When you think about value-based strategy, your first thought is probably:
That’s understandable. Value-based strategy’s headline promise is that customers will pay prices that are tethered to the value that they derive from the products that they buy. In fact, value-based strategy is often thought of only in terms of pricing strategy.
But it is so much more.
It can also be a big money saver. It can significantly lower product development cost and shrink a product’s bill of material.
Wide-Net Products Drive Higher Costs
When your understanding of your target customers’ needs is vague, you compensate by casting a wide net. You bloat the product with the capability to cover a broad application and performance space. You hope that casting a wide net will improve your chances of catching a customer.
Hope is not a strategy. And wide nets are expensive.
An equally flawed alternative to a wide-net approach is to take your direction from the competition. When you let your competitors drive your roadmap, you’re assuming that they know your target customers better than you do. What if they are following a wide-net strategy? Following them will only create an even wider, higher cost net for you.
A Value-Based Strategy Avoids the Wide-Net
A value-based strategy is built on a foundation of customer intimacy. This idea alone can free you of the costs that come with a wide-net strategy.
To pursue a value-based strategy, you must understand your target customers’ business, problems, and needs as well as you understand your own. You put as much effort into this as you do designing the product. You test and retest your assumptions. Once you know exactly what your target customers need, then you take measure of the competition. You’re not interested in the full scope of their capability. You only care how they stack up on what you’ve determined it takes to address the target market.
Follow this process and you’ll know with great precision:
- The problem your target customers seek to solve
- The environment in which they need to solve it
- The financial value created once it’s solved
- The criteria they will use to make purchase decisions
- Product value-driver performance levels required to win their business
Equipped with this knowledge, you won’t have to rely on a wide-net approach to capture your target market.
You no longer need to toss extra capability and features into your product to hedge your bets. You know exactly what the customer needs. You know exactly what the customers’ critical value-drivers are. You set these and only these to be superior to competition. You leave features and performance capabilities that are irrelevant to customer value and buying criteria off the bill of material.
The result is a lean winning product.
You Get Lower Development and Product Costs
This lean product will lower your product development costs by reducing the risk of a market failure and shrinking development scope.
With value-based strategy, the probability of getting the product definition wrong is significantly reduced. Also superior capability is only sought on the critical few things that drive customer value. Therefore your total development costs will also be lower.
It follows that your lean product won’t be loaded up with unnecessary features or over-specified components. It will cost less to produce too.