Value Footprints and the Eye of the Beholder

by | May 27, 2009 | Quantify Customer Value, Why LeveragePoint?

Value communication involves telling an economic WIFM (what’s-in-it-for-me) story to a customer about your product. To be more precise, telling multiple versions of that WIFM depending on the specific stakeholder, because economic value, like beauty, is truly in the eye of the beholder. In a business-to-business (B2B) context value depends upon an individual’s functional responsibilities and key performance indicators. So for example, a typical operation manager focuses on labor efficiency and materials waste, whereas a marketing manager is fixated on increasing market share or average revenue per customer. The Value Footprint is a good way to map these different value perceptions.

As you may recall from earlier blog posts, Economic Value Estimation (or EVE) is a great technique for demonstrating the overall economic value that an offer delivers to a customer. Revisiting our earlier case example of a chemical company demonstrating the value of its new additive for a steel mini-mill producer, an EVE analysis showed that the mini-mill would gain $18 of additional economic value for each ton of steel produced. However, this value estimate is at an aggregate, company-level. Very relevant perhaps for a C-Level executive, but increasingly less relevant the deeper you go into the organization.

Figure 1: Mini-Mill Value Model

This figure, and the other images of Economic Value Estimation and Value Footprints (see below) were generated using LeveragePoint for Value Management.

Let’s look at how this $18 per ton of value is distributed amongst five different functional stakeholders at the mini-mill customer: Marketing Manager, R&D Manager, Melt Shop Mgr, Finish Mill Mgr and Procurement. Here we use the Value Footprint; it shows the relationship of value drivers to functional stakeholders. So look how this overall value story shifts as we look at the EVE through a functional lense; for instance:

Figure 2: Mini-Mill Value Footprint

  • Only the Marketing Manager is excited about the value driver called “enables entry into new market segments” because this is a revenue driver, and a relatively large one at that, worth $15 of value per ton.
  • The R&D and Melt Shop Managers find value in the reduction in scrap rate, worth $5 per ton. However, the Melt Shop Manager would likely push back on the additional process steps that the new additive requires, also estimated at $5 per ton – so bottom-line it’s a wash for this stakeholder.
  • The Finish Mill Mgr however is delighted that he can reduces his labor costs by 50% down to $3 per ton, meaning that he can potentially be a strong advocate for the chemical additive.
  • Finally, this analysis reveals no particular “hot button” value driver for the Procurement Manager. This shouldn’t be much of a surprise, since this manager is typically evaluated by negotiating costs with vendors. In far too many cases, the procurement is focused on costs and not the overall value to the organization. Yet think how many sales people would go no further than the Procurement Manager’s door!

The take-away is that even with a strong understanding of overall value creation, executing upon it (i.e., the ability to close the sale/justify the price) requires a bit of sales planning and value communication. Using a value footprint, the chemical additives sales person can take a more strategic approach to this mini mill account.

For instance, the salesperson may choose to first gain support of the Marketing, R&D and Finish Mill managers before responding to the objections of the Melt Shop manager. By validating and refining this model through value conversations with each functional stakeholder, she builds a solid WIFM story.  Once accepted by stakeholders, she is in a much stronger position to close the sale with the mini-mill’s CEO as well as better equiped to defend the chemical additive’s pricing with the Procurement Manager.

Ed Arnold

VP of Products

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