The integrated value proposition design framework opens with a value proposition strategy, which is a combination of four activities: a market analysis, a customer value proposition statement, a business motivation, and a key stakeholder allocation. The value proposition strategy results in a high-level business plan.
The main purpose of the value proposition strategy functional task is to provide the senior executives of the organisation with enough information to make informed decisions about whether the new product development initiative has sufficient potential to be developed into a product, and whether the effort of combining the multiple resources and multifunctional teams to conduct the integrated value proposition design framework will justify the effort.
4.1.1 Market analysis
The market analysis is an evaluation of the market environment in which the organisation aims to launch the new product, and forms the basis of the entire new product development initiative. The definition of a product’s market is unique for every new product initiative. It can be defined in terms of its customers’ geography, demographics, or spending behaviour. The market analysis, as part of the value proposition strategy functional task, includes a description of the trends in the industry, the characteristics of the target market, and an assessment of the industry competition and of the competition’s customer value propositions.
The market analysis can make use of strategic management techniques to evaluate the market. Such techniques include a SWOT analysis, which identifies the internal environmental factors of the organisation (the strengths, weaknesses, opportunities, and threats); and a PEST analysis, which identifies the external environmental factors of the organisation (the political, economic, social, and technological factors of the market) (Cadle, Paul & Turner, 2010:4, 6, & 14).
4.1.2 Customer value proposition statement
A new product idea cannot be developed if the idea does not have a compelling set of customer value propositions. A product is defined in terms of its features – the most basic units that comprise a product. In the integrated value proposition design framework, the core product features are regarded as customer value proposition elements; each basic element of a product is a value offering to the customer, for which the customer in turn is willing to pay. The value proposition
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strategy functional task brings about a first set of customer value propositions for the new product initiative.
The customer value proposition elements are defined over an organisation’s value chain activities, which are the activities of the organisation’s business units. The activities of the organisation’s business units contribute cohesively to the total value being delivered to the customer.
Figure 15 graphically displays an organisation’s typical value chain breakdown.
Figure 15: A value chain activity breakdown (VCOR)
The purpose of a value chain is to use effectively the competencies of all the activities in the organisation to add maximum value to the customer. Therefore the product’s customer value proposition elements are the basic features of the product, delivering value to the customer as determined by the organisation’s value chain activities.
The customer value proposition statement will be a set of customer value propositions consisting, for example, of propositions about the product, value added services, pricing, sales and communication channels, brand awareness, support propositions, and the IT system. The customer value proposition elements are clear, unambiguous, and short statements of the value attributes that constitute the product.
4.1.3 Customer value proposition design motivation
The motivation statement in the value proposition strategy functional task answers the extremely important questions about why the organisation has to realise the customer value proposition elements, and what advantages lie in the set of customer value proposition elements for the organisation.
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The succeeding functional tasks of the integrated value proposition design framework, together with the economics of the framework, follow a detailed methodology to predict the net present worth of the customer value propositions embedded in the product. However, the purpose of this motivation is to provide an initial reason to the senior executives of the organisation about why the customer value propositions should be realised.
4.1.4 Key stakeholders
The fourth activity of the value proposition strategy is to identify the key stakeholders who are responsible for the implementation of the integrated value proposition design framework. The stakeholders in this case are meticulously allocated by the project manager and project sponsor. Verzuh (2008:38) states that key project stakeholders should be involved for the duration of the entire project. He argues that many projects fail because key stakeholders have not been involved during the project definition and planning phases. This leads to conflicts over the requirements definitions later in the project, resulting in project delays and high project costs. Therefore the key stakeholders are involved from the first functional task of the integrated value proposition design framework.
Making use of a small team is one of the design principles for the integrated value proposition design framework, as mentioned in Section 6.1. The framework implementation team and the product development project team overlap. However, the product development project team consists of individuals responsible for operational deliverables, whereas the integrated value proposition design framework implementation team consists of individuals responsible for strategic and tactical deliverables. The implementation team consists of individuals who are senior representatives of the mandatory business units involved in the PLM, and should not exceed seven individuals.
The four activities of the value proposition functional task – market analysis, the customer value proposition statement, the customer value proposition design motivation, and the key stakeholder allocation – form a high-level business plan for the new product initiative. Once the value proposition strategy function is complete, and the senior executives have approved the value proposition strategy, the integrated value proposition design framework begins with the functional tasks that follow.
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4.2 CUSTOMER SEGMENTATION
At this stage in the framework, the implementation team determines the best applicable customer segments to target with their marketing efforts. The purpose of identifying the customer segment is to ensure that the customer value propositions are channelled towards the customers who would most likely adopt to the product.
Figure 16 illustrates how the customer segmentation functional task is accomplished. It has three steps. The first is to execute the customer segmentation model that clusters the customer data into groups; the second is to identify the customer segment most suited to the product; and the third is to sketch a customer profile.
Figure 16: Customer segmentation implementation procedure
The integrated value proposition design framework makes use of value band customer segmentation to cluster the customers into customer segments. Value band customer segmentation is when customers are grouped according to the individual revenues that they generate for the organisation. (The mathematical methodology and code for the customer segmentation model is presented later, in Section 5.7.1.)
Once the customers have been grouped into customer segments, the integrated value proposition design implementation team identifies which customer segment to target with the customer value propositions. The pricing customer value proposition is the determining factor: the framework implementation team allocates the customer segment to the product that can most likely afford it.
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The third step of the customer segmentation functional task is to summarise the customer segment in a customer segment profile, as shown in Figure 17. This is a one-page summary of a typical customer in the customer segment, understood subjectively.
Figure 17: Customer profile template
Figure 17 is a marketing communication tool that enables the integrated value proposition design framework implementation team fully to understand the customer in the targeted customer segment in terms of his or her everyday needs, challenges, motivations, and excitements. The customer profile helps the framework implementation team to perform the tasks that follow by translating the voice of the customer into customer value propositions.