How to Incorporate Value in Your Stage Gate Process

by | Feb 28, 2013 | Pricing, Quantify Customer Value

Follow Up From February 2013 Webinar with Dr. John Hogan

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Q: Why are folks now more interested in thinking about value earlier in the product development process than before?

A: There are two fundamental changes in the marketplace going on. At the macro-level, coming out of the recession in 2009, companies are realizing that the world has changed. Because of increased competition and because of innovation coming from all types of business models, it has never been more important to create value faster, more efficiently, and more accurately. At the same time, it’s never been more difficult to get paid for that value. So more companies are concluding, “We need to do value-based pricing because we are getting killed in the marketplace.” And as they start to do value-based pricing, they realize that to truly make it work, they need to go back upstream and start fixing new product development, because they need to build products based on value to be commercially successful downstream. Value-based pricing is becoming much more the norm, which is forcing companies to look back upstream.

Q: Can you provide more details around value-based segmentation?

A: It’s a huge topic. The one minute answer to that is: the only contribution marketing has made to academic discipline is segmentation – I have a PhD in marketing, so I can say that! It was a huge finding, which is the good news. The bad news is that most segmentation in B2B firms is based around things like demographics. Why? Because we can find the big firms versus the small firms. We can find geographic regions, or industries, which are segmentations of convenience. But there are typically multiple business models in any industrial segment. And each one of those business models creates value fundamentally differently. What the value-based segmentation tool does is give you a way to zero in on the critical value drivers that define the business model, put that into a value creation map, and discover where the real need is early on in the development process.

That’s really powerful. It also gives you a fresh look at segmentation because often you see market segmentation in B2B around technology or firmographics, but this is a fundamentally different type of segmentation.

Q: What’s your advice on getting cross-functional teams to collaborate in new product development?

A: One of the things that I’ve found is the notion of customer value as a common language. When you have sales, marketing, and product in the room together, everyone is looking at and operating in different worlds. The only commonality is the customer. But sales is thinking, “How much revenue can I get?” Marketing is thinking, “What are the benefits we are creating for you?” Product managers are thinking, “What features can I get out the door that you will buy?” What customer value does is give a common metric and a common language. If every decision starts with understanding the impact on customer value, it resonates with everybody. Sales gets that, marketing gets that, and product managers get that. The understanding of what the value implications are is one of the many things that can improve cross-functional collaboration.

Q: What are some diagnostic tools that you’ve used that you would recommend?

A: You’ve got to have a tool for collecting and capturing customer value data and then using it. LeveragePoint is a great tool for that, and I rely on it to take care of that good work. What I do is more on the strategy side, and here’s an example. Yesterday, I spent a day with product management teams from a medical device manufacturer. We were focused on how to create a version design tool, which addressed the question of, “How do we use customer value to, instead of creating a one-size-fits-all product, create different versions that will help us win volume at the low end and drive extra margin at the high end?” It was a critical finding for those guys, and it’s just one of many tools that can make a huge difference as you’re in the development process. It enables sales to be effective downstream because, instead of offering one product at one price, they now have multiple offers that enable them to make price-value trade-offs more effectively.

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