Abhik Lal Mukherjee
Now the question is what is value and how can the benefits of a product be quantified in terms of how much value it can deliver? Value is defined as something for which a customer is willing to pay because it either improves his top-line (sales) or improves his bottom-line (profits) by reducing his costs.
Typically, IT products either make the customer&s business run more smoothly thereby increasing efficiencies and thus reducing costs or they make the customers business more effective thereby increasing revenues. As a seller of IT products, we need to understand how our products could impact the top-line and bottom-line of a customer and then quantify it so that we can convey the true value of our product to our customer. This can immensely help in commanding a superior sales price for our product.
Capturing the heads under which our product can generate values for our customers is the building block in creating a value based argumentation. The next piece is to calculate how much value it creates for each of these categories.
As a first step, we should split the analysis as heads which fall under bottom-line impact (aspects which can reduce the opex of the customer) and heads which fall under top-line impact (aspects which can improve the revenue of the customer). Some examples of these heads are discussed below. There could be other heads which are specific for your product and they need to be used accordingly.
Heads which fall under bottom-line impact are things like increased efficiency of operations, reductions in errors, reduction in processing time for specific processes, economies of scale and scope and lower consumption of utilities. For example, our product could be automating some processes or helping the users do things with lesser number of clicks or could enable a reduction of resources required to do an operation. Moreover, maybe our product is capable of consolidating platforms or systems on a smaller system thereby reducing opex and also capex and maintenance costs.
When it comes to quantifying bottom-line impact values, we need to compute how much efficiency is improved in the customers processes and operations due to your product in terms of time saved. Next, if we know the hourly cost of operations (it could be an approximation or an industry standard for BPOs for example), we can multiply this rate with the time saved and compute the value generated. Moreover, if your product can reduce the errors in operations for the customer, if we know the cost of each error, we can derive the total value saved by multiplying this with the reduction of error which will result by using our product.
Heads which fall under top-line impact are things like increased sales ( if your product is enabling sales), increased uptake of offers and promotions, improved quality, improved brand image and brand recall for your customer, increased new customer acquisition, creation of cross sell/up sell opportunity for your customer, etc. For example, maybe our product is enabling e-commerce or m-commerce. It could also be a product which enables campaign automation, campaign optimization etc. It could also enable say for example, integration with a social media thereby connecting the brand with the youth and enabling viral marketing capabilities.
When it comes to quantifying top-line impact values, we need to quantify how much sales will increase (in terms of unit sales) and multiply it with the average ticket size. In case you feel that your product will increase the response to a promotion or an offer from your customer, you need to quantify how much more response will occur due to your product and similarly multiply it with the ticket size of each uptake. In order to quantify the impact of quality improvements and improvement in brand image, on sales, some industry standards could be used. In case this is not possible, you could classify these as a separate category and call it priceless values.
Once the above values are calculated in hard currency terms, you could show the ROI, NPV, break even parameters for your customer if they decided to purchase your product. This will bring out the tangible value that your product can bring on the table and help your customer in justifying his investment.
As a conclusion, it can be stated that if a value based sales argumentation is developed for a sales pitch as explained above, it presents a more compelling story for the customer and can help in commanding a superior sales price once the customer is convinced about the value that the product can deliver for his business.
Experts on Marketing
Kotak Mahindra Bank