In recent posts we have been talking about new products, what are new products, how to evaluate new product ideas. I want to spend some time on one of the key aspects to get right for any new product and that is the value proposition. Customers don’t buy products, they buy the value they get for their money. Let’s think about a few products that have good value propositions. Dr. Prime talked about gelation in Five Minute Epoxy using a variety of thermo-analytical techniques, but let’s think about why Five Minute (or Twenty Minute) epoxy can sell at your local Home Depot or Lowe’s for something on the order of $5.99 for a really small tube of glue.
So what actually is the value proposition?
If you are a weekend fixer-upper, you don’t’ want to make a big project out of fixing something that is broken. You just want to “fix it and forget it.” Glue two parts together in less than five minutes, then you’re done. The benefit is the fast fixing time. Football games, kids, grandkids, (can’t forget the honey-do list) are all more important than gluing two parts together.
Whenever you are starting a new product development project, it is critical in the early stages to really work diligently on defining the value proposition. New product development is hard work and most of the time is labor intensive, so really make sure you can capture value.
A lot of people confuse value with low price. This is easy to do with commodity products. Many commodity products provide the same benefit so value is solely identified with low cost of acquisition. For example, if you just want reliable, safe transportation from point A to point B, a Toyota Corolla or Honda Civic (or Chevy, Ford, Hyundai or Kia, you get the point) will do just fine, so find the best deal on the model you like and you’re ready to go.
We are not talking about these types of new products. Can you think of some products with a strong value proposition? When IBM was in the computer business, they didn’t sell computers, they sold a “good night’s sleep” for the IT manager. For example, the mainframe computers in the 80’s and 90’s ran big applications (American airlines reservation system, stock trading platforms) where failure would have been a huge financial disaster. The electronic packaging (circuit boards, chips, interconnections) were designed with redundancy and high reliability. Customers would pay a large amount of money to have this peace of mind.
Think about your smartphone. There tens of packaged chips in a typical mobile phone. If you drop your phone you expect it to keep working (the screens still are pretty fragile). The die attach adhesives and underfills (fill under a chip that is soldered to a substrate) are engineered for thermal cycling and shock resistance. For example, an underfill or die attach adhesive may cost a fraction of a cent per chip (due to the thin bond line or small volume of material under the chip) but sell for several dollars per gram. These are not commodity adhesives and provide a high benefit in terms of reliability and performance. Some of the adhesives are formulated to be electrically conductive or thermally conductive. The science and technology employed is really remarkable. Mobile phone companies want to minimize customer risk, so they work hard to develop a reliable product with a strong value proposition.
Why is this important in product development? New products with strong value propositions will command a higher selling price and have better margins. Do your new products have a strong value proposition?
I admire Jeff Gotro for his profound knowledge on value proposition in new product development.I wish to share something of my experience on this subject.
Run of the mill products associate low cost high volume factors with little innovation while new development of innovative products associate guaranteed effortless performance with value for money at high cost.I develop niche wire and cable insulation PVC compounds with stringent specifications where the volume factor is insignificant as the profit margins of the said innovative products are many times more than that of the run of the mill products.For example, producing one ton of the niche product is almost as good as producing three tons of the run of the mill product for the same profit margin.