Value Assessment

In order to conduct a VIU analysis companies need to estimate the value in monetary terms of the features and elements of their product or service. Some of the ways to achieve this are listed as follows:

Internal Engineering Tests: This involves laboratory tests conducted to ascertain the difference in the performance of different market offerings. Translating the differences in performance to value estimates often requires some assumptions on the actual in-use conditions at the customers’ end.

VIU Research involves the collection of data on costs and benefits from customers. This often entails detailed value stream mapping, and activity-based costing (ABC) concepts and methods, to quantify all expenses related to the use of a product or service. The approach may be used to estimate the TCO of the product. It does however require a high level of cooperation and engagement with customers.

ABC analysis focusses on the interfaces between customers and suppliers, and on expenditures. It identifies major cost drivers, often revealing opportunities from cost savings.

Research Survey: Customers are interviewed on questions that address how product attributes/value elements affect operations.

Conjoint Analysis: This quantitative research methodology is covered in detail in Chapter Product Design. Central to the methodology is the notion of product utility — a latent variable that reflects how desirable or valuable an object is in the mind of the customer. The utility of an offering is assessed from the value (part-worth) of its parts. Conjoint analysis examines customers’ responses to offering ratings, rankings or choices, to estimate the part-worth of the various levels of each attribute of a product. Utility is not an absolute unit of measure; only relative values or differences in utilities matter.

Exhibit 6.16   Illustration of conjoint analysis — What is the incremental value of eliminating need for oil change?

The illustration in Exhibit 6.16 provides three profiles of a vacuum pump, which vary on two attributes — the need for oil change and price. Profile B offers the benefit that oil change is not required, and its utility is 5 points higher than profile A, which requires oil change. Profile C, which also does not require oil change and is priced $270 higher, has exactly the same utility as profile A. It follows that the benefit of “no oil change” is worth $270 to customers.

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