The Basic Steps in Business Case Value Analysis
Business case value analysis involves three main steps. The first is to identify the functional differences between competing products and services. The second is to translate those functional differences into differences in benefit for different types of business customers. The third is to estimate the financial impact of those differences in benefit. Let's look at each of these three steps.
Step 1 involves identifying the functional differences - both positive and negative - between one's own product/service offerings and competing alternatives.
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- These should include both positive differences and negative differences - differences that favor one's own product and differences that favor the competing alternative.
- These functional differences should include both product differences and service differences. Often some of the most important differences between competing alternatives lie in elements of the "service wrap."
- These functional differences should include both tangibles and intangibles along every step in the customer's consumption chain, from initial awareness of the product to its disposal.
- Finally, they should include not just promise, but execution. Differences in actual performance delivery can often represent a huge difference in value to some types of customers.
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Step 2 involves translating these functional differences into actual benefits or drawbacks for different types of customers.
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- Identify the benefits that different types of customers stand to gain from positive functional differences and the difficulties they are likely to encounter from negative differences.
- The same functional difference between two products will often translate into different types or levels of benefit for different types of customers. For one type of customer, a difference in functional performance may provide enormous benefit. For another, it could just be gold plating. For still another, it could even represent a drawback.
- Therefore, an important part of the process of business case value analysis is to trace through how functional differences between products and services translate into different types and levels of benefit for different types of customers.
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Step 3 consists of estimating, for each type of customer, the financial impact of each of the benefits and drawbacks identified in Step 2.
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As before, these will differ for different types of customers, depending on things like: - Differences in the applications in which customers use the product or service.
- Differences in the competitive alternatives that are available to customers.
- Differences in how the product or service fits into the customer's own business model and strategic agenda.
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Once all of the financial impacts for each type of customer have been estimated, these should then be added up. Their sum represents the product or service's differential value to that type of customer. Add that differential value - positive or negative - to the price of the customer's best competing alternative, and that gives you an estimate of the relative worth of your product or service to that type of customer.
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