1. Strategic Options Analysis Applying the Value Function
Ken Homa

2. PRODUCT VALUATION MODEL
Value Fcns / Perceptual Maps
PRODUCT VALUATION MODEL
V =
V = Value of Product
i = Product attribute
b = Magnitude of benefit from attribute i (proximity to ideal point)
a = Importance weighting of benefit
P = Price of product
KEH 1999

3. Value Fcns / Perceptual Maps
V = Value of Product
i = Product attribute
MARKSTRAT WORLD There are 5 given product attributes (n=5): power, design, volume, weight, frequency
KEH 1999

4. V =
Add an attribnute
Incorporate a highly weighted attribute (i) that is not currently in the product design.
Add a CD-ROM or modem as standard features in mobile PCs

5. Not an option since all brands have the 5 fixed product attributes
Add an attribnute
Incorporate a highly weighted attribute (i) that is not currently in the product design.
MARKSTRAT WORLD
Not an option since all brands have the 5 fixed product attributes

6. V =
Add a new attribute
Introduce a new attribute (i = n +1) that was previously not available, but satisfies a salient or latent need
iMac’s radical ‘space age’ industrial design
‘Bags and brakes’: air bags & ABS in cars

7. V =
Add a new attribute
Introduce a new attribute (i = n +1) that was previously not available, but satisfies a salient or latent need
MARKSTRAT WORLD
Not an option: all brands constrained to the 5 fixed product attributes

8. Value Fcns / Perceptual Maps
V = Value of Product
i = Product attribute
b = Magnitude of benefit from attribute i (proximity to ideal point)
KEH 1999

9. Ideal Points Perceptions (vs. actual) Aggregate of individuals
Distribution around points
Segment variations
Evolutionary progression
Nice to have => must have
Different ‘shapes’
Optimal point, vectors

10. Value Fcns / Perceptual Maps
Ideal Points
Attribute
Preference
Point Preference
Vector Preference
Ideal Point
Increasing Preference
Decreasing Preference
(eg, sweetness)
(eg, service speed)
KEH 1999 21

11. Ideal Point Strategies
What is the ideal point? Specific ‘going in’ criteria
Does a product satisfy the ideal point? Objective criteria vs. perceptions
Do customers think that a product satisfies the ideal point (better than competitive products)? Relative perception
Can the ideal point be ‘shaped’?

12. Product does match the target market’s ideal point,but not current perceptions ..

13. V = Communicate proximity to ideal points (b)
“Pepsi Challenge”: highly publicized blind test tastes demonstrate that Pepsi is preferred to Coke on a heavily weighted (dominant) product attribute : taste

14. V = Communicate proximity to ideal points (b)
If perceptions are accurate and awareness is low, advertise to build awareness (intensity)
If perceptions are inaccurate and awareness is low, reposition the brand by specifying ‘perceptual objectives’ while building awareness (message).
If perceptions are inaccurate and awareness is high, either reposition - a potentially very high cost option - or launch a new brand with similar specs (relaunch).

15. Product specs do not match the target market’s ideal point

16. V = Design closer to ideal point
Redefine product specifications to match current or projected ideal points (b’s)
Customers want increasing CPU speed in PCs. Existing units are 700 Mhz, competitors have intro’d 900 Mhz units
Redesign for speeds in excess of 700 Mhz to hit projected ideal point

17. V = Design closer to ideal point
Redefine product specifications to match current or projected ideal points (b’s)
MARKSTRAT WORLD
Each market segment (Hi-earners, Buffs, etc.) has an ideal combination of specific product attributes (that may change over time). Design (or redesign) products to hit projected ideal points of attractive market segments.

18. Value Fcns / Perceptual Maps
V = Value of Product
i = Product attribute
b = Magnitude of benefit from attribute i (proximity to ideal point)
a = Importance weighting of benefit
KEH 1999

19. V = Target a segment with importance weights (a)
and ideal points (b) matched to product
British Air promotes “business class” amenities including preferred check-in, enroute services, arrival shower facilities, etc.

20. V = Change importance weights (a) via promotion
Federal Express promotes “absolutely, positively” next day delivery service for packages Shifts focus to an advantaged attribute (e.g. speed versus economy)

21. V = ‘Reshape’ the ideal point
Persuade target customers that more (or less) of an attribute is more desirable.
Higher horsepower uses more fuel
High fat content tastes good but raises cholesterol levels.

22. V = Communicate proximity to ideal points (anyway)
Obvious ethical issue Caveat emptor
Short-term fix at best Perceptions eventually catch up to reality
Common rationalization: “no harm, no foul”
Unjustifiable desperate act

23. V = Communicate proximity to ideal points (anyway)
Obvious ethical issue Caveat emptor
Short-term fix at best Perceptions eventually catch up to reality
Common rationalization: “no harm, no foul”
Unjustifiable desperate act … in real life, but not in MARKSTRAT

24. Value Fcns / Perceptual Maps
V = Value of Product
i = Product attribute
b = Magnitude of benefit from attribute i (proximity to ideal point)
a = Importance weighting of benefit
P = Price of product
KEH 1999

25. V =
Reduce costs / price
Cost reduce existing products to allow a price reduction (P) which improves relative perceived value position, i.e. rebalance benefits and price

26. Core NPD Question
How to translate the ideal point point into product specifications?

27. Value Fcns / Perceptual Maps
Customer
Requirements
Importance to Cust.
Easy to close
Stays open on a hill
Easy to open
Doesn’t leak in rain
No road noise
Importance weighting
Engineering Characteristics
Energy needed
to close door
Check force on level ground
to open door
Water resistance 10 6 9 2 3 7 5 X
Correlation:
Strong positive
Positive
Negative
Strong negative *
Competitive evaluation
X = Us
A = Comp. A
B = Comp. B
(5 is best) AB
X AB
XAB
A X B
X A B
Relationships:
Strong = 9
Medium = 3
Small = 1
Target values
Reduce energy
level to 7.5 ft/lb
Reduce force
to 9 lb.
to 7.5 ft/lb.
current level
Maintain
Technical evaluation 4 1 A BA
BXA
Door seal
resistance
Accoust. Trans.
Window
QFD
The matrix helps the team to translate customer attribute information into concrete operating or engineering goals. The important product characteristics and goals for improvement are jointly agreed on and detailed in the house. This process encourages the different departments to work closely together and results in a better understanding of one anothers goals and issues.
KEH 1999

28. Value Function Real World Implications
Must be at least parity on all heavily weighted attributes to be competitive
Must win on some differentiating attribute
Little leverage from low weighted variables
Best case : introduce a new (proprietary) attribute and drive weighting up
Cost reduction both an on-going necessity and a last resort

29. Strategic Options Analysis Applying the Value Function