Many companies put significant effort into understanding value as they work to set pricing in the final weeks prior to launch of a new product. Yet there are tremendous opportunities from explicitly considering value to the customer much earlier in the product development process. Understanding value lets you configure products and create product variations in a way that maximizes revenue and margin across customer segments. Applying the right tools and methodology can optimize the value of product offers, focus development spend, and reduce cannibalization. Tom Lucke is our presenter. Tom is Managing Director of Value Management Advisors (VMA), which helps companies develop growth and pricing strategies in a range of industries including high tech, software, manufacturing, data & information, and process industries.

1. Monthly Webinar Series - June 2012
Driving Value Upstream
into Product Development
by
Tom Lucke
Copyright © 2012 by LeveragePoint Innovations Inc.
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This document provides an outline of a presentation and is incomplete without the accompanying oral commentary and discussion.
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2. Sponsored by LeveragePoint
the Software Solution for Value-based Pricing
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3. Today’s Presenter
Tom Lucke is Managing Director of Value Management
Advisors (VMA) which helps companies develop growth and
(VMA),
pricing strategies in a range of industries including high tech,
software, manufacturing, data & information, and process
industries. Previously Tom held senior positions at the Monitor
Group, the Strategic Pricing Group, CSMG and Price Waterhouse.
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4. Polling Question
Copyright © 2012 Value Management Advisors, Inc. 4

5. Value to Customer in Marketing and Sales
Value to the customer is a well-accepted basis for making decisions about pricing and go-to-market
strategy
Create Design Price
Go to Market Manage Product
Products and and Revenue
and Sell Lifecycle
Solutions Model
Develop pricing that Design go-to-market
is consistent with strategies and sales
value across approaches that
products as well as align with – and
customer segments capture – value
Copyright © 2012 Value Management Advisors, Inc. 5

6. Value to Customer in Product Management
But the concept of value to the customer has not generally been applied in Product Development and
Product Management, where there is significant potential
Create Design Price
Go to Market Manage Product
Products and and Revenue
and Sell Lifecycle
Solutions Model
Create solutions Develop pricing that Design go-to-market Optimize product
that deliver the right is consistent with strategies and sales configuration,
value to key value across approaches that targeting and pricing
customer segments products as well as align with – and as value to the
customer segments capture – value customer evolves
over time
Copyright © 2012 Value Management Advisors, Inc. 6

7. Driving Value Upstream – Two Examples
Within Development, two areas that offer particular opportunities are decisions about resource
allocation and product configuration
Resource Allocation Product Configuration
• How should we allocate limited • How many variants of the product
development resources? should I have?
• Which features should we consider • What set of features should be in
deferring when there is a crunch? each variant?
Copyright © 2012 Value Management Advisors, Inc. 7

8. Tools for Resource Allocation
The core tools for applying value in Development are the same ones we use in pricing – Feature-
Benefits-Value, and Differential Value Estimation
F-B-V Value Estimation
Negative
Feature Differential Value
Positive
Differential
Value
Benefit Economic
Value
V l
Reference
Value
Value
Copyright © 2012 Value Management Advisors, Inc. 8

9. Example – Value Estimate for New Product
For example, here is a simple value model for a product we worked on during its developement
Differential Value Estimate for Network Test Equipment
$1,200 $1 095
$1,095
$100
$60
$1,000 $115
$120
$800 $595
$200 Differential
Value
$600
$500
$400
$200
$
$0
Competitor's Detection of Faster Error Automated Intuitive User Custom Our New
Product More Types of Analysis Error Interface Reporting Product
Errors Correction
Note: Disguised data
Copyright © 2012 Value Management Advisors, Inc. 9

10. Using the Value Estimate in Resource Allocation
In this case, the client was able to apply what we knew about the value of particular features to
make informed choices about the priority of those features and the appropriate allocation of
resources
Value of Feature Compared to Development Effort
Estimated
Development
Effort
ential Value
Differe
Error Detection Error Analysis Error Correction Custom User Interface
p g
Reporting
Note: Disguised data
Copyright © 2012 Value Management Advisors, Inc. 10

11. Framework for Product Configuration
Decisions about product configuration are based on identifying groups of customers that derive
value in different amounts and different ways – and creating tailored versions of the product for
each group
Leaves money on th t bl
L the table
for high value customers
Segment 1
High Value
Val e Single Product,
Priced Here
Value
V
Segment 2
Moderate Value Segment 3
Low Value
And prices lower value
customers out of the market
Copyright © 2012 Value Management Advisors, Inc. 11

12. Making Product Configuration Decisions
Create two versions
based on Types of
Remove Custom
Errors? Customer
Reporting for a Low Tier
may have different
version? – Costly to
needs Differential Value Estimate for Network Test develop, and not all
Equipment
q p customers may use it
$1,200 $100 $1,095
$60
$1,000 $115
$120
$800 $200
$500
$600
$400
$200
$0
Note: Disguised data
Copyright © 2012 Value Management Advisors, Inc. 12

13. What if We Look at Value by Segment?
Biggest sources of
difference are Automated
Value – Segment 1 Error Correction and Value – Segment 2
Faster Error Analysis
$1,600 $1,600
$1,400 $100 $1,330 $1,400
$65
$1,200 $275 $1,200
$100 $978
$1,000 $1,000
$180 $58
$90 $35
$800 $210 $800
$195
$600 $600
$500 $500
$400 $400
$200 $200
$0 $0
Note: Disguised data
Copyright © 2012 Value Management Advisors, Inc. 13

14. Driving Value Upstream into Development
 Ultimately, there is a need to embed value-based tools and concepts into
development and product lifecycle management
 Build discovery of value into process
 Deploy tools to support teams
 Incorporate into key development documents and metrics
 Tools and process allow us to use value to the customer to improve
decision-making at critical points
 Feature prioritization
 Resource allocation
 Product configuration
 Using value-based concepts in development also creates a common
language of value to support product launch and hand-off to marketing
and sales
Copyright © 2012 Value Management Advisors, Inc. 14

15. Our Next Webinar – July 18th
• Stephan Liozu, President & CEO, ARDEX Americas
h d
•O
Organizational C fid
i ti l Confidence:
Generating “Pricing Superheroes”
• 12:00pm Eastern
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16. Thanks for Watching!
Tom Lucke
Value Management Advisors tlucke@valuemanagementadvisors.com
(617) 775 – 5923
Ed Arnold
earnold@leveragepoint.com
(617) 252 – 2967
www.leveragepoint.com
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