Business Ideas and Customer
Value
Oslo University
2007-08-28
Martin Edlund, Ph.D.
martin@kebbison.com
Challenges
• Find the right users (customers)
• Overcome different perceptions
• Penetrate different types of
needs
• Provide the right competence
where needed
• Resources/willingness to invest
in ”customer knowledge”
• Put the new knowledge into
the design process
Innovation
Each step involves customer need discovery and
verification
creation
incubation
demonstration
promotion
sustention
An idea that potentially create
Feedback from users
Funcitionality
test
value for customers in a new
(actual sales, warranty,
of
value
creation
way (business idea
surveys)
e.g.
(test
installation)
formulation, problem
description)
Analysis the
The first real test: Who
value that can be created
buys for how much?
(the business plan, VoC, market
(launch and initial sales)
size estimation)
We want to create customer value
Customer Value =
Perceived benefits
Σ (Customer Costs)
A Chain of Customers with Different and
Conflicting Needs
Linking Technology and Market
- Functional analysis -
Needs
basic, spoken and
latent
Functions
and performance
Satisfy
Solutions
and features
Provide
Customer Needs
Three types that are revealed in different ways
Customer Needs
- Example: Bilge Pump/Rule Industries
•
•
•
•
•
•
•
•
•
Reliable pump function
Easy to install in bilge
Easy to replace
Less residual water in
bilge
Maintenance free
Long service life
High pump capacity
Non-clogging
Reasonable price
•
•
•
•
•
•
Durable
Appealing design
Trusted brand
Manual functionality test
Mounting flexibility
Good information to
understand the system
• Low impact on boat
battery
• Health status of system
available remotely
Functionality of a system
Definition of functions: A=>B
(Noun) - Verb - Noun
- The car signals image.
- The bottle contains water
- The watch tells time.
Hammer
HITS
Nail
Functional performance characteristics
Ex. the function to “show time” can be measured as:
- Accuracy (how many minutes +/- in a year?)
- Exactness (hours, minutes, seconds…)
- How many time zones (three in parallel)
Analysing a multilevel open system
What system-levels and functions are relevant?
supersystem
Environment
system
subsystems
subsystems
subsystems
customer/user
Linking customer value and functions
Main Functions
Customer Value
Additional Function
=
Unwanted Functions
Perceived Benefits
Total Customer Costs
Purchasing Costs Operating Costs Decommissioning Costs
A structured process to
capture needs
- VoC 1.
2.
3.
4.
5.
Undertand your
invention/product (functional
analysis) and prepare
customer interviews
Set up meetings (hard work!)
Conduct and follow-up
interviews/visits
Analyze and compile results
Quantify via surveys (if
necessary)
Voice of the customer (VOC)
- Two vital steps for generation of new knowledge
Exploration
Verification
(Testing of our hypothesis)
Customer needs are created
in different areas
Need or Solution to a Problem
A
business idea
Market
B
C
Business
Model
The Dominant Managerial
Logic
• Overuse of existing knowledge
• Which are the basic potential
customer needs?
• Who is the customer?
• The difficult process of unlearning
• The limit of a core competence
approach to innovation and
business extension
The IBE Phenomenon
- An Example
Business
diversity
time
Generic strategies to increase customer value
- What is the long-term survival strategy?
Creation of
Customer
Value
Needs
Perception
Functionality
Costs
• Increase functionality
• Influence the
customers perception
of value
• Sell to the right
customer
• Lower the price
User-driven innovation ?
• Value for users is a driver
through the innovation
process
• User-decisions is a driver for
growth
• End-users drive the
commercial chain in the longrun
• But, entrepreneurs/venture
teams drive innovation
The Creativity Aspect
[Viktor Fey, TRIZ-group]
Market and Industry Analysis
2007-09-04
Oslo University
Martin Edlund
Market Size Estimation
A ten-step bottom-up approach to market
estimation
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
See the product in the users hands (”Viceralization”) – who will use it?
Discuss value and customer needs – how many are interested?
Understand the customer chain – who win/who loose/who pay?
Price in relationship to competition and substitution - how much will
be paid and what will you get paid?
How large is the population of potential buyers at that price
(maximum size of market)?
Adoption rate – how fast will customers buy?
Life cycle of products – how long will sales last?
Influence of competition – how will the buying pattern change?
Product range extension and product differentiation – how can the
market be develop further?
Risk analysis: identify threats, consequences and how to mediate –
what is the best, most likely and worst case?
Example: Market Estimation
• Use the step-wise process to guide your
discussion
• Estimate the market size of a wave-driven
bailer for small boats in Norway
1. See the product in the users hands (”Viceralization”)
– who will use it?
• Links to the VoC work
• A choice
• Example: Automatic Welding Helmets
– For everyone?
– Indoor/outdoor
– Type of welding (MIG, TIG...)
– Large/small companies
– Safety culture in different countries
2. Discuss value and customer needs – how many are
interested?
• The customer value equation: how does it apply for
the different users?
• What is the customer value in economic and other
terms?
• Use the functional analysis to penetrate this
question
• Example: The RV Maserator
– Very unwanted funtions eliminated
– Vacation and RV is expensive, Maserator cheap...
3. Understand the customer chain – who win/who
loose/who pay?
• It is your sales figures that are of interest!
• Use the Five forces model
• Who provides what in the customer chain
from a customer value perspective?
• Example: A new fuel-level sensor to the
automobile industry
– Car dealer, manufacturer, supplier, sub-supplier...
– Low bargaining power?
4. Price - how much will be paid and what will you
get paid?
• Cost-based or Value-based
• Competition
• Substitites
• Currency-rates/local buing power
• Total costs for customer
• Example: RV Maserator, oil detection tool,
and composite wave guide
5. How large is the population of potential buyers at
that price?
• Stick to the right level of analysis when using macro
data
• Creativity is needed in most cases to extrapolate
from known sources of statistics
• Focus on the first target market that can prove your
case
• Example: Ultrasound diagnostics Logiq
700/500/400
– Known statistics on health-care operations
– Known standard of living/buying power
– A model of the market was created to make estimatins on
size
6-7. Adoption rate and Life cycle– how fast will
customers buy and for how long?
• The adoption curve
• Installed-base
• Substitution curve
• Crossing the chasm
8. Influence of competition
• Price pressure
• Economies of scale and scope
• Substitutes
9. Product range extensions
• Next version
• Range
• Price-differentiation
• Modular offer
“I was seldom able to see an opportunity
until it had ceased to be one”
Mark Twain