Archive for the 'Pricing and Value Metrics' Category

Total Cost of Ownership & Customer Value

Published on February 27, 2010 by Roger Best in Pricing and Value Metrics. 0 Comments

Total Cost of Ownership – Printers

While price is often the focus of balancing performance and the cost of attaining that performance, the total cost of ownership is an important aspect of measuring and communicating economic value to customers and potential customers. Kyocera seeks to match the performance of competing printers in color quality and speed, while creating superior customer value with their lower total cost of ownership.

The Kyocera advertisement above challenges potential customers to understand the total cost of a Kyocera printer along side of any comparable competing printer. This is accomplished with their TCO Tracker website. A few questions are asked with respect to printing usage and needs along with a benchmark competitor. With this information the TCO Tracker computes the total cost of ownership for both printers and the Kyocera TOC Advantage as shown above.

Total Cost of Ownership – Automobiles

Shown below is a short summary of ownership costs, including the costs of acquiring, installing, using, maintaining and replacing a product. Honda has a higher net price than Ford, but the cost to own is much lower over the life of the product. This creates a savings of $3054, more than making up for the higher net price. A portion of this is savings advantage is derived from a higher resale value at the time of product replacement.

Total Cost of Ownership – Medical Electronics

Tracking ownership costs is even more important for many sophisticated products such as medical equipment. In one company we found that a product priced at $60,000 saved a customer $20,000 more per year than a competing product priced at $50,000. Over a 5-year product life this is $100,000—making the price premium of $10,000 seem trivial. The company’s cost of ownership advantage could be traced to a lower cost per analysis, fewer errors due to ease of use, higher equipment uptime, lower quality control costs due to higher reliability, long product life by one year, and lower cost of documentation.

To learn more, go to www.marketingmetricshandbook.com, view the  Intro Video, and download a 30-day demo.

Price-Performance and Customer Value

Published on February 27, 2010 by Roger Best in Pricing and Value Metrics. 0 Comments

Product Ratings

Consumer Reports (CR) is famous for its product performance ratings of various consumer products. They rate individual product attributes on a 5-category scale that ranges from poor to excellent. Overall product ratings are rated from zero to 100. The sixty inkjet printers displayed in the graphic above received overall ranking ranging from 43 to 73, with an average of 61. Prices ranged from $40 to $350 with an average price of $148.

Relative Product Performance Metric

While actual product performance ratings are of value, creating a Relative Product Performance metric allows for a more strategic interpretation of product performance. In the graphic above, the Relative Performance was computed for each of the sixty inkjet printers, by dividing the printer overall CR rating by the overall average. For example, the HP PhotoSmart Premium had a relative performance of 120, indicating a 20 percent higher performance than the average printer.

Relative Product Performance = Performance / Average Performance  x  100
=  73 / 61 x 100
=  120

Shown in the left graph above is a plot of the relative product performance and price for the sixty all-in-one inkjet printers evaluated by CR.

Fair Value Line

The “Fair Price Line” is a least-squares estimate of the relationship between price and relative performance. All Fair Price Lines run through the average of price and relative importance and can be used to estimate the Fair Price of any Relative Product Performance position. The fair price of the HP Photosmart Premium printer is $205 and the HP price is $140. The difference of $55 is customer value – the incremental financial value of a transaction based on its price and relative product performance.

Customer Value and Price

Of course, for many printers, there is negative customer value. That is, the printer price is higher than the fair price for a given level of relative product performance. The HP printer is a great value, but so are many other printers below the fair price line. There are several printers with average relative product performance that have prices well below the fair price line. These are also great values for customers than do not need, or want, products with above-average performance. Customers looking for a “Value Price” can find printers with lower average product performance but prices below their fair price.

To learn more, go to www.marketingmetricshandbook.com, view the  Intro Video, and download a 30-day demo.