Follow Up From March 2013 Webinar with Harry Macdivitt
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Q: What advice do you have about using data to quantify customer impact? Do you need to have the precisely accurate, complete, data to have that type of discussion with a customer, or will it undermine your value proposition?
A: I think it goes back to the discovery process, because you need to ask the right questions. You need to ask them in such a manner to optimize the likelihood of getting a response. It could be that your customer is a bit suspicious of the reasons for this, and it may take a few meetings before getting down to the nitty gritty. But you can’t build a proper economic argument unless you have reliable data, and the data that matters to the customer is the customer’s data. So, if you come in with data that you’ve hallucinated from somewhere else or obtained from some 3rd party organization, the customer is not going to be particularly impressed. The best data you can have is information from the customer that is contextually relevant.
Ideally, you need this information. If the customer wants your data, then it may be viable to use industry estimates instead, but in that case, you need to ask yourself why you are not getting their information. Are you speaking to the right kind of customer, or the price buyer? Once you’ve explained value to the right kind of buyer, they understand what they need, why they need it, and will cooperate with you.
Q: How do you quantify the emotional contribution?
A: It’s the question that keeps coming up, and it’s very difficult to do because emotions change. It’s not possible to be as objective with emotional contribution estimation as you can be with revenue gains and cost reductions. There are tools like conjoint analysis and adaptive heirerachy process that are useful for providing quantified estimates, but telling the customer what their peace of mind is worth based on that is tricky. The customer will likely disagree with you, and where do you go from there?
But when you are building a value-based price, you know that you will get into the ‘negotiation corridor’ when negotiating a final price. That’s the difference between the next best competitive alternative (NBCA) price and the maximum value-based price, and you negotiate somewhere within that. If you were able to inflate the maximum value-based price using an estimate of what the emotional contribution is worth, that provides you a wider corridor within which you can negotiate. For instance, you can ask the customer, “How would you feel if you didn’t have to wake up at 3am to sort out a problem in the factory? What is that peace of mind worth to you?” This way, you can use emotional arguments as the basis of enhancing the attractiveness of your economic case.
Q: Does the Value Triad© change for selling to governments, where revenue generation is not relevant?
A: We come across this often in healthcare, because these firms are selling to government businesses. Instead of using Revenue Gain, we tend to replace that with efficiency improvements. Revenue gain is not immediately relevant in the government situation, but we can relate that to a different model.