How to Validate Your Value Model

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Value-based strategy affects everything that you do to define, create, market, and sell products. It affects pricing, sales training, market requirements, market segmentation, competitive positioning, and product roadmaps. But do you know the one thing that will guarantee value-based strategy failure if you get it wrong?

It’s your value model. Get it wrong, and you can forget about securing more customers at higher prices. To make sure that you don’t, you need to validate it with your target market. Here’s how.

  1. Create a draft value model
  2. Create a value model validation presentation
  3. Test with your customers and potential customers

Create a Draft Value Model

In the case of capital equipment (actually all business-to-business commerce), value models are a quantitative representation of the financial outcome (a.k.a. profit) that a buyer can expect as a result of purchasing your product.  These value models relate the financial gains of the purchase to the cost of acquiring those gains, including the equipment purchase price.

A piece of capital equipment can play a variety of roles in the buyer’s pursuit of profit. The role a piece of capital equipment plays determines its value-model framework.  Your first step in validating your value model is to draft one, even if it’s a very rough one.

Create a Value Model Validation Presentation

Validating your value model means showing it to potential customers in your target market to get their feedback. You’re going to need a presentation to facilitate that conversation with your potential customers.  This customer-facing presentation will contain your value model, the assumptions you used to create it, and your ability or plans to create customer value. Here’s a topic outline to get you started:

Assumptions

  • Definition of your target customer
  • The problem you are setting out to solve for that target customer
  • Description of the workflow that includes your equipment type

Value Model

  • Value drivers for equipment like yours and how they impact customer value
  • Graphical overview of your value model’s framework
  • Value model populated with values

Source of Value and Competitive Advantage

  • identify the source of your advantage, either existing or planned
  • Show how your value-driver performance advantages produce your value proposition

Once you have drafted your presentation, you’ll also want to draft your list of critical questions for each slide that you need to answer to ensure that your value model is accurate.

Test with Your Customers and Potential Customers

Next, you are going to share this presentation with your customers and potential customers in your target market. This may be an iterative process, especially if you are just starting out.  Early in your value model validation, your ideas for how to model the economics of your customer’s buying decision are likely vague. You need to find some “Friendlies” to help you at this stage. Friendlies are those customers or potential customers who will engage in a discovery conversation with you when you have little or nothing to offer. These are the customers that won’t throw you out of the room if you show up empty-handed and ask, “Would you mind walking me through how our equipment affects your company’s profitability?”

Once you have met with enough Friendlies, update your value model and value model validation presentation with all that you have learned. Then take this new and improved draft to a broader range of customers for their feedback.

Where to Get More Help

Voice-of-the-Customer (VOC) market validation, is fundamentally used to determine four things:

  1. Your target market’s buying behavior
  2. The right targets for a new product
  3. The product design that will be embraced by your customers
  4. The design implementation that will succeed in the customer’s environment

Value model validation is a specific case of VOC, “Buying Behavior” market validation. If you’re interested in a detailed tutorial on how to

  • Conduct buying behavior, market validation,
  • Talk about future products,
  • Target the right audience,
  • Get VOC meetings, and
  • Get your VOC questions answered,

be sure to check out Voice of the Customer for Capital Equipment Companies.