283

Chevrolet Venture -360 27,643 28,500 -857

Ford Windstar -1,680 26,323 29,610 -3,287

Mercury Villager -2,280 25,723 25,530 193

Average Model 0 28,003 28,003 0

Differential

Worth

($)

Fair-Value

Price

($)

Selling

Price

($)

Relative

Value

($)

Value Metrics


Minivan Example

Differential worth of

each model versus the

average model ($)

Benefit Attributes

Acceleration -43 -43 -43 -43 -43 257 -43 0

Transmission 377 377 -283 -283 377 -283 -283 0

Routine handling 343 343 343 -257 -257 -257 -257 0

Emergency handling 206 206 206 206 206 -514 -514 0

Braking 51 51 51 51 51 51 -309 0

Ride comfort -154 146 206 206 -94 86 -394 0

Seating comfort 754 154 154 -146 -386 -146 -386 0

Convenience 146 -214 146 -154 146 146 -214 0

Fuel economy 51 51 -129 51 51 -129 51 0

Reliability 69 549 69 549 -411 -891 69 0

Differential Worth 1,800 1,620 720 180 -360 -1,680 -2,280 0

Price Advantage -837 -81 -1,557 2,103 -497 -1,607 2,473 0

Total Value Advantage 963 1,539 -837 2,283 -857 -3,287 193 0

Fair-Value Price 29,803 29,623 28,723 28,183 27,643 26,323 25,723 28,003

Selling Price ($) 28,840 28,084 29,560 25,900 28,500 29,610 25,530 28,003

Total Value Advantage 963 1,539 -837 2,283 -857 -3,287 193 0

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Customer Value Mapping

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