2014-11-18

Consistency test:
external industry environment
High price

Low price

Relevant
analysis

Customers

There are many

customers who can
be educated to
appreciate the
value of time
savings

It will be hard to
educate
customers vs.
Current usage
norms/mindset

Customer
surveys?
Interviews?
Test market?
Guarantees?

Channels

Incentives to win
over hammerrenting firms

Use industrial
supply houses to
reach target
customers

More data on
where contractors
get their pads

Consistency test:
internal analysis

Consistency test:
future dynamics in this industry
High price

Low price

Relevant
analysis

Entry

High prices will

attract entrants;
Patent protection is
a sufficient entry
barrier, or potencial
competitors are
deterred by CapEx
requirements

Need to price
low to inhibit
entry

Competitor
analysis

Technology

Other material or inkind imitators will

arrive soon: take
the money and run

This is the
cushion pad pad
of the future, so
invest for the
long term

Study of
alternative
technologies;
Work with
Prof.McCormack

Curled Metal, Inc. Analysis of WTP

High price

Low price

Relevant
analysis

Finance

Want to maintain
self-funding

Willing and able to

tap external
sources of capital

Self-assessment
and assessment of
capital access

Other CMI
Business
Unit

Can use the new

pad to generate
cash for other
businesses

Every tub on its

own bottom

Better fix on CMI

capital
requirements and
NPV for pads vs.
Other uses of
capital at CMI

People/
Capabilities

CMI can buils and

manage sales force
and channels in the
construction
business

Little/no capabilities
in sales, marketing,
promotion; price
low so the product
sells itself

See the world and

yourself as they
are, not as you
wish they were

What Makes Cash Flow in a Strategy?

Mind the Gap between Price and Cost

Willingness to Pay (= buyer value) can be analyzed quantitatively

Especially for products with industrial customers (analyzing individual
customers is trickier)
Demands an intimate uderstanding of customerss economics
Identifying Value and Total Customer Cost is crucial
Consider reality and perceptions value delivered and value communicated
Specify the customers alternative: willingness to pay, rather than what?

WTP price
Must look beyond the average customer
Different segments typically have very different economics
Customer Value is the starting point, and Value changes over time:
Market Forces and Industry Structure
Impact on Customer Experience, Competitive Entry, and Substitutes

A Tool for Understanding Total Value

Acquisition Cost + Possession Cost +

Usage Cost =
Total Customer Cost

1. Price

7. Interest cost

13. Field defects

2. Paperwork cost

8. Storage cost

14. Training cost

3. Shopping time

9. Quality control

15. User labor cost

4. Expediting cost

10. Taxes and insurance

16. Product longevity

Customer Value or WTP

Pricing:

Customer

Zone of

Benefits

Possible

Supplier

Agreement

Profit

Driving Force For

Customer To Buy
Price

Driving Force For

Supplier To Sell
Cost

5. Cost of mistakes in 11. Shrinking and

orders
obsolescence
6. Pre-purchase
product evaluation
cost

17. Replacement costs

18. Disposal costs

12. General internal

handling costs

2014-11-18

What Constitutes a Description of an

Integrated Strategic Option?
Type of advantage
Basic logic of how you will make money and manage the wedge
E.g. differentiation on basis of ..; low cost due to

Scope over which the advantage will be deployed

Customer scope: segments targeted

Product scope: breadth of product line
Geographic scope: locations served
Vertical scope: make vs. buy

Who?
What?
Where?
How?

Distinctive activities that will deliver the advantage

Throughout the value chain

Or, in the case of strategic renewal, changes in each of these