Case Study: Using Benefit-Value Analysis to Ascertain “Premium” Stature

Benefit-Value Analysis is a proprietary methodology developed by Martec to gain insights from an intended market to determine appropriate and acceptable pricing strategies on products before they are introduced and released into the marketplace.

Outcome Sought and Delivered:

A Martec client is a category-leading manufacturer in North America. However, there was a sense that its core product offering wasn’t capturing a large enough market share in its core industrial markets. Under consideration was a product development proposal that would position a new solution at a premium price point and gain significant market share. But would the market agree that the premium product was, in fact, worth the premium price point?

The difficulty of answering this question was compounded by the client’s desire to not specifically name or describe the proposed solution. This was critically important to the client, as they did not want to influence prospective customer buy-in (either positively or negatively), as the provider of this solution (the client) would be readily apparent based on the product features.  This led to an interesting (and often confounding) dilemma…how can we determine a price for a product without describing the product itself?  The solution…Benefit Value Analysis (BVA). This new methodology examined customers’ interest in, and willingness to pay for, the benefits of the solution instead of the solution itself.  

In the end, leadership was rewarded with the confidence that the solution they were considering was worth a premium, based on the market’s perception of the intrinsic value of the benefits of the solution in question. All of this intelligence was acquired while putting nothing at stake nor risking costly missteps — little investment had been made and no costs had yet been incurred, nor were competitors able to catch wind of the manufacturer’s innovation.

What Is Benefit-Value Analysis?

As explored at length here, Benefit-Value Analysis is a proprietary methodology developed by Martec to gain insights from an intended market to determine appropriate and acceptable pricing strategies on products before they are introduced and released into the marketplace.

Benefit-Value Analysis: A Tool to Increase Market Share

The goal of BVA studies is to understand what features and/or benefits customers are willing to pay for and to quantify that willingness to pay into a recommended pricing strategy. This type of study includes assessing questions like:

  • Is the customer willing to pay more for a given product based on the value they perceive the benefits provide?
  • If the customer is willing to pay more for a particular benefit, how much more will they pay?

One of the many benefits of BVA is that it allows manufacturers to understand market willingness to pay value premiums on new features or benefits…often before those product enhancements are commercialized. In some cases, this methodology can be applied prior to the development phase, enabling manufacturers to quantify and qualify pricing strategies before significant product development investments are made.

The reasons manufacturers find this process innovation valuable are manifold:

  • Benefit-Value Analysis allows manufacturers to establish market-tested pricing for new-to-the-world products, even if they don’t technically exist yet.
  • The methodology can provide theoretical pricing for an undefined product, based on benefits alone.
  • Since BVA combines both qualitative and quantitative approaches and integrates feedback on specific benefits/value statements, this process provides valuable, real-world, customer insights that help to define the value proposition and future marketing strategies.
  • BVA can provide product developers the opportunity to iterate new products conceptually, saving money on research, development, and prototyping costs.

Research Executed. Truth Revealed.

Prior to launching the product to its customer base, this global manufacturing company required an understanding of customer interest in purchasing repair parts as a fully assembled “cartridge” versus individually, by understanding:

  • Current pain points associated with replacing individual parts
  • The importance of potential benefits inherent in the proposed solution
  • Likelihood to pay for each proposed benefit
  • Premium associated with each proposed benefit

Martec’s proscribed study included elements of both quantitative and qualitative research, using our preferred qual >> quant >> qual approach.

Qualitative:

The project began with 12 in-depth interviews to gain a deep understanding of the market, the target customer’s need/pain points, and the market–share opportunities that exist.

Quantitative:

Leveraging deep insights gleaned during the initial qual phase, we then conducted 300 online surveys using MaxDiff analysis to prioritize the solution’s benefits. Respondents were asked to rank the importance of approximately fifteen benefit statements.

Following the MaxDiff prioritization exercise, a simple roadmap led the researchers to a quantifiable measurement of benefit-value:

  1. Yes/no: “Are you willing to pay a higher price for a product that delivers a given specific benefit?”

  1. If/then: If the response is yes, a follow-up question is presented, “How much more are you willing to pay to have this benefit included in such a product?” This is asked most commonly as a percent premium customers are willing to pay.
  1. Optional open-ended question: In some studies, we may include an open-ended but specific question that allows respondents to clarify, qualify, or elaborate their earlier responses: “Why are you willing to pay more for this feature?” Or, “Why are you not willing to pay more for such a benefit?”

Doing the Math

It was important to apply some number-crunching and analysis techniques to truly mine the data for business intelligence. There is a nuance to calculating the ultimate pricing premium a market will bear for product enhancements and benefits that isn’t merely additive to the baseline product price (which can potentially return errant results).

Our methodology for calculating premium pricing thresholds has proven exceptionally accurate and reliable when rolling out new products. Typically, it goes like this:

Prioritizing benefits:

– Which proposed benefits are deemed most important by the customer?

Quantifying perceived benefits:

– What percentage of respondents are willing to pay more for a particular benefit?

– How much more are they willing to pay for that benefit?

– How many of the proposed benefits are customers willing to pay for?

Martec Calculus of Benefit-Value Analysis:

  1. Start with the baseline product cost of X.
  2. Weight each benefit by prioritization rank (from the MaxDiff analysis).
  3. Multiply the most important benefits by the percentage of people willing to pay for them.  In the example above, there were some proposed benefits with different specified levels (i.e. 1-day lead time, 3-day lead time, 1-week lead time), the MaxDiff analysis helped to identify which level was most preferred. 
  4. Then, multiply that by the percentage increase customers are willing to pay over the baseline product cost of X.
  5. Finally, multiply the calculated premium by the percent of benefits customers are willing to pay for (i.e., if customers are willing to pay for 33% of the proposed benefits, a potential $1,500 premium may be only $500).

Exactly On Target

For this particular client, such calculus revealed, with significant confidence, that the market would bear a 25% premium for the conceived premium product iteration using the “cartridge” approach. Coincidentally (without prior knowledge), that 25% number was the exact figure the clients was targeting and aspiring to attain. But no longer was leadership playing a hunch…they now were armed with the intelligence, confidence and clarity to move forward with product development and ultimate market rollout.

It is important to note (as was explained to the client) that employing pricing analysis while revealing the actual product, rather than on the proposed benefits, may return a different premium calculation.

Results:

In their own words…

“Martec’s research provided valuable insights into how best to message and market the unique benefits of the concept we were exploring.

It  was a very interesting process and project. For multiple reasons, we were unable to describe the actual product in the survey, so we needed to think outside the box to determine an appropriate price.  

Martec worked with us to develop a new methodology designed to help us understand the individual and cumulative value of the concept benefits.  

We had an idea of what the price-point might be for our new product; with Martec’s help, we turned that idea into intelligence that could be applied to both product development and marketing as we solidified our launch plans and introduced the product.”

-— Business Development Manager; Industrial Equipment Manufacturer


Need help understanding and optimizing the Benefit-Value of your product or service?  Let’s have a conversation about what you need to know, how we can help, and what the future looks like for your pricing and product strategies.

Contact:

Ken Donaven – Senior Director
The Martec Group
+1 (248) 327.8021
[email protected]
martecgroup.com

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