Businesses have a blind spot when it comes to CAPTURING value, according to Professor Stefan Michel, director of the Executive MBA program at IMD in Lausanne.
Based on his experience, they spend much more time & money on value-creating innovations than on value-capturing ones.
He has developed a framework to better capture value from innovations: 15 ways of how to capture value differently in 5 categories:
1. CHANGE THE PRICE MECHANISM
Ex: Bossard, a Swiss company that sells screws, nuts, and bolts. Instead of setting their prices by simply marking up production costs, they try to figure out how much value a prelubrication of their screws brings their industrial customers. Based on that, they set a price that creates a win-win for both parties.
2. CHANGE THE PAYER. So who actually pays for the value.
Ex: Lifestraw, a water solution for disaster zones & contaminated water areas, paid by carbon credits.
3. CHANGE THE PRICE CARRIER. That means, where do you put the price tag on?
Ex: Nespresso, able to sell the kilogram of coffee at $130 by moving the price carrier from the pack of coffee to one cup of coffee, thus charging a premium for every cup.
4. CHANGE THE TIMING when you capture that value.
Ex: the razor-and-blades model (installed based pricing), or futures contracting (paying in advance at a negotiated price like selling futures on commodities.
CHANGE THE SEGMENT and capture value differently with different segments.
Ex: Dow Corning, one of the largest producers of industrial silicone, wanted to address a segment of customers only interested in low prices without weakening its value proposition to the others. So they created not just a new offering but a new brand with a substantially different business model: an internet-based platform that offers silicone without also providing consulting and other related services, thus permitting a very different pricing approach.
HOW TO START A VALUE-CAPTURE PROCESS?
Some key thoughts developed by Stefan Michel:
– It starts with Top management communicating a concern to the organization: Are our innovation efforts fairly balanced between value creation and value capture?
– A cross-functional core team to be assigned to rethink how to capture value and challenge the status quo: Do not let the pricing strategy to price-analysts or sales-people only.
– To base your price on value and not on costs, you need to discover customers’ value perceptions.
Full article available here: https://hbr.org/2014/10/capture-more-value
