Chapter 37
Usage

To determine product usage at different prices.

Using a framework for assessing the maximum financial benefits a company can produce while also yielding substantial value for the consumer.

Roger J. Best, in his book Market-Based Management: Strategies for Growing Customer Value and Profitability, provides an excellent example of usage. The subject assumes a telecommunications company manufacturing a new product that delivers more value to its customers at a lower cost, but can also command a higher price, resulting in improved profits for the company. The value lies in the reduced installation, usage, and maintenance costs for the customer, even with the higher price. The reason? In Figure 37.1 you can see that the overall cost (“Lifecycle Costs,” )to the customer is $125 cheaper, even though the retail price of the product itself is $75 higher. Look at the chart closely. The benchmark comparison describes the current product offering and associated costs: $500 for usage and maintenance, $200 installation, and $300 purchase price. Each of these are paid by the customer. The next bar in the graph shows that the new solution reduces installation, usage and maintenance costs ($500 versus $700 with the current solution), yielding a maximum value of $500, assuming the new product is priced at zero. The final bar in the graph reflects the company’s new product, priced higher for the unit (so the telecommunications manufacturer recaptures economic value), but lower overall when the other costs are included.

Impact

By creating a new product with lower costs, but also offering higher value, the marketer is able to command a premium price at a lower overall cost for the customer.

Usage analysis helps marketing by visualizing the value associated with different products based on their lifecycle costs. Marketers can use this to analyze new products compared to older ones, or to compare their own product offerings to those of the competition, identifying opportunities, and/or risks in the process. Having a thorough understanding of their customers’ needs relative to their product offerings, and those of the competition, if they are included, is required to determine where the value opportunities exist. As mentioned previously, being customer-centric places a significant expectation on the company to spend more time with customers to understand their needs and challenges so that the findings help the company develop more impactful solutions.

This analysis is also useful in matching products to different segments, based on their needs and usage. Some segments may use a product less, but expect the product to last longer as a result. They would opt for the lower-priced product, even if it has higher maintenance costs, since their costs are spread out over time versus up front. Conversely, higher usage segments may prefer the higher up front price in return for lower maintenance costs on the new product.

Data for usage is capture in the detailed component costs for the product itself, and the service and resource costs incurred in installation, usage, and maintenance.

iR. J. Best, Market-Based Management: Strategies for Growing Customer Value and Profitability (Upper Saddle River, NJ: Pearson Education, 2005), 106–107.