Over the past couple years the LeveragePoint team has been working on innovative approaches for making value management methods more accessible for the average business person. By "accessible" I mean easier to develop value models that clearly show how much economic value your customers get from using your product offering.
Economic Value Estimation (EVE®) is an excellent method for building value models (more information on EVE here). This methodology has been widely used by marketers for years. Sometimes EVE is used by sales people, but more as an exception rather than the rule. One reason is that interpreting an EVE output (in the form of a "stair-step" bar chart) requires familiarity with EVE terminology like "reference value", "value drivers", and so on. This is not too big a hurdle, but since this involves a little upfront time to set context, EVE is usually used in competitive, big-ticket selling situations when the extra effort counts.
Another drawback to using an EVE® output in a selling situation is that EVE does not consider price. Quoting Tom Nagle, "It is important to remember that EVE does not calculate a price. It defines upper and lower bounds of possible prices based on the Total Economic Value of the offering to the customer." Obviously, sales people must mention their offering's price in a value discussion, since it absolutely determines how much of the economic value the customer gets to keep.
A value chart communicates the same value story that EVE® does, but in a less technical way, and incorporates the offering's price. It is designed as a sales tool that facilitates a value discussion. Customers are more likely to ask "tell me how you deliver value" and in turn salespeople can describe their offer's differentiation in economic terms.
Here is a side-by-side comparison of a value chart (figure 1) versus an EVE® output (figure 2). As an example, we use the steel additive for mini-mills that was described in the earlier blog post on EVE.
Note how the value chart (Figure 1 on left) clearly communicates the following:
- How much total value your offering provides versus the competitor (left bar). In this example it is $18.84 per ton versus the existing alternative, worth $1.50.
- How much value the customer gets to keep (top right bar). In this example, it is $11.94 per ton. So although this solution is priced at $7.90 per ton (much higher than the competing $1.50), it provides a lot more value and is really the better deal for the customer.
Of course, many customers will then respond with: "Really? Well, prove it!" Since value charts are based on EVE analysis, all the calculations and assumptions are readily available for the sales person to drill into. And in LeveragePoint for Value Management the Value Chart is accompanied by all the relveant data. But we feel value charts are a more effective way to get the value discussion started.
Ed Arnold
Director of Products
