Products and Services Summary Outline
This section is intended solely to help you to diagnose the products and services your business offers and to save you time and cost in gaining a good understanding of your business situation.
Once you have completed this section, your next step would be to move to the Improve Products and Services section.
Throughout the text, you will find links to information that offer further insight on the topic. The green links are glossary pop-up boxes. In addition, at the end of each section, you will find questions and links to analyses that will guide you through your diagnosis.
SUMMARY POINTS
Products and Services: Introduction
Customer Decisions on Benefits
Capsule: The requirements for each role in a key customer relationship apply to all potential suppliers. Often, though, only a few suppliers can fill the most important roles.
Reasons for Negative Volatility
Capsule: You should pursue several avenues to understand why the Company loses sales volume in the market place. This sales volume is very expensive to recover once lost. The reasons for this negative volatility are likely to get worse without attention in your efforts to improve current products and services.
Capsule: Some negative volatility may be hidden or invisible to you. In many cases, the causes of hidden volatility inflict more damage than do the causes of visible negative volatility. Evaluate the causes for both hidden and visible negative volatility.
Reasons for Positive Volatility
Capsule: Your competition will constantly improve their performance, even in your areas of strength. You should understand the reasons for positive volatility in order to be sure that you can protect and develop your strengths of the Company in your future innovations.
Innovation for Customer Cost Reduction
Capsule: There are two customers in many industries. The first is the intermediary customer who specifies, or sells, the product. The second is the final customer who makes the ultimate buying decision. A product and service innovation program should consider both customer types but emphasize the one with the greatest influence on future sales.
Capsule: A product and service innovation program is going to be most effective when it considers the customer’s costs in a broad system. Intermediary customers incur four major system costs: Obtain, Sell, Guarantee and Return. Final customers have their own set of four system costs connected with the product: Acquire, Use, Maintain and Dispose. To set up its performance improvements, the Company searches for the cost activities offering the most promise for cost reduction.
Value Proposition: New Price Point or Benefit Change
Capsule: An industry may have up to four Price Points depending on alternative combinations of performance and price. You must be careful of bias against any of them. The Company is likely to structure a product and service innovation as a new Price Point if the total costs of the new benefit package exceed a ten percent difference from the cost of the current products and services. Otherwise, the Company complements the innovation within the current products and services and looks to changes in sales volumes to pay for these changes.
Capsule: Value is performance for price. You may change value in one of three ways.
Capsule: You should group all the market’s products, both yours and those of the competion, into Price Point types: Standard Leader, Performance Leader, Price Leader and Next Leader. Then determine the market shares and growth rates of each Price Point.
Capsule: A bias against high or low Price Points is a common trait of Standard Leaders. A percentage of sales in these products that is lower than those of the industry’s best performers is a sure sign of this unfortunate trait.
Capsule: The Company produces more performance for its customers by Adding Knowledge to them, by Reducing Resources they use with the product or by Improving the Customer's Experience with the product. Where the Company’s costs of the innovation results in a change exceeding 10 percent of the current product costs, the innovation probably requires a new Price Point. Where the innovation might cost less than that, the Company may add the innovation within existing Price Points and rely on sales volume changes to support the cost of the innovation.
Ability of Competition to Copy
Capsule: Customers buy in a Hierarchy of needs: Function, Reliability, Convenience and Price. They use this Hierarchy to evaluate each competitor and to eliminate all but one potential supplier. This hierarchy informs our evaulation of an innovation's ease of copy.
Capsule: You can estimate the likelihood of an innovation being copied by a competitor in the future by looking at the speed with which innovations have been copied in the past. To do this you would place each past innovation on the Hierarchy and then calculate the mean and median time to copy each innovation type. These times serve as guidelines to predict how long you have to recoup your investment in each performance innovation.
Value for the Company and the Customer
Capsule: The Company estimates its costs for each innovation and sets a price for the innovation. Then it evaluates the sales volume customers might bring to the Company as a result of the innovation by checking the innovation’s net value to the customer after the customer has paid the price of the innovation. The Company ranks these innovation alternatives; first, according to the market share change each should create and, second, by the profitability of the innovation.
Capsule: The Company would eliminate innovations that are likely to be copied quickly or that have an unattractive economic outlook. It then would implement the remaining innovations in the order of their greatest impact on the volume and profitability of the Company. The Company would innovate all of the innovations that it has the capital and human resources to undertake during the planning period.
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