Business Ideas and Business Ideas and Customer ValueCustomer Value

Oslo University2007-08-28

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

creationcreation demonstrationdemonstration sustentionsustentionpromotionpromotionincubationincubation

An idea that potentially create value for customers in a new way (business idea formulation, problem description) Analysis the

value that can be created(the business plan, VoC, marketsize estimation)

Funcitionality testof value creatione.g. (test installation)

Feedback from users(actual sales, warranty, surveys)

The first real test: Whobuys for how much?(launch and initial sales)

We want to create customer value

Customer Customer ValueValue =

Perceived Perceived benefitsbenefits

ΣΣ (Customer (Customer Costs)Costs)

A Chain of Customers with Different and Conflicting

Needs

Linking Technology and Market

- Functional analysis -

Functionsand performance

Solutionsand features

Needsbasic, spoken and

latent

ProvideSatisfy

Customer NeedsThree 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 systemDefinition of functions: A=>B(Noun) - Verb - Noun- The car signals image.- The bottle contains water- The watch tells time.

Functional performance characteristicsEx. 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)

Hammer NailHITS

Analysing a multilevel open system

What system-levels and functions are relevant?

system

supersystem

subsystemssubsystemssubsystems

Environment

customer/user

Linking customer value and functions

Main Functions Additional Function Unwanted Functions

Customer Value = Perceived Benefits Total Customer Costs

Purchasing Costs Operating Costs Decommissioning Costs

A structured process to capture needs

- VoC -1. Undertand your

invention/product (functional analysis) and prepare customer interviews

2. Set up meetings (hard work!)

3. Conduct and follow-up interviews/visits

4. Analyze and compile results5. Quantify via surveys (if

necessary)

Voice of the customer (VOC)- Two vital steps for generation of new

knowledge

Exploration Verification(Testing of our hypothesis)

business idea

Need or Solution to a Problem

Market BusinessModel

AA

BB CC

Customer needs are created in different

areas

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

Businessdiversity

time

Generic strategies to increase customer value

- What is the long-term survival strategy?

• Increase functionality

• Influence the customers perception of value

• Sell to the right customer

• Lower the price

Creation ofCustomer

ValueCos

ts

Needs

Functionality

Perc

eptio

n

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 long-run

• But, entrepreneurs/venture teams drive innovation

The Creativity Aspect

[Viktor Fey, TRIZ-group]

Market and Industry Analysis2007-09-04

Oslo UniversityMartin Edlund

Market Size Estimation

A ten-step bottom-up approach to market estimation1. See the product in the users hands (”Viceralization”) – who will

use it?2. Discuss value and customer needs – how many are interested?3. Understand the customer chain – who win/who loose/who pay?4. Price in relationship to competition and substitution - how

much will be paid and what will you get paid?5. How large is the population of potential buyers at that price

(maximum size of market)?6. Adoption rate – how fast will customers buy?7. Life cycle of products – how long will sales last? 8. Influence of competition – how will the buying pattern change?9. Product range extension and product differentiation – how can

the market be develop further?10. 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 opportunityI was seldom able to see an opportunityuntil it had ceased to be one”until it had ceased to be one”

Mark Twain