Roadmap to market 2.0 - A guide for marketing innovation

8/2/2019 Roadmap to market 2.0 - A guide for marketing innovation

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2012www.businessexploration.comallrightsreserved

Ing.FlavioTosi,AlboIngg.Firenzen3581via8marzo,22 Castelfiorentino50051Firenze

Business Exploration 11

Roadmaptomarket,2.0aguideformarketinginnovation

totheOil&Gas,PowerGenerationandAerospaceindustries

ByFlavioTosiBusinessExploration


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Ing.FlavioTosi,AlboIngg.Firenzen3581via8marzo,22 Castelfiorentino50051Firenze 1/83

BusinessExploration

Via8marzo,22

50051Castelfiorentino

(Firenze)Italy

+393496482225

[email protected]

www.business.exploration.com

ANotetotheReader

TheRoadmaptoMarket,2.0 iscopyrightedbytheauthor:FlavioTosi.

Itsaworkinprogressdocument,nowatits8th

release.

Youcanduplicateitandshareit.

Youcandownloadthelastreleaseatwww.businessexploration.com.

Youcancopypartofit,orreproducepartofit,quotingtheauthor:

FlavioTosiandthewebsite:www.businessexploration.com.

Copyright2013,byFlavioTosiBusinessExploration.

Allrightsreserved.

Papercopiescanberequestedonthewebsiteat11each,

asaprintingcontribution.


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2/83 Ing.FlavioTosi,AlboIngg.Firenzen3581via8marzo,22 Castelfiorentino50051Firenze

INDEX:Abouttheauthor:.....................................................................................................6

Prefacetothe2.0release:........................................................................................6

Foreword......................................................................................................................7

Introduction:innovating,andnot:innovation.......................................................8

Summary:..................................................................................................................10

TheRoadmaptoMarket:...........................................................................................11

PART1.DOYOUHAVEACUSTOMER?.......................................................................11

Do youhaveaCustomer?.....................................................................................11

Ifyes,whichpartofthemarketareyouthinkingtoserve?...................................11

Areyouunderperforming,orareyouoverperforming?.......................................12

Fightingforthetop:............................................................................................12

Integratedarchitecture:......................................................................................13

Carefullyplanningnottofail:.............................................................................13

Areyouoverperforming?......................................................................................14

AreyouleavingroomtoaNewEntrant?...............................................................16

IsthereaThreatoranOpportunity?.....................................................................16

Can

my

idea

disrupt

the

Performances

trajectory

game?

.....................................

17

Ismyideabuiltonanew(modular)architecture?................................................18

Isittherighttypeofmodulararchitecture?..........................................................19

Whoisthecustomerofanewmodulararchitecture?..........................................19

Areyougivingawayyourbusinesstoyoursuppliers?...........................................20

Confess:youdonothaveaCustomer,dontyou?.................................................22

Whothehellmaywantit?.....................................................................................22

TheRoadmaptoMarket:...........................................................................................24

PART2.HOWMANYCHANCESTHISINVENTIONHAS?.............................................24

Howmanychancesthisinventionhas?.................................................................24

1/4 Isthesolutionappealing?...............................................................................26

A HowmuchvalueourideacreatestotheCustomer?........................................26

ACustomermaybein2situations:orithasaGOAL,orithasaPROBLEM.......26

WhoistheCustomer?:FromCustomersneedstoCustomersGoals.....27

Wheredoesthesolutionfit?Whatproblemitsolves?......................................28


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Whichsolutiondowedeliver,andhow? (S.O.R.C.)...........................................30

HowmuchdoesCustomerneedsit?..................................................................34

Whatadvantagesgivesoursolutionvsotherssolutions?.................................35

B WhatPricewillbepaid?...................................................................................36

Howtosetprices?..............................................................................................36

Howmuch?.....................................................................................................37

Howdoesthepricechange?..............................................................................39

Summary:...........................................................................................................39

C WhatadditionalcostswillbesustainedbytheCustomer?..............................39

Investments:.......................................................................................................40

Systems:..............................................................................................................40

SwitchCosts:.......................................................................................................40

D Summary:.........................................................................................................40

2/4 IstheSolutionaccessible?................................................................................41

A HowwilltheCustomerknowaboutthesolution?...........................................42

DowehaveaclearUniqueSellingProposition(USP)?.......................................42

Isourpropositiondifferentfromanyotheroneinthecustomermind?...........43

Which

message

will

impact

the

customer

mind?

...............................................

44

HowwilltheCustomergetincontactwiththeidea?.........................................46

Summary:...........................................................................................................50

B WherewilltheCustomerbuythesolution?.....................................................51

Inourbooks:.......................................................................................................51

Insomeoneelsesbooks:....................................................................................51

C WhichisourSalesCarousel?.........................................................................52

TheSalesCarousel:..........................................................................................53

TheTrafficArena:................................................................................................53

TheEngagementArena......................................................................................55

TheConversionarena.........................................................................................56

3/4 Doesprojecteddemandsustaintheinvestments?........................................60

A Howmanypieces canbesoldinthesolutionslifetime?.................................61

TAMTotalAvailableMarket................................................................................61

RAMReachableAvailableMarket.......................................................................61


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SASServedattractivesegments.........................................................................62

B Howmanypiecescanwesellinthesolutionslifetime?..................................62

ListingCompetitors:............................................................................................63

Screening Competitorsappeal:..........................................................................63

Checkingcompetitorsreach:..............................................................................63

PreparingtoCompetitionresponse:..................................................................63

Summary:...........................................................................................................63

C Howordersopportunitieswillchangeinthesolutionslifetime?.....................64

ChangesofDemanddrivers:...............................................................................64

The5forcesimpactingdemandtrends:.............................................................64

The5culturalfactorsimpactingdemandtrends:...............................................64

HowweimpactShare(Organicsensitivity):.......................................................64

D Whichopportunitiesdowereallysee?............................................................65

Summary:...............................................................................................................65

4/4 Doesthesolutionleaveunitmargins?.............................................................67

A Whicharethemaincosts?...............................................................................67

Variablecosts:.....................................................................................................68

Fixed

costs:

.........................................................................................................

68

Investments:.......................................................................................................68

Synergies&Economies:......................................................................................68

B DowehaveaSupplyChainstrategy?...............................................................68

Conclusion:istheinvestmentworth?.......................................................................69

Part3.WHOTHEHELLMAYWANTIT?......................................................................70

Whothehellmaywantit?.....................................................................................70

DowehaveahintaboutinwhichdirectiontosearchforaCustomer?................71

BlindSearch:.......................................................................................................71

InformedSearch:................................................................................................72

Bidirectionalsearch:...........................................................................................72

HowwewillrecognizeourCustomer?...................................................................73

TheknownCustomer:........................................................................................73

Lowendcustomers:...........................................................................................73

Noncustomers:..................................................................................................73


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FakeCustomers:.................................................................................................74

FoundCustomers:...............................................................................................74

Whatwemustbereadyfor?..................................................................................74

Wheretostart?......................................................................................................75

Hireascout:........................................................................................................75

Getanhigherpointofview:...............................................................................75

Followtheriver:..................................................................................................75

Meetresidentpopulations:................................................................................75

Lookforsmokesignals:.......................................................................................76

Beatingthebushes:............................................................................................76

Avoidsearchingincircle:....................................................................................76

Howtobeatresistance?........................................................................................77

Whattypeofresistancewewillencounter?......................................................77

10Resistencestoinnovation:.............................................................................77

FewWordsaboutinnovation:...................................................................................78

Whatisinnovation?...............................................................................................78

Howtheconceptofinnovationevolvedintime:...................................................78

The

ways

we

reach

innovation:

..............................................................................

79

TIME:IncrementalversusRadicalinnovation.....................................................79

SPACE:ExperimentalversusConceptualinnovation:.........................................80

SOCIAL:CompetitiveversusCollaborativeinnovation:......................................80

Thesourcesofinnovation:.....................................................................................80

Innovators:..........................................................................................................80

Placesofinnovation:..........................................................................................81

TheinnovatorsTalents:.......................................................................................81

Bibliography:.............................................................................................................83

FEEDBACKS:...............................................................................................................83


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Abouttheauthor:Since2009,FlavioTosihasbeenhelpingindependentsinnovatorstargetingtheOil&

Gas,Energy,Aerospaceindustriestodevelopthepotentialoftheirbusinessideas.

When they feel concerned about the risks and the best approach to use for

launching

a

new

product

or

service,

or

starting

a

new

commercial

initiative,

he

complementstheirgutand instinctbringingonthetable latestmethodologiesand

provenbestpractices.

For12yearshehasbeenamanagerofGeneralElectricandpreviously for2years,

anengineer intheR&D.FlaviowaspartoftheteamthatbroughttotheOil&Gas

market some of the most fascinating technologies of the last decades, gaining a

deepunderstandingofNewProduct Introduction,BusinessProcessReengineering

andProjectManagementmethodologies.

And

became

passionate

of

the

challenges

offered

by

this

industry,

having

fun

discoveringnewsolutionsandideasforhisClients.

Youcanfindsomeofthemhere: www.businessexploration.com,

oryoucancallFlavioat: +393496482225forapreliminarytalk,

withoutanyobligation.

Prefacetothe2.0release:Inthelast4yearsasanindependentconsultantIhadtofindsolutionstomyclients

thatforcedmetoaddnewconceptstomyapproachtogotomarket.

I was looking to something in line with my understandings, something that was

capable to add to classic marketing, positioning and sales models, few concepts

aboutmarketsdynamicof innovation,evolutionof technology trajectories,search

anddevelopingofmarkets.

IfoundthemintoProf.Christensenbooks,thatgivemeafullycomplementarypoint

ofviewwithmyprinciples,bestpracticesandkeyassumptions.

So I decide to take the gotomarkets key points from these new concepts and

synthesizethemintotheRoadmaptoMarket2.0.

I

added

a

First

Part:

that

will

help

define

where

your

innovation

lays

in

a

competitive

andevolvingcontest,anddecideifyouareinthepositiontopursueit.

AndaThirdpart:thatshallgivekeyprinciplesaboutexploringfornewCustomers.

This isnotmy favoritestartingpoint,but Ihave toadmit thatsometimeyoumay

comeupwithanideabefore tohavedefinedwhoyourcustomeris.Hereyouwill

findfewideaonhowtoexploretofindhim.

The Second part:just optimizes and adds some clarification to the Roadmap to

Market1.0.Soitisalmostunchanged.

Asusual:yourcommentsandsuggestionsandquestionswillbereallyappreciated:

[email protected]!


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Foreword

Ifyoujusthadabrilliantideaforyournextproductorservice,probablynowyouare

askingyourselfif:

Ismynewideaworthatry?

Someonetakesthisdecisionjustbygutfeeling.Ienvythemalot.Ineverunderstand

ifitispurecourage,insanemadnessorjustamatteroffaith.

What I know is that, statistically, more than nine out of ten of those guys fail

miserably.Andnotmanyoftheremainingcansinghurrah!asmasterofthemarkets.

Probably for this reason,Companies thatsurvive recessions,wars,and technology

decayhavedevelopedguidingprinciplesand techniquesto identifyandassessthe

variablesinvolvedinthisriskydecision.

Butwhen Istartedto lookaroundforthem,Ifoundamessof ideasandtoolsthat

confoundedandembarrassed.Marketingmeansalotofdifferentthingstodifferent

people, and probably for this reason is a word that has no translation in any

language,evenitsown.

Ineededsomethingworkable.Asyoudo.IfounditwhenIdecidedtostopsearchfor

tools and methodologies capable to give answers and started concentrating on

Questions.

Therightones.

Andheretheyare.Alistofquestionsthatwillguideyouinfindingalltheelements

youneed toreducetheriskof failureofyournextbusinessventureandmaximize

thechancetomakeitacceptedtotherightcustomer.

FollowingthisRoadmaptoMarket Youcanbecomfortabletotouchmost(ifnotall)

the keypoints in taking the finaldecision.HowYou answereachquestionof the

Roadmapisuptoyou.Canbeasimpleconsiderationtakenaroundacoffee witha

friend,

or

a

complex

statistical

study

commissioned

to

top

International

agencies.

But I assure You (for having tested it for years in General Electric as Marketing

ManagerandasaBusinessConsultantthereafter)thattheRoadmapiscompleteand

lean.ItwillkeepYouontrackandbuildtheunderstandingofthemarketinorderto

maketherightdecision.

Then,tomakethatdecision,Youwillneedabitofgut.

ButthisisuptoYou.

BuonLavoro!Flavio


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Introduction:innovating,andnot:innovation.

Thisbookisaboutinnovating,notabout:innovation.

Moreprecisely,ittriestohelpagoodideahitthemarketandgetsold.

Thispartoftheinnovationsjourney,theonethatgoesfromwhenanideahasbeen

invented (found, identified) towhen itbecomesadoptedandcreatesvalue, isnot

reallywelldocumentedinliterature.

Isjustsincefewyears(since1997,precisely)thatClaytonChristensenhasdescribed

thepathofinnovationtomarketandhascharacterizedsometypicalroutesthatare

madebythesuccessfulones.

Failing to understand the differences among those paths, when they should

alternativelypursued,andwhymakingthewrongchoice leadstofailure,causesto

mostoftheInnovatorstowastetimeandresources.

The

questions

collected

here

should

help

you

to

decipher

the

circumstances

in

which

youareandmaketherightdecisionsaboutwhetherandhowtoproceedtowardthe

market.

Butwhenwedoinnovate?

Innovationis:anewwaytoreachagoal.Ifoundthisdefinitionaboutinnovatingin

a paper of Benoit Godin, of INRS Canada, who explained how the concept of

innovationevolvedintime.

Itstartedmeaning:Change(oftheestablishedbehaviorsoftheuserwhowill

adopttheinvention),thenitadded:Rupture(withthepast, notjustdetaching

fromit,butmoreprofoundlydestroyingit,toachieveanewanddiversestatus)

andlately,inthepastfewcenturies,thewordinnovationhasbeenconnotedwith

2modernelements:creativityandutility.

Todayweassigntoaninvention(thecombiningofelementsthat createsanew

value)thestatusofinnovationonlyiftheinventionbringsinanutility.

UtilityinvolvesbothanadoptionbyaCustomer(achangeinhisbehaviors) and

theabilityoftheinventiontobemarketable(capabletogenerateanexchangeof

value).


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Underthislightitbecomesclearthatthestartingpointofanyinnovatingattemptis

intheCustomer.Withouthim,thereisnoUtility.

Thisiswhythisbookstartswiththequestion:DoyouhaveaCustomer?

Thereareonlytwotheoptions:

1)oryoudohaveaCustomer:youhaveanideaaboutwhoishim,andyoualready

bargainwiththisfellow.

2)oryouhavenoideaatall,andyouhavetohopetofindhim.

Thisentitlestotwodifferentkindofproblems:

Inthefirstcaseyourtaskistominimizethechanceoffailureforyourinvestments.

Thereisahugesetofbestpracticesthatcompaniesaroundtheworldhavecollected

inordertomaketheinitiativeofbringinganewideatoexistingCustomers,safer.

Thesecondoptionismoretricky:becausetheonlywaytodiscoveryourCustomeris

totry.Learnyourwaytohimbytrialanderror,beingreadytochangeyourpath

whenabetterwayisencountered.Inotherwordsisamatterofexperimenting:

maximizetheopportunitiestolearn,whileusingtheminimumamountofmoney

and

avoiding

the

chains

that

can

tear

down

your

flight.

Thesetwocoursesofactionseemsselfevident.Andinrealitytheyareequallyviable

inprinciple.WhatChristensenhashighlighted,hasbeenthatthereareprecise

circumstancesthatindicatewheneachoneisworthtobepursued.

Failingtoidentifythemmayleadtodeadends,fightingagainstwindmills,struggling

withresources,findyourselfalonehalfthewayetc.

TheRoadmaptoMarketwilltrytoguideyoutotherightpath,andhelpyou

identifyallthesignsthatleadtosuccess.


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Summary:

TheRoadmaptoMarketaimsatcollectingallthe informationyouneed,toanswer

to3basicquestions:

1)IsthereaClientformyidea?

2)ifYes,canIminimizetheriskoffailureformynewproductorService?

3)ifNo,canImaximizethechancestofindtherightone?

The FirstQuestionwill help you recognize the signs to the rightRoad tomarket,

avoiding deadend paths that have been proven (by others failure) to have the

lowestchancesofsuccessifany.

TheSecondone isaimedatcollectingallthedataneededforanNPV(NetPresent

Value)analysis:Demand,Share,ContributionMarginandRisklevel.Andistheroute

youshouldtake ifyouowntheClientsandyoujustwanttobeatcompetitionand

leverageyourcompetitivepositiontogetthemostoutofyouridea,withthelowest

chancesoffailure.

The lastone isthemost riskybutalsothemostrewarding.Because, ifyoudonot

haveaClient,youmaythendiscoverthatyourideaisworthtosomeoneyounever

thoughtbefore,andhewasreallyjustwaitingtoittosolvehispressingproblems.

TomakeyouswiminthisBlueOceanofopportunities,youneedtoaskyourselfhow

youcandiscover the route to theEldorado.Andbecausenoonehavebeen there

before,maximizingtheresultofeverytrialistherealjobthatbringsyouthere.

Caveat:

Thisbookcollects lessonsofseveral leadingScholars intheFieldofGameTheory(

e.g.:DixitNalebuff),Strategy (Porter,Christensen,KimMauborgne)andMarketing

(Trout,Reeves,Bly,Stokes,Choun). Isackedwildly their ideasand tried tobuilda

roadmapforinnovators,bridgingtheirtheorieswhereIsawpossiblejoints.

Therefore this book is not intended for beginners. You should have a basic

understandingofmarketingandbefamiliarofthecommonjargonsused.Inthisway

youwillmultiplytheeffectivenessofthisRoadmap,thatorganizessoundmarketing

models.

Furthermore Inot intendedtogiveyouareadingcompanion,butaworkingtool

where to find rapidly hints about marketing innovation. You will not find many

examples.Justbriefexplanationsofwhateachvoiceshouldmean.


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TheRoadmaptoMarket:

PART1.DOYOUHAVEACUSTOMER?

Doyou

have

aCustomer?

Wheneverafriendcomestometelling:Ihaveabusinessideathefirstquestion

ImakehimisdoyouhaveaClient?.Buttherealwaytoputthequestionshould

be.DoesanyCustomerownsyou?.

BecauseisnotenoughthatyouhaveanideaofyourtargetClient.Youshouldhave

bargainedwithhim.YourpotentialClientshouldhavebeenabletoexperienceyour

service,oratleastexperienceyou.Recognizingyouasasolutionprovider.Someone

whohastheabilitytosolvehispressingproblem,ortoallowhimtoachievehisgoal.

Ifthisisthecase,probablyyouarenotalone.Youmoveintoatrajectorywithothers

likeyou,readytoservethatclientatthebestoftheircapability.

TheCustomerdictateshisneedsandrequisites,ifnotevenasksawelldefined

performanceleveltoanattributeofyoursolution.

Ifyes,whichpartofthemarketareyouthinkingtoserve?Incaseyouknowyourtargetcustomer,hecangiveclearindicationsaboutthelevel

ofperformanceneeded.Butbecareful.Notalwayswhatheaskforiswhathereally

isgoingtouse.ListeningtoomuchtoClientsrequestsmayenduppushingyour

offertowardthehighendofthemarket.


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ThisisaveryattractivesegmentofCustomers.Theyareneversatisfiedandask

alwaysmore.Andareevenwillingtopaythisplus.Butthehighertheperformance

level,thelessaretheClientstobesatisfied.

ThedistributionoftheClientswithinthemarketmayresembleaGaussBellshape:

Withfewatthelowandhighends,andamassconcentratingaroundthemedian

performance.

Areyouunderperforming,orareyouoverperforming?

Takingasatargetthemediancustomer,iftheperformancesofferedbythemarket

arebelowtheexpectation,allthecompetitorsarefightingforthetop.

Fightingforthetop:Theystrivetosellabetterproductintoanestablishedmarket,andeachtime

someonecomeupwithabettersolution,hecausestheimmediatecompetitors

reaction.

Theprizeatstakeishuge,becauseusuallythemass oftheclientsarestilltobe

tackled,andtheopportunitiestosellgrowthebettertheproductis.

FurthermoretheClientdoesnotfindabettersolutiononthemarket,soiswillingto

payforthebest.Whatyoureallyarefightingforistomakeyourcustomerachievea

betterresult,notreallytoassurethatyourproductreachabetterperformance.

Inthisraceyoucannotstandstill.Youwillbeleftbehindfightingwithahardto

differentiateproduct,andagainstcompetitorswithsimilarcoststructures.

Youaregoingtolookforthoseideacapabletoimproveoratleastmaintainyour

profitmargins,exploitingyourorganizationsprocesses,coststructureand

competitiveadvantages.Alltheinventionsthatcannotdeliverimprovedprofit

marginsrelativetothecurrentcoststructure,arediscarded. Becausethecost

structureismostprobablyanheavyone.Thearchitectureneededtomanagethe


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complexityandtheuncertaintyunderlyingtheresearchofabetterperformanceisa

hugeandcostlyone.Ifyouintendtotakeparttotherace,betterbeequipped.

Integratedarchitecture:

What you need is an integrated architecture. An organization that is a platform

capable

to

achieve

new

levels

in

terms

of

Performance

and

Reliability

of

your

offer.

Isamatterofconcurrentefforts:youneedtheabilitytodevelopthecomponents

of your offer simultaneously, solving the unknow and unpredictable

interdependenciesamong them. It requiresExperience,Talents,ability tomanage

risksandtime. Andthewillingtosustaintheseeffortsforlongperiods.

An integrated architecture can be only proprietary. Is a unique enterprise that

demandhighCapitalExpendituretocoverR&Dcosts,backupinventories,talented

humanresources.Allthiscommandhugemarginsfromeachsale.

Thehigh capitalexpenditure and capitalonoperating costs ratioof an integrated

architecture is the sourceofdifferentiation,and the firstbarrier toentry fornew

competitors intotheofferingtrajectory.Thesecondbarriertoentry isgivenbythe

steepeconomyofscalethatisgeneratedbyanintegratedarchitecture.

Thisiswhytryingtobringanewinventionintoanexistingtrajectorycouldnotbea

goodidea,unlessyoudohavetheintegratedarchitectureandtheClientstoserve.

Theraceyouwouldwillingtoparticipatewouldnotbearacetosucceed,butarace

tonotfail.

Carefullyplanning

not

to

fail:

Companiesthatplaythisgamehaveorganizations,processes,values,resources,that

are committed to stayon trackand sustain themselves.Their strategiceffortsare

dedicated to filter out inventions with lower chances to succeed, with expected

marginsinsufficienttosustaintheircoststructure.Theyareoptimizedtoextractthe

mostoutoftheexistingcustomerbase,and indoingsothey fighttoscaleup the

existingsolutiontowardshighermarginssegmentofcustomers:thehighendofthe

market.Anewideathathasthepotentialwillneverbejustaddedtotheoffer.Most

probablyembedding it intotheofferingtrajectorywillrequiresoundpracticesand

experienceinmanagingtheinterdependencieswithallothercomponents.

Andthemorehightech isthe idea,e.g. if isan inventioncomingoutofaresearch

laboratory,themoreresourcesareneededtogovern it.Nowonderthatonly large

corporations can dare to bring on the market the most sophisticated scientific

discoveries.Theyaretheonlyonedesignedtomanagethecomplexityandcostsof

suchachallenge.

This

race

has

a

toll:

the

quest

for

higher

margins

may

distract

from

understanding

wherethemedianmarketis.Listeningtocustomerswhoaskformore(andpromise


15/85



topayforit)mayendupsurpassingthelevelofperformancerequiredbythemass.

FortheseCustomers,themarginal increase inpricethataCompanycansustainfor

an improved product slowly approaches to zero. This suggests that the marginal

utilitythatCustomersderivefromusingtheproductalsoisapproachingzero.

Yourproductisactuallyoverperforming.

Areyouoverperforming?

HowyoucanrecognizeiftheofferisoverperformingrespectwhattheCustomeris

willingtobuy?Afterall,Customersarethosewhoaskformoreinallthe

questionnaires,survey,feedbacksandrequestsforquotationyoureceive.

Atleastitseemsso.Ononeside,infact,thereisapsychologicalstiffnessofthe

customerinconformingtothehighendluxurytastes,akindofirrationalwishful

thinking,thatforacertainperiodmayhelpyourcustomerfeelbetter,whenasked

abouthisneeds.Ontheothersideyourorganizationtendtoreportasfeedback,

onlythosethatarealignedwithwhattheCompanywanttohear:moremargins.


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Andmoremarginscanbefoundonlyinthehighendminorityofthemarket

demand.Itsfeedbackisthereforetheonlyonethatsurvivethefilteringscreeningof

theCompanyprobes:itsmiddlemanagement.

AbetterlookmayshowthatMedianCustomersarestartingnotwillingtopayforthe

marginalincrementinperformance.Suddenlytheyshifttheirinterestfrom

performance,toReliability.Theyhaveenoughofwhatyourproductrangecan

offer.Theywantthattheproductperformthesamewayaslongaspossible.Later

on,whenalsothisrequirementbecomesmorethansatisfied,theirinterestshift

again.ItmovestoConvenience:thepreferredproductbecomestheonethatis

easiertogetanduse.Finallywhenalsothisfeaturebecomesagiven,thelast

criteriumofchoiceamongcompetitiveofferingsremainsPrice.

Whenyouarestillontheperformancetrajectory,youmaystartnoticethatyour

customersarestartingtobuytheentrylevelproductsofyourproductrange,orof

themarketproductsrange.Allofthecompetitorsarestartedtobetreatedalike.

Pricebecomesaninterestinggaugeofchoice.

Isinthissituationthatathreatsmaterialize:


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AreyouleavingroomtoaNewEntrant?ThisisthequestionfromaCompetitorstandpoint.Youmayseethatnew

competitorswithabetterpricingcanundermineyouroffer.Ifsucha newplayeris

abletocapturecustomersattention,andhasalowercoststructureheisgoingto

benefitofhighmarginsuntilthelastcompetitorofthePerformancetrajectory,will

stayinthemarket,sustainingthepricelevelstowardsthehighendofthemarket.

ThecompetitorsinthePerformancetrajectory,areevenincentivatedintheirrush

towardhighermargins,toleavethelowendsegment,movingtheiroffering

portfoliotowardsthehighendcustomers.Insodoingtheirportfoliosmargintend

toincreaseonaverage,somakingthisattractiontothetopevenfinanciallyjustified

(atleastuntilsomeonestarttoseethathigherpricesbylowervolumesdonotcoop

withcompanysgrowth).

IsthereaThreatoranOpportunity?Iffromthecompetitorspack,overperformingcouldbeseenasathreat,fromthe

pointofviewofsomeonewithagoodnewidea,thissituationismoreofan

opportunity.

Anobservationofthelowendcustomersmayleadtodiscovernotonlyawayto

penetratethemarket,buteventoexpandit.

Amongthelowendcustomerstherearesurelyuserswhoareperfectlyfinewiththe

lowendproductsrange.Butacloselookmayshowthatamongthemthereare

Clientswho,yesaresatisfiedwiththeminimumperformance,butinrealitytheyare

using

other

features

of

the

product.

Features

that

are

considered

not

important

or

notconsideredatallbytherestoftheMarket.


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Someoftheselowendcustomersneedhelptomaketheproductworkforthem.

Theymayneedexpertconsultantswhohelpthemadjustandfittheproductfortheir

need.Theylackofthecompetencesortheinfrastructure:tools,systems,

information,tojustplugandplaytheproducttosolvetheirproblemorachievetheir

goals.AllofthemarelookingforSimplicity.Otherstravelalongdistancejusttoget

theproduct.Theyuseonly10%ofit,butthat10%isworthalongtrip.Ifsomeone

couldbeabletoofferthesame,justalittlemoreConveniently, wouldbecome

instantaneouslytheirpreferredsupplier.OtherCustomerswouldlovetogetthe

productbuttheycanbarelyaffordthePrice.Sometimetheyjustbouncebackand

goawayandmakewithoutit.Iftheyareluckytheytrytomakewithanemergency

solution,somethingthatmakehalfofthework,butisbetterthannothing.

Ifyourbrandnewideacanchangethecoststructureoftheoffering,reshufflingitto

maketheproductmoresimpletoget,moreconvenient,andsellableatlowerprices:

allofthesecustomersareyours.

CanmyideadisruptthePerformancestrajectorygame?IfamongyourCustomersyoufindsomeonethatbehavesassaidbefore:lookingfor

simplicity,convenienceandprice,orjustbouncingaway,chancearetherethata

largercrowdofthesametypemaybeserved.

Unfortunatelymanytimethepeoplethatspottheseopportunity,lackoffantasy.

Ihaveseenpeoplespinningoffoneofthecompetitors,justtorephrasethesame

offer,atlowerprice,orforjustsomeopportunistcustomer,butreallywithout

bringinganythingnewonthemarket.Justgivingawaymargin,andtryingtomake

theirwaycuttingfixedcosts(branding,service,R&D)fromtheoriginalcompetitor

coststructure.

Thisisquiteeasytoseehappeningfromtheservicesideoftheoriginalcompetitor.It

isquiteeasytospotthehugemarginsthatthecompanyismakingwithitsservice

business,stoleafewofthebestservicemendoublingtheirsalary,promiselower

pricestosomefriendcustomeranddentingforawhilethesalesoftheoriginal

company.

This

may

work

in

an

up

swing

economy,

where

the

service

offering

capacity

may

be

notfullysatisfied.Butgenerallydoesnotlasttheshakeoutofadownturn,orofa

companythathaditenoughofthosebitestoitsrevenuebase.

Soifyouspottedtheopportunity,bettertomakeasanitycheckandverifyifthe

moveisbackedupbyanewideacapabletobringthesamevalue,butwithanew

typeofcoststructure.

Thepeoplethatsucceedingrabbingtheopportunity,generallyhavespottedthat

theproductsonthemarketarefarmorecomplexthanwhatisneededtodeliverthe

performanceusedbytheCustomer.(remember:customerstendtoaskformore,


19/85



evenwheninrealityuselessthanwhatyouoffer)sotheyfindawaytopull

togetherthekeycomponentsoftheproductontoamoresimplerandstandardized

architecture.Amodularsystemwheretheinterfacesarefixed,andthecomponents

canbepluggedintoachievethesufficientlevelofperformance.

ThisperformancebecomesagivenfortheCustomer:whatheisreallylookingfor

isspeed,responsiveness,convenienceandprice.

Ifmyideaisbuiltonamodulararchitecture,andthisisaninventionthatcandeliver

thelowendperformancelevelrequired:therearechancesthatmoreofthealmost

customerswillswitchtothisnewsolution.

Ifthisinventioncanachievealevelofperformancethatcansatisfythemedian

customers,withafaster,simplerandcheapersolution.Theareverygoodchances

thatthemajorityoftheCustomerswillmovetoyourinnovation.

Disruptingtheoriginalmarket.

Ismyideabuiltonanew(modular)architecture?Intheorythenewideaarchitecture,shouldnotnecessarilybemodular.Forsureis

newdifferentrespecttheoneinusebythecompetitorsonthemarket.Butifitis

anintegrated,complexone,thechancesthatthecoststructurewillallowalower

pricearefew.Thechancesthatastartupnewentrant,canmanagethecomplexity,

withouttheexperience,andcollectresourceswithoutacustomerbase,arefew.

Sobeforetomove,letscheckiftheideaisbuiltona(new)modulararchitecture.

Thekeypointhereisthatthecomponentsoftheproductshallbepluggedinthe

supportingarchitecturewithouthavetotuneittotheothercomponents.Inother

wordsthemodulararchitectureinterfacesshallnothaveunpredictable(notyet

know) interdependencies.Inthiswayeachcomponentcanbedevelopedseparately

aslongastheymeettheinterfacesspecifications.Thecomponentsspecifications

limitthedegreeoffreedomofthewholeproduct,sotheytendtoleadtoasub

optimizationofitsperformance.Butthisisnotaproblemaslongtheperformance

achievableareenoughtosatisfythelowendcustomers(betterif:themedian

Customer).

What

counts

to

make

the

final

product

performance,

is

not

how

the

componentsintegrate(coordinate),buthowwelleachofthemperforms.

Thegreatadvantageisthattheperformanceofeachcomponentcanbeoptimized,

withouthavingtoreinventtheentireproduct.

Furthermorethemodulararchitectureallowsoutsourcing,leveraginginthiswaythe

economyofscaleofthesupplier.Youcandosoifyourarchitecturemeetsthe

criteriaofSpecificability(youknowwhatiscrucialforeachcomponent),

verificability(youareabletospecifyitandtomeasureit),Predictability(you

cansaythattherearenopoorlyunderstoodorunpredictableinterdependencies

amongcomponents)


20/85



Isittherighttypeofmodulararchitecture?Notallthemodulararchitecturesareequallyinteresting,fromabusinesspointof

view.Ifitisaproprietarymodulararchitecturetheownerofit,willretainmostof

themargin,attheexpensesofhiscomponentssuppliers.

Hecanspecifythecomponentsinterfaces,inauniqueway.Hissupplierscanonly

buildaproducttofitthem,withoutbeingcapabletoofferthesameproductto

otherClients.TheOwneroftheproprietaryarchitecturewillmakethemoney,while

thesupplierswillfightwithcompetitorstogivethebestpricepossible.

(thisisthecaseforexampleofaGasturbinemanufacturer,thatcanspecifythe

bladesofitsturbine,andsupplierscompetetosatisfythosespecswithouthaving

thechancetoofferthesamebladetootherturbinesmanufacturers)

Ifonthecontrary,themodulararchitectureisanindustrystandard,andother

playerscanusethesame,theownerofthearchitecturebecomesalowcost

integrator,andthesuppliermakesthemoney.(seewhathappenwithindustry

packagersofsimpleindustrialskids)

Inbothcase,themodulararchitectureallowslowercostsstructures(R&D,

Inventory,HR)andpermitstosellatlowerpricestoalargerpoolofcustomers.

Thedifferenceiswherethemoneygoes.

Whoisthecustomerofanewmodulararchitecture?Ifyourideahaspassedthetestforarchitecture,isworthtorecapthebattleyouare

going

to

fight,

before

to

proceed,

and

be

sure

you

understand

who

are

the

customersyouarelookingfor.


21/85



Youaregoingtoofferyourinnovation,basedonanewkindofcoststructureand

architecture,toanexistingcustomerbase.Youareanewentrantonanexisting

performancetrajectory.Youcompeteforcustomersthatarealreadyconsuminga

product,andthelargemajorityofthemarewelloverservedbytheexistingoffer.

Yourentrycustomersarethelowendsegmentofthemarket.Arethosethatarethe

mostoverserved,theleastprofitable,andthereforelesswantedbytheincumbent

competition.Youaregoingtoproposetothosecustomersalowercostsolution.

YourstrategyleveragesamodulararchitecturethatgrantyouaCostAdvantage.

Thisadvantageisthereonlytillthesamecustomersarealsoservedbythe

incumbentcompetition.Aslongasthelastofthecompetitorsowningtheoriginal

architectureabandonethefight:yourcompetitiveadvantagewillfadeaway.

Youwillfindyourselffightingagainstequallyequipped(remember:youmost

probablyhaveanindustrystandardmodulararchitecture)competitorsatough

pricewar.Sobereadytoenjoythemarginsuntilthelastincumbentcompetitoris

stillthere.

Youronlywaytoenjoymarginsistoprecedetheabandonmentofthelast

incumbentcompetitor,invadinghisspace.Yournexttargetisthereforehighertire

customers.Andtodosoyoumustbereadytoextendyourmodulararchitecture

stretchingitsperformanceuntilyousatisfythosehighertirecustomers.

Todosoyoucanonlycountonyoursupplier.Youmustbereadytoincorporate

whateveradvancementtheycanofferfortheircomponent,thatcanallowto

increaseyoursystemperformance.Thearchitectureinfactisagiven,andyoucan

not

count

on

it

to

increase

the

performance

or

gain

competitiveness.

Speedinadoptingthenewcomponentsisofmaximumimportance:inordertobe

thefirsttoreachthenewmarketsegment,whiletheincumbentsretreatfromit.

Areyougivingawayyourbusinesstoyoursuppliers?Theothersideofthismechanismisthattheonlywaytogainsomethingintermsof

architectureoptimizationistooutsourcetothesuppliersareasalwaysmorelargeof

yourplatform.Inthiswaythesuppliercanintegratedtheareaandofferanenlarged

sub

system,

optimized

not

only

in

terms

of

price,

but

also

in

terms

of

performance.

Andyouhaveverygoodreasontodothis:yourcoststructurewillbenefit,cause

architecturesbasecostsgetsqueezed.

Thenaturalpathisthatwhileyouaretacklingthehighertirecustomersservedby

interdependentarchitectureplayers,simultaneouslyyougiveawayalwayslarger

chunksofyourarchitecturetosuppliers. Theyexpandthescopeoftheir

(interdependent)architecturetofulfillalltherequirementsofallthepossible

subsystemsofyourproduct. Theywillfinallyendupofferingtoyourclienta

solutionthatisfullycommoditized:isaffordable,undifferentiated,overperforming,

reliableandconvenient.


22/85



Atthatpointtheonlydifferentiationleft, goesintothedistributingchannel:and

amongthem: theonlycapabletoprovideanythinganytimewillprevail.

Thisiswhathappenedwiththesportclothsindustry:wherethetailormade

solution,arenowsupersededbylargeretailchain,offeringproductsbrandedwith

thechannelname(Decathlon,tomakeanexample).

Thegamethereforeneverends,isatokenpassinghands:theinterdependent

architectureispulledtowardsthehighendniches,untilthemarketisdisintegrated

andsupersededbyamodulararchitecturethatisthensupersededbya

commoditizedintegratedarchitecturewithadifferentiatingdistribution

channel...etc.

Canyouavoidit?Notreally.Whatyoucando,ifyouareasavvycompetitorusingan

interdependentarchitecture,istorecognizetheemergenceofamodular

architecture,andanticipatethemovesofthenewentrant,destructuringyouroffer

intothekeycomponents,standardizingtheirinterfacesandsellingthemtothenew

entrant,thatinthiswayispushedintoaindustrystandard architecture,beforethat

hefullydevelopitsown,andreducehimtothestatusofalowcostpackager.

Youwillretainthetechnologyofthekeycomponents,andwithit,thelargestshare

ofmarginthenewvaluechaingenerates.


23/85



Confess:youdonothaveaCustomer,dontyou?IfyouarenotsurewhoyourClientcanbe,probablyyouareoneofthoseguythat

afterbeingimmersedintoatechnologytrajectoryforawhile,yousawawaytofind

thesamethingbutmuchmoresimply.

Youprobablybelongstotheengineering,marketingorservicedepartmentofoneof

theleadingplayers.Somethingtriggedyourattentionandyoupulledtogetherpieces

ofthesolutionassemblingoutoftheshelfcomponentsonamodulararchitecture

andobtainingwhatitlookslikeanotenoughperformingabort.Butitswaymore

cheap,fasttobuild,easytopurchase.Andthesuppliersbelongstoatotallydifferent

valuechain,generallyspeaking,muchlessdemandingandbranded.

Theabort,sorry:idea,thatyoupulledtogetherdoesnotworkfortheusual

customersbelongingtoyourperformancetrajectory. Atmaximumcanalmostserve

thelowestendofyourcustomerssegments.

Yourbosshasridiculizedtheidea.Customersfeedbackisliketohavepresented

thematoy.Yoursolutiondoesnotshowtohavethemarginrequiredtobeableto

contributetotheexistingproductportfolio.

Butithasaveryimportantattribute:itworks.Furthermoreitssimple.Anyonecan

useit,itsmuchcheaper,becausetherearenotinhousebuiltpreciouscomponents:

everythingwasavailableonthemarket.

IfyouonlyhadaClient!

Whothehellmaywantit?

This

is

the

problem

with

good

ideas

that

are

cheaper

and

simpler,

but

do

not

performenough.Yourusualcustomersdonotwantit,andyoudonotknowwho

may.Yourcolleague,instead,theonethathasproposedthebiginvestmentneeded

toimproveofthe1%theperformanceoftheexistingproductline,passedthetest.

Hisidea,wasrisky,difficulttorealize,butwasinlinewithwhatcustomerswere

demanding.AndwhatCustomeraskfor:getprecedence.

Hisproblemwastomakealltheplantomitigatetheriskoffailure.Whatthe

companyhasdoneistocarefullycheck,andeliminateanyriskofpromising to

customerssomethingthecompanyisnotabletodeliver.

Yourideaisdifferent.Isthere.Itworks.JustneedtofindaCustomer.Theproblemistheopposite:isnotamatterofreducingthechanceoffailure.You

needtomaximizetheopportunitiestobumpintotherightcustomer.

Andonethingissure:isnotthecustomerthatyoualreadyknow.

Probablyissomeonethatisstrivingtodoajob,wherethetypeofsolutionyou

proposemayhelpalot.Buttodayisnotoffered.Thesepotentialcustomersprobably

usesomethingdifferent,asuboptimalproduct,thatperformsunsatisfactorily.

Onthoserespects,yourideawouldbeasubstituteproduct.

Probablyyourproductwouldenablethosepotential(nonyetconsuming)

Customers,thatlackedthemoney,theskillsorcouldnoteasilyreachthesolution.


24/85


25/85



TheRoadmaptoMarket:

PART2.HOWMANYCHANCESTHISINVENTIONHAS?

Howmany

chances

this

invention

has?

Thedecisionthreeinpart.1,shouldhaveroutedyoutooneofthe2possiblecourse

ofactionswhendealingwithinnovation:

Minimizerisks. Maximizeopportunities.

These2seemquiteparallelpaths,applicabletoanykindofnewventure.ButItsnot

so.Thesetofcircumstancesdescribedabovesolicittogofromideatomoney,using

oneofthesetwomindsets,asanalternativetotheotherone.

Part.2isdedicatedtothefirsttypeofpath:theonetobepursuedwitha risk

avoidancemindset.

Thismeansthatmostprobablyyouareinawellidentifiabletechnologytrajectory

thattakesthemarketsneedsasagivenandissupportedbyawelldefinedvalue

networkofconcurrentsuppliers.Thatalltheinnovationsfunneledintothis

trajectoryaretargetedatawellidentifiedgroupofCustomers.thatthesecustomers

(oratleastasizableandinterestingpartofthem)arestilllookingforaperformance

level

that

none

of

the

competitors

can

actually

match.

That

the

next

level

of

performancewillbeachievedinapriceperperformancesunitlowerthanthepast

levelofperformancereachedandthatyouownthearchitectureofavaluechain

platformthatstillrequiresagreatdealofintegrationinordertosolvethe

interdependentproblemsthatarousesimultaneouslywhenbringingtogetherthe

elementofthesolutionyouwanttooffertotheClient.

Allthissetofcircumstancesfavortheestablishedorganization.Anorganization

withthecapability,abilityandresourcestoplaythegamewiththecompetition.Its

scopeistoextractthemostoutoftheexistingcustomerbaseandmaximizingprofits

indoingso.Itsproblembecomestogenerate,select,evaluate,prioritizeandlaunch

theinventionthatwillbeatthecompetitionandconquermarketshare.

Thefollowingpagestakeforgrantedthatthisorganizationhasbeenabletogenerate

therightideaforanewproductorservice,andbringyouthroughthequestionsyou

shouldanswerinordertobeabletoevaluatethepotentialofyourideaandassure

youdesign amarketingplanthatwillminimizetheriskoffailureinlauchingitonthe

market.


26/85




27/85



1/4 Isthesolutionappealing?

Thenicestpartofhavinganewgreatideaisthatitisselfevidentthatitwillbesold

inmillionsandCustomerswillfighttograbitfromourhands.

Unfortunatelyourbankwillnotsee it inthesameway.So,unlessyouarereadyto

betyourownmoney,wearealwaysaskedtoprovethatCustomerwill payforit.AndthiswillhappenonlyifourideacreatesvaluefortheCustomer.

Better: if creates an affordable value, and if this value is greater than theoneof

equallydemandingalternatives.

ThisstepoftheRoadmaptoMarketqualifiesandquantifiesthevaluedeliveredto

theCustomer and tries tounderstand howmuch value theCustomerwill give in

returnofthesolution.

ThedifferencebetweenValueGeneratedfortheCustomerandValueSpentbythe

Customer(i.e.thePricepaid+theCostssustainedtobeabletousethesolution)is

calledtheAppealofthesolution.

Wearegoingtoinvestigatethesethreecomponents:

Valuegenerated,PricepaidandincurredCosts.

A HowmuchvalueourideacreatestotheCustomer?

Understanding the value that the Customer gives to our idea starts with

understandingwhoourcustomer isandwhich isthesituationortheprocesshe is

involvedin.

TheCustomer is inthatsituationbecausehewantstoachieveacertaingoal.Ifthe

goal isbeyondhisreach,thisisaproblemthatneedsa(our)solution.Anysolution

caries some characteristic (attribute) that has specific ability (features) thatmake

possible to make a further step (get a benefit) towards the ultimate goal of the

Customer.

ACustomermaybein2situations:orithasaGOAL,orithasaPROBLEM

1)heknowswherehewanttobeinthefuture,butdonotknowhowtogetthere

2)

he

has

envisaged

how

to

get

there

and

is

looking

to

the

best

way

to

fill

a

gap

betweenwhereheisnowandwherehewantstobe.

In the first case he is actively looking to pursue a GOAL, and need a hand to

understandwhichisthebestwaytogothere.

Inthesecondcasehefullyunderstandhowtogothere,heknowsthePROBLEMhe

has to solve and hejust miss the right solution: piece of equipment, service or

information.

Thesecondcase(thePROBLEMcase)isabittrickyforasupplier,becauseCustomer

willtendtoproposehisvisionofthesolutionneeded.But inrealityhemostoften


28/85



doesnothavethecompetencestodefineit.

This isway collectingVoiceof theCustomer inputs aboutwhat the attributes he

expectsfromthesolutioncan leadtodisaster.Evencollectinghis inputsaboutthe

features is not enough, cause he may describe just part of the problem (the

interfaceswherethesolutionhastoplugin),whatwereallyneediswhatbenefitshe

wantstoachieve:howhewillmeasurehowwellhisgoalhasbeenreached.

Whatwe really need tounderstand iswhat the Customerswants to achieve: his

GOAL:which is thejob thathehas tobedone, andhow,bywhich variables,he

measureshowwellthejobisgettingdone.

Letsstartfromtheprotagonist.

WhoistheCustomer?:FromCustomersneedstoCustomersGoalsACustomerissomeonethathasaGoal,someonethataspiretoachievesomething.

ButhehasagapthatseparateshimfromhisGoal.Thisgap ishisneed.Andweas

suppliersaretheonethathavethesolutiontoclearoutthatgap.

Tomakeanexamplethinkthissituation:imagetobeanownerofaRestaurant.You

getacallfromamanaskingforatablefortwo.Youmayimmediatelythinktoyour

menu prices and which of your table can fit them. You are going to solve his

problem,offeringasolutionforaprice.OryoucanthinkwhatistheultimateGoalof

yourCustomer.Thinkingwhatheisreallysaying:Ineedacomfortableplace,abit

ofromance,animpeccableservice,asoftmusic.Inthiscaseyoumaythinktothe

Value you can offer, and make sure you are going to great him by name at the

entrance,beattentive to thepartnerneeds,andwinoveracouple for the restof

theirlifesanniversaries.

YouunderstoodtheultimategoalofyourClient:aDreamfortwo.


29/85



WhatCustomerdreamsofCustomersarethosethathaveaGoalandaproblem.Suppliersarethosethathave

solutions.Andyes:thereisabitofchickenandeggsgamehere:youneedtoknow

whoisthecustomerifyouwanttoaddresshisproblems.Butatthesametimethe

problem

and

why

Customer

need

to

solve

it,

are

the

starting

point

to

clearly

identify

anddescribetheCustomer.

InB2C thismay requireacustomersegmentation,orgroupingCustomers in34

categories that canbeunivocallydescribed, consideringwhat is theultimategoal

eachindividualClientwantstoachieveandaddressingtogethertheoneswithcloser

desires.

InB2B,understandingwhoistheCustomermayrequiretosearchtheactorsofthe

purchasingprocess.Eachperson involved into thisprocesshas its importance to

influencethefinaldecision.Therolesintheprocessare:Initiator(whoidentifiesthe

needs)Specificator(whodefineswhat isneeded)Decisionmaker(theonethat

willgetthebenefit)theBuyer(theonewhotriestocutdownyourprices)the

User(theonethatwillutilizethesolution).

IamhappyonlyafterIhavebeenabletolistthecustomers(ordescribethem,based

onsomecharacteristics)andgroup together those thathaveacommonreason to

wanttheirproblemsolved.

Wheredoesthesolutionfit?Whatproblemitsolves?

Who istheCustomerisnowclear.Andwehaveevenunderstoodhisultimategoal.

Thingsdonotrunsmoothlyforhim.Butwecanhelp.Atleastwethinkso.


30/85



Tobesure,Itakeacloserlookandtrytoclearlyidentifytheutilizationsituationthat

makesourideaagreatfit.Youcanalwaysgetsurprisesifyoutouchbyhandinstead

makingaguess.ThisistrueforB2C(yourpumpkincouldendupinarisottoorlook

fabulousasaHalloweenlamp);ithasaspecialmeaninginB2B,wheremostofyour

productandservicesareinjectedintheflowofacustomersprocessandCompanies

tendtojealouslykeepsecretthewaytheyreallywork.

InB2C: understandingtheCustomerproblem;whatsolutionsdidtheylookatand

ultimately reject;whydid they chooseourproduct as the solution;howdid they

install our product or implement our solution; how is the customer using our

productrightnowandwhatresultshavetheyattainedwithit isthepaththatmake

youunderstandwhereyourproductfitsandwhy.

InB2B:Understanding the customerprocesswhere the solutionwillbeusedand

mappingoutitslogicalsteps,isimportanttocorrectlyunderstandtheultimategoals

of

the

Customer.

Knowing

its

goals

makes

you

understand

and

prioritize

the

benefit

thatyoursolutiondeliversandhelpquantifythevalueofthebenefitssoughtbythe

Customer.

IfweareabletounderstandwhatjobtheCustomeristryingtoaccomplish,thenwe

cangroup(segment)ourcustomerbythosetryingtodoaparticularkindofjob.

WeshouldbeabletodescribethecircumstancesinwhichtheCustomeris, whenhis

necessityappears, anddefinethecausaltythatmadethephenomenonoccur.Inthis

wayweshouldbeabletopredictwhenandwhyCustomermayrequireourhelp.

Ifyoufailtobeabletodescribethiscausalty,yoursegmentationwillendonbeing

basedonattributes:youarenotgoingtodescribewhyacustomerhasaneedbut

onlyhowheneeds.Soyourforecastswillbebasedonlyonthepast,andnotwillbe

abletobuildamodelofthefuture.

Atyourdischarge,isthefactthattherareatleast4mightyforcesthatdriveyouto

segment yourcustomersby theattributesofyourproduct, insteadby the reason

behindtheirneed:

4reasonswhyyousegmentinthewrongway:1)Your fear that focusingyourproductona customerneed, youwill loose the

opportunity to sell to other customers, with different needs. In reality is the

contrary:afocusedproductstealscustomersfromundifferentiatedproducts.

2)You (oryourBoss)ask formarket size (forwhich the IThasdata ) insteadof

whatcustomersneedstoaccomplish(forwhichtheITdonthavedata)

3)Yourretailchannelstructureisattributebased:theyaskyoufor300strawberry

milkshakestoputontheirshelf,andnotsendmemilkshakeforkidsparties

4)alltheadvertisingisCustomerbased:Young,old,females,men,andnotonthe

circumstancesonwhichyouhaveajobtobedonebased:whenyouarepreparinga

marathon,

when

you

are

cleaning

a

home


31/85



Asnapshotonprocessmapping:

You may find several good books about process mapping. But here are my

recommendations:

1) Startwith theend: i.e.anyprocess transforms something intoaproductorservice that isdelivered tosomeone.Find thatsomeone, this is thestarting

pointofyourprocessmap.

2)Maponlythelogicalsteps,nottheactivities.Thedistinctionisthatthelogicalstepsdefinethechange instatusoftheresourcesprocessed.Donotbother

abouthowyoumake thechangeofstatushappen. i.e: ifyouhave togo to

ParisandYouareinRome,youchangeyourstatusindependentlyifyougoto

Parisbyfeet,car,trainorairplane.

3) Track the deliverables at the end of each step: not the logical step itself.Deliverables at the end of a step: have changed status. Tracking the

deliverablesstatus,youtrackthelogicalstepcompletion.

(Moreonprocessmappingonmysixsigmashortcourseforgreenbelts, askforit)

Whichsolutiondowedeliver,andhow? (S.O.R.C.)

Thisquestionmayseemsoffensive.Afterall,ourfantasticideaissosimple!

But try to explain it to a Customer. I always need to develop very convincing

arguments. This is the reasonwhy I start describing the idea immerging it in its

utilizationsituation:itbecomeseasier.

I

start

with

its

attributes

(e.g

here

is

a

lamp),

then

I

describe

its

features

(e.g.

that

gives light)andultimately I identify thebenefitsachieved through them (e.g.so

Youcansee).

You may want to qualify the benefits delivered by each attribute. Doing so, I

occasionally discovergapsversustheexpectedresults,oropportunitiestoexpand

the product from itsphysical attributes to its service content. Sometime You can

evenexpandittofunctionasaplatformforfurthersolutions.

Agoodwaytoscrutinizeandproperlydescribeourideaisalwaystocompareitwith

whatothersprovidetosolvethesameproblem.A looktowhattheCustomerhas

usedinthepast,isusingnow,orwillgoingtouseintheforeseeablefuturewillhelpyou refine what our solution actually delivers, how is really made, and if its

supportedbyotherproducts,services,orsystemsas othersare.

Sometimethecompetitivesolutionsgobeyondsolvingtheproblem,andassociate

to themselves ideas, feelings, beliefs, andmyths that are even stronger than the

solutionitselfinreassuringthecustomerofhavingreachedhisultimategoal.

So, going from attributes to features till benefits give a great opportunity to

understand the ultimate goal of the customer. This will help you later on, when

lookingtomakeyourideamemorabletohim.

Howmuchvalueoursolutiondelivers?(inB2B)


32/85



Wemustbehonesthere.Wedonotknowhowmuchourideaisworth.

Evenwhen I think I know, I discover later on that Customer has totally different

opinions.Andnotalways itsabad surprise.Moreoften thannot,Customersare

readytopayhigherpricesforouridea,thentheonewearejusthappytoask.

From bad and good lessons, I learned to check with him directlyafter a bit of

homework. Justnot tospoilourprice from thebeginning.Afterall therearevery

fewMecenateoutthere,readytorecognizefullythevalueofourwork.

There are countlessways that aim at identifying andmeasuringhowmuch value

Customergives toour idea.Anda lot iscomplicatedby thedefinitionofValue:

classic marketing manuals can refine the meaning up to search for ultimate

customer beliefs or stay a bit more comfortable in searching for the immediate

benefitsandattributesthataspecificofferdelivers.

Whateverthewayselected,Iproceedintwosteps:FirstIqualifythevalue,looking

athowitisgenerated,thenIquantifythevalueforeachcategoryIveidentified.

WhendealingwithB2C,toqualifyandquantifythevalueofanidea,Isawpeoplego

very plain and just trust their personal feeling, as well as companies go for

complicatedstatisticalanalysisasConjointandDesignofExperiment.

Is a tough argument where I ventured only seldom. What I can say is that the

AmericanMarketershaveinventedthepilottestingofnewideas.AndIthinkthatis

a

good

move.

WhenintheB2Barena,thingsgetsimpler.

Therearebasically4typesofvaluethatourideacandeliver:S.O.R.C.

1)GeneratemoreSales2)ReduceOperatingcosts(financialcostsincluded)3)Reduce the overall Risks associated to the business of Your Customers

(startingwiththeriskofusinganunknownsupplier)

4)ReduceCapitalCosts(Capex)Each of this Values Components can be investigated, referring to the Customer

processoursolutionisintendedtoimpact:

ThemoreSALESValuescomponent.OursolutioncanhelpCustomersalesinseveralways.Butwecanclustertheminto2

bigcategories:

1) TheonesthatincreasetheNumberofgoodssoldbyCustomer.


33/85



2) TheonesthatincreasethePriceofthegoodssoldbyCustomer.Forexample:Youmayproposeanofficeautomation tool thatdramatically reduce

the average lead timeof your customer goods. Thismeansmore pieces soldper

period.

Oryoumayintroduceasoftwaresolutionthatdramaticallyenhancethesatisfaction

ofYourfinalcustomer,leadingtocommandbetterprices.

HereisalistofplaceswheretolookformoresalesValuecomponent.

performance

timetofirstproduction/delivery

availability

reliability

offdesignconditions

performancedegradation

services&emergencies

ThelessOPEXValuescomponent:Again,byopeningthecustomerbalancesheetand incomestatementwemay find

clear suggestions tounderstandhowmuchour idea isworth.When I lookat this

ValuecomponentIgivealargemeaningtoOperatingCosts:allthecoststhatchange

as theCustomer sales change.Checkouthowmuchmanhours,directmaterials,

supervisorymanhours,consumablesetcoursolutioncansave.

Herearesomeexample:

directmaterials manhours/headcount training/professionalism/headquality fuelcosts consumablecosts underpinningcosts tax ecocosts stockslevels/inventory ThelessRISKSValuesComponent.Thisvoiceisabittrickiertodescribe.But thisisthemeaning:whatevermakesyour

customers business more risky, automatically reduces the value of the business

itself.

To

make

an

example:

our

customer

may

be

able

to

sell

100

pieces,

but

if

his

customerspayonly80%ofthetimes,ourcustomersalesareworthonly80times(if


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notless)theaverageprice.ThereforeCustomershouldappreciateanysolutionthat

reduces his business risk andmakes that probable 100% amore likely realized

figure.

IsayshouldbecauseRiskshouldnotonlybethere,butshallevenberecognizedby

theCustomer.It isnotalwaysso:peoplehavedifferent levelofriskunderstanding,

andrisktolerance.

AssumedourCustomerfeelsDamoclespain,ifourideahelpsreduceCustomerrisks,

itcreatesvaluetohim.

Asanexample:justthinktothelowerinsurancefeeaCustomercanpay,thankstoa

newsecuritysystem.

Here You may want to go creative. And Probably you will make your customer

discoverrisksthathewasunderlooking.

Herearesomeexample:

fulltestedsupply reachability(servicelevel) KnowHowcosts returnsintechnology personalrelationship brandleveragingvstopmanagement integrity evaluationrisks financialrisks politicalimpacts ThelessCAPEXValuescomponentFew pages ago we have defined the situationwhere the Customer is in and the

processestheCustomer isusingtoachievehisgoals.Nowwegoa leveldownand

lookattheinfrastructuretheCustomerhascreatedtomakehisprocessdeliver.

SometimeaquicklookatCustomerBalanceSheetcangiveanideaofthestatusof

his

infrastructure:

how

much

has

it

been

used

so

far

(depreciation),

what

recent

investmentshavebeendone,which is thebiggest infrastructurepiece (wherehis

attentionisfocused)andalike.

Thenwecanthinkatdifferentwaysourideacanreducethoseinvestmentscosts.

Herearesomeexample:

solutionprice(thisiseasy) sparepartsprice duration/depreciation


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partscommonality Terms&Conditioncosts warrantiescosts installationcosts plantinducedcosts(asimpleexample:theparkingfortheemployees) financialaids taxesandincentives upgradesandoptionscapabilities customization/standardization bundlebuy ecocompliancecosts expeditingcosts/QualityControlSummary:

Thinkingwhere,(amongSALES,CAPEX,OPEXandRISKabatement),ourideacanhave

animpact,makeseasierqualifyandquantifythevalueithasfortheCustomer.

IkeeptrackofanynewtypeofimpactsIfindaslongasIidentifythem,causeinB2B

the ultimate goal remains to make money and this attitude leads to common

approachesindifferentindustries.

Andsometimecrosslinkingthiscategoriescanhelpidentifysomeunexpectedvalue

andnewwaystoconvincecustomertobuy.

HowmuchdoesCustomerneedsit?

AtthispointofourRoadmapweknowwhoourCustomeris,whenandwhyhemay

be interested inour idea.Wehavearticulatedour ideaandassociatedapotential

valueitcandelivertoourCustomer.

NeverthelessourCustomerdonotshowanysignofinterest.

TheValuethatourCustomerplaceintoasolutionto problemdoesnotdependonly

ontheamountofvalueorthesizeofthebenefititcandeliver.

Itdependsalsoontheurgency,theperceivedrisk,andtheavailabilityofbudget.

Forthislastreasononly,manyprefertomakebusinesswithrichpeople.

TogaugetheinterestofapotentialCustomertomyidea,IfindusefultouseKANOs

analysis,evenifKanoitself,probablywouldnotusehismodelthisway

KANOsmodelclustersthefeelingtowardasolutionin4baskets:

Solutionsthatcustomerfeelsas:

INDIFFERENT:somethingthatdonotreallychangehislife.

MUST

HAVE:

is

something

critical,

and

must

be

performed

in

a

way

or

another.

NICETOHAVE:somethingthatisniceandcool,butCustomercanlivewithoutit.


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THEMORE THEBETTER: something that isof value andCustomerwill get great

benefitrightnow.

Youmayhave theperfect solution,butCustomermay feel solvehisproblemnot

necessary,noturgent,tooriskytotackleortheproblem improbabletohappen,or

simplynothavingthebudgettosolveit.

Another way to understand the Customer purchasing intention is to test them:

collectinghis comments,askinghimdirectly, looking forwhat are the tendencies,

rumors,andfeelingsinhiscommunity.

Mostof the time theproblem isalreadybeen tackledby theCustomer.Trying to

understandwhatsolutionsheused inthepast,whatalternativerouteshetookto

solvetheproblem,whatlevelofbenefithegottillnow,(assuminghehadany)and

themain difficulties encountered so far, are good information to understand the

urgencyandtheBudgetavailability.

Furthermore, listeningtotheVoiceoftheCustomer (VOC)allowsmetotestproof

much of the assumptions made and discover unexpected feedbacks and

considerations.

Whatadvantagesgivesoursolutionvsotherssolutions?

NowwecancompareoursolutiontotheoneoftheCompetition.

YoucangotoMichaelPorterbooksforanoverviewoftheproblem.

WhatItendtodoistolookatcompetitioninrelativeterms.Ilookforgaps.

Lookingatwhattheideashaveincommon,itisnotacustomersselectioncriteria.

ThefirstgapisversusthedoNothingcompetitor.Whatistherealdamageofnot

tackling theproblem? Ifweare so lucky thatCustomerhasnot tried anything till

now, he probably is not aware of the problem often not a good sign of

appreciationforthesolution.

Then

I

compare

what

Customer

is

doing

now

and

what

has

done

in

the

past.

Iespeciallytrytounderstandwhyheisunsatisfiedoftheresultsobtainedsofar.

FinallyitcomesthetimeforRealCompetition:alternativeandcompetitivesolutions.

Alternativesolutionsaremoresubtle:thinkatthedifferencebetweenavaccineand

a daily cure for allergy symptoms. The two are competing, but they solve the

problemindifferentways.

Competitivesolutionsarethosethatcanreplaceyoursrightnow.


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Porterdescribestwotypesofdifferenceincompetitivenessorrelativevalue:

ThefirstreferstothoseattributesthatimpacttheEffectivenessofoursolution.Our

ideas carry some attribute that work better and the customer will get greater

Benefits(creatingmoreValuefortheCustomer).

ThesecondreferstotheEfficiencyofthesolution:howmuchvalueour ideatakes

out fromCustomerspockets (destroying lessCustomersValue),while solving the

problem inadecentway.Porterreferstopricecompetitiveness.Wearegoingto

investigateitinthesecondchapterofthissection.

Summary:

CustomerwillcomparetwosolutionsbasedonthenetValuehewillreceive.

ValuegeneratedValuedestroyed. I.e.EffectivenessvsEfficiency

Whencomparingthedifferencesbetweencompetingsolutions Itendtokeepnote

only of the Delta: what is in one that is not in another. This forces to focus on

tangibledifferences.

B WhatPricewillbepaid?

Thesecondcomponentofattractiveness isPrice.Themorewetakefromcustomer

pockets,thelessvalueweleaveinhispocket.Thegreatestthevalue/priceratio,the

highesttheprobabilitythatYourproductwillbesold.Asafirstmovewecancheck

outthisratioroughly.Aratioof25(i.e.customerwillgain25timesthepricespent)

is a good minimum threshold. Consider that when we will talk about the 3rd

attractivenesscomponent (Costs),this ratiowillbereducedbythecostsCustomer

willincurtouseoursolution.

Howtosetprices?

Strategically:

Beforetothinktothepriceofanewproduct,Ilookatitfromadistance.Itakea

moment to think to the segment, cluster or industry where my idea will be

proposed.Isitwealth?Isittrendy?IsmyCompanybrandpositionedaspremiumor

luxury?Or is it a follower?Andwhat have been the trends of prices?Are being

squeezedbythemarket,orhighdemandcancommandhighprices?Abirdeyepoint

of view and a comparison with what happens in other adjacent segments or

industriescanhelpalottosetadirectioninyourPricesetting.

Competitively:

Thenextstepistolookuptothecompetition.Anewsolutionanditsnewpricehas

to confront with other solutions, the simple fact of add a solution/price to the

Customerschoiceslisthasanimpactoneachpriceonthesamelist.


38/85



Proposing on the market the wrong price can destroy a niche or an industry,

initiatinganiterationofcompetitivemovesthatbecomeeasilyoutofcontrolofthe

priceowners.

Itstheprice/demandelasticity.Andtheeasiestwaytosummarize it is:bewareof

crowdedmarkets.Everycompanyshouldtendtobethemonopolist.

Transactionally:

FinallyIstartthinkingaboutthenegotiationprocessthatmyproductwillgothrough

when put on the market (even if You set a fixed price, actually you have pre

negotiatedit).Thestepsthatthenegotiationprocesswillbemadeof,willactually

setthefinalcashyouwillget.Thisistherealpriceyouhavetoconfrontto.

Howmuch?

How

much

is

definitively

the

Question:

Price

is

the

marketing

variable.

Isoneofthefewthingsyoucanalwayschangeabruptlytoachieveyoursalesgoals.

Price is your resourcewhen you need to counteract or deploy some competitive

strategy.Itseventheretoprotectsomesalesmanfrompoorsalesresults.

TosetPriceforanewideaImakereferencetothree(andahalf)waystodoit.

As a first option, I check if I can define a price based on the benefit (Value)my

Customer will achieve using my idea (value pricing). Then I know I have to take

competitionintothegame,soIcheckouthowtheyprice(marketpricing).Asalast

resource Idothesimplething,andaddaprofittomysolutioncosts:probablynot

thebestwaytodoitbutatleastasafeway(costpluspricing).

SometimeIappealto anultimateresource:anhalfwaytosetareferenceprice:I

ask Customer to set the price. Not my preferred choice but, with a walk away

optionembedded in thenegotiationprocess,You canevenhave some verynice

surprise.

Valuepricing

IfyoumadealltheRoadmapstepstillnowYoushouldalreadyhavetheelementsto

gaugethevaluethatyoursolutionbringstotheCustomer.Youcannowcheckout

theindustryorcompetitivemultiplesto setthePrice.Youcangotosimilarsolution

offeredinotherindustryandcheckouttheratiosused.Thisisgoodpracticeanyhow,

because Customer buys other stuff too. And those prices help him to build his

expectedprice.


39/85



Marketpricing

As said, most of the times we are not alone on themarket. Customer can have

severalsolutionsathisreachandthisforcestothinkintermsofPriceParity:i.e.try

tosetapriceinlinewiththecompetition.

Itsoundsabitcollusive,butitsastartingpoint.

AssumingIamabletofigureoutaPricebenchmarkamongcompetingsolutions,the

nextstepistochooseamong:astrictpriceparity;sellmyideaatapremiumpriceor

atdiscountedprice.

Inamarket,oftenoneofthecompetitorsisthepricemaker.Thepricedecisionhas

tobetakentakinghisgoalsintoaccount.If,forexample,Iwanttotryadiscounted

pricetactictoenterthemarket,Igiveclearsignstothecompetitionthatthispriceis

an interim price, to try avoiding price wars. Customer get the message too, and

mustbeclearthatthepriceisnotcarvedinstone,butanencouragementtoatrial.

Costpricing

Placingamarkupabovethepurchasingcost isacommonpracticefordistributors.

Thelogicis:first:coverthecosts,oryougiveawaywealthforfree.

Forthisreasondefineapricerequirestohaveaclearideaofthecostincurred in

creatingtheproductandbringittomarket.Thisisnotaneasytask,especiallywhen

huge capital costsand investmentsare involvedand thengoodsare soldat small

price.AtrickIuseinpreliminaryanalysis,whenallthecostsarenotclear,istorefer

tothecostofsimilargoods,forwhichIhavebetterdata.Canbethepreviousrelease

of

the

product

or

something

that

I

can

buy

on

the

market

and

for

which

I

have

companyinformationthatcanestimateContributionMargin.

Sometimesellingatbreakevenprices isnecessarytostepbeyondademandcrisis,

but on the long run working for free becomes challenged by moving in other

businessactivities.SoIprefernottosetabreakevenprice,withoutconsideringthe

lifetimevalueofthebusinessinitiative.Inotherwords:isnotthebreakevenofthe

last quarter, but the total life cycle break even of the business venture we are

starting.

TransactionalpricingTill here: theory. But sometime it happens I have to start a negotiation without

having aprice inmind.We alwaysdobusiness in ahurry andwe arenot always

ready.Inthiscasewemaywanttotestproofourassumptionsaskingthecustomer

tohelpussettingtheproductprice.

Notmypreferredstrategy,but thisway tosetpricecangivenicesurprises (when

Customervaluesour ideamuchmorethanwhatwesuppose andwouldbevery

interesting to know why) or strong delusions (when customer forward a price

belowourexpectationagain:takeabetterlook).


40/85



ThisprocedureofaskingtheCustomeraPrice,canbeveryannoyingiftheCustomer

has a strong competitive negotiation style. Sowould itwouldbepreferably used

withcustomerthatdemonstrateacooperativeattitude.

Customersnegotiationstyleshallbetakenintoaccountinpricesetting,because a

pricecanbedefinedforeachtransaction.Thenegotiationphaseofthebusinesscan

greatlyaffectthecashultimatelywillreachourpockets.There isadecayfromList

price, Invoice price and Pocket price. Setting the price should mean set the

tolerancesofeachphaseofthenegotiationprocess,causeeverypercentagepointof

pricegained,goesdirectlyintoourProfit.

Howdoesthepricechange?

Pricedont changejust duringnegotiations, to get theorder signed. Ithas to be

modifiedtoextolthemost,indifferentsituations.

NotallCustomersvalueourideainthesameway.Ifweareabletopackagetheidea

differentlyforeachCustomersegment,wecantrytocommanddifferentpricesfor

thesamesolution.

Ifwearegoingtousedifferentdistributionchannelstoreachthecustomers,each

channelmaybeservedwithadifferentpricethattakes intoaccounttheshopping

convenience.

Priceofaproductchangesduringproduct lifetime:forexamplehightechproducts

have to harvest the most at the beginning of the business life, to assure fast

investment recovery when competition cant copy it. While at the end of their

business life cycle, price could be reduced to make it affordable to anybody.

(Attentionnottocannibalizeyournextidea,tough)

Pricechangesdependingonseason:saleperiods,specialeventsandanniversaries.

I give a thought since thebeginning to theeffectsofpromotionalor competitive

tactics like discounts, trials, refund policies, customer retentions and customer

satisfactionactivities.

Igivealookatpricecomponentstoo:howtobreakdowndownpayments,prorata

andcollectionpoliciesmayhelpthebusiness.

Summary:

SettingPriceisnevereasy,especiallyfornewproducts.

Yourindustry,YourCompetitors,YoursupplychainandYourCustomermayhelpyou

findtherightone.AndPriceisaverystrongtooltomaneuverintothemarketarena

Havingaclearunderstandingofhowfarwecanplaywithit,mayhelpalot,lateron.

C WhatadditionalcostswillbesustainedbytheCustomer?

Price isnot theonly thingourCustomerwillpay foroursolution.Shewillsustain

coststomakeourproductpartofherworld.Notonlyshewillhavetomodifyher


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habits,orchangethewayshethinkstotheproblem,butwillneednewinvestments,

new infrastructures and systems. Sometime she has been able to externalize the

costs of the problem.Our solution could bring these costs back. In this case the

assumedvalueofourideacanbemuchlowerthanwhatwecanthink.

Investments:ImplementingourideainsideCustomerprocessmayrequireseveralinvestmentson

herside.ApartthehardStuffcapitalequipm

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Roadmap to market 2.0 - A guide for marketing innovation

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