Customer value framework for EOT crane product features (9-11-2012)

OULUN YLIOPISTO

Department of Mechanical Engineering

Master of Science Thesis

Customer value framework for electric overhead

travelling crane (EOT) product features

Author Henri Tikkanen

Supervisor Pekka Kess,

Advisor Heikki Lappalainen

Date 9 November

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UNIVERSITY OF OULU Abstract of thesis Faculty of technology

Department Laboratory

Department of mechanical engineering Industrial Management

Author Supervisors

Tikkanen, Henri Kess, Pekka; Lappalainen, Kauko

Name of the thesis

Customer value framework for Electric Overhead Travelling Crane (EOT) product

features Subject Level of studies Date Number of pages

Machine designing Master’s Thesis Nov. 2012 72+2

Abstract

The aim of this thesis is to create a customer value framework for the new product

features of Electric Overhead Tailored Cranes (EOT) by researching one Steel Industry

customer and three Pulp and Paper customers. The framework consists of three elements:

value research, value chains and value propositions. The first phase in the framework is to

set the goals, which means determining the research measurable and customers’ need

allocation. However, value research is the most important phase of this thesis. The goal

of the value research is to find which product features have or would have the highest

importance to the customer. If the customer was already utilizing the new product

features on their cranes, the actual usage level was measured, as well. The importance of

external value chains is also measured, in order to get a broader view of early customer

need recognition. Here, one consultant company represents this external value chain.

Value proposition gathers the key findings of value research together by giving a

suggestion of customer value.

There were two main research methods used in this thesis: quantitative questionnaire and

qualitative face-to-face interview. All approximately 50 respondent were interviewed

orally one-by-one first and then asked to fill a paper questionnaire. The aim of the oral

interview was to gain the trust of the respondents and to understand their views that

would be reflected on their answers in the questionnaire. The paper questionnaire

consisted of three categories: customer values, product features and customers’ personal

interests. All three categories could be answered by checking to a box on a scale of 1 to 4

how important the issue was and whether it had a low or high importance in the decision

making. These two methods should provide reliable information in order to gain insight

of the customer.

Results of this thesis indicate that the customer values safety and usability of the crane a

lot. Usability of the crane depends mostly on the ratio of downtime/uptime of crane, but

also on the easy and comfortable use of the crane. Both values aren’t broadly seen

through new product features. Results show that the usage rate of new product features is

surprisingly low. The customer doesn’t relate its values easily to importance of new

product features. Conservative attitude, lack of right information of the way the features

work and fears e.g. towards automation create barriers to gain superior customer value. In

conclusion, this thesis reveals the problem and offers a few practical tips to get rid of

these barriers, and also establishes a need for further study. Library location

Science Library Tellus, University of Oulu

Additional information

Key words: Concept of customer value, EOT crane, Marketing research

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OULUN YLIOPISTO Tiivistelmä opinnäytetyöstä Teknillinen tiedekunta

Osasto Laboratorio

Konetekniikan osasto Teollisuustalouden yksikkö

Tekijä Työn valvojat

Tikkanen, Henri Kess, Pekka; Lappalainen, Kauko

Työn nimi

Asiakasarvopohjainen viitekehys siltanosturiominaisuuksille

Oppiaine Työn laji Aika Sivumäärä

Koneensuunnittelu Diplomityö Marraskuu 2012 72+2

Tiivistelmä Tämän työn tavoitteena on luoda asiakasarvopohjainen viitekehys siltanosturin uudelle

lisäominaisuuskonseptille, teräs-, sellu- ja paperiasiakkaita tutkien. Tutkimuksen

viitekehys koostuu kolmesta osasta: asiakasarvotutkimuksesta, arvoketjujen

ymmärtämisestä ja segmenttikohtaisen asiakasarvoehdotelman laatimisesta. Aluksi

päätetään päämäärät ja mittasuureet tutkimukselle, jotta rautalankamalli voidaan

muodostaa. Arvotutkimus on tämän työn tärkein ja aikaa vievin vaihe. Tutkimuksen

tavoitteena on selvittää, mitkä tuoteominaisuudet ovat tai olisivat kaikkein tärkeimpiä

asiakkaalle. Niissä tapauksissa, joissa asiakkaalla oli jo käytössään uuden konseptin

mukaisia ominaisuuksia nostureissaan, tapaukset mitattiin myös todellisen käytön suhteen.

Tässä ohessa, laajempaa näkemystä hakien, tutkittiin myös ulkoisten arvoketjujen

vaikutusta aikaisen asiakastarpeen muodostukseen haastattelemalla suomalaista

konsulttitaloa. Lopuksi asiakasarvonehdotelma nivoo keskeisimmät havainnot

teollisuuden aloilta yhteen.

Tässä työssä käytettiin kahta tutkimustapaa: määrällistä asiakasarvo-kyselylomaketta ja

laadullista kasvotusten tapahtuvaa haastattelua. Kaikki 50 osallistujaa haastateltiin ensin

suullisesti ja sitten kirjallisesti, jotta vastaajan luottamus ja näkemys selviäisi.

Kyselylomake koostui kolmesta eri kysymyskategoriasta: asiakkaan arvoista,

tuoteominaisuuksista ja henkilökohtaisista kiinnostuksista. Kysymyksiin vastattiin rasti

ruutuun -periaatteella kuinka tärkeää (1-4) ja pieni vai suuri painoarvo päätöksen teossa.

Näiden metodien avulla pyrittiin saamaan syvällistä tietoa asiakkaasta.

Tutkimustulokset osoittavat, että asiakas arvostaa paljon turvallisuutta ja käytettävyyttä.

Käytettävyys nähdään enimmäkseen nosturin alasmenoajan ja käyntiajan suhteena, mutta

myös käytön helppouden ja mukavuuden kautta. Kumpiakaan arvoja ei nähdä

yksiselitteisesti lisäominaisuuksien kautta. Tulosten mukaan myös ominaisuuksien

käyttöaste on verrattain matala. Vanhoillinen asenne, oikean tiedon puute nosturien

toiminnoista ja pelot esimerkiksi automaatiota kohtaan, luovat esteitä ensiluokkaisen

asiakasarvon saavuttamiselle. Yhteenvetona voidaan sanoa, että tutkimus paljasti

ensisijaisesti ongelman, tarjoten muutaman käytännön ratkaisuohjeen ja tarpeen

jatkotutkimukselle. Säilytyspaikka

Tiedekirjasto Tellus, Oulun Yliopisto

Muita tietoja

Avainsanat: Asiakasarvon konseptointi, Siltanosturi, Markkinatutkimus

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Acknowledgements

This master’s thesis was financed by Konecranes Finland Oy in Hyvinkää from April to

December 2012. Hereby, I would like to express my gratitude to numerous people for

making this thesis happen. I would like to thank my supervisor, Professors Pekka Kess, for guidance through

this Master Thesis process. Special thanks go to my advisors in Konecranes Oy, Head of

Industry Applications Mr. Heikki Lappalainen and Pulp and Paper Specialist Hannu

Piispanen, for crucial support and help, as well as for Mr. Kari Anttila, for giving me the

opportunity to do this thesis for Konecranes.

It has been a long and bumpy road from the beginning of my studies to this point. I

would like to thank all of my friends and schoolmates in Pielavesi, Oulu University and

especially Michigan Technological University (MTU) who have travelled this journey

with me. Without forgetting others, I would like to specially acknowledge volleyball

and beach volley friends from Ryysyranta, Pielaveden Sampo, Oulun Yliopistollinen

urheiluseura (OYUS), and Hietsu beach volley (HBV), which all have inspired me on

my choices and guided my way to this point.

Special thanks go to my father Seppo Tikkanen, my mother Jaana Afflekt, my sisters

Ms. Salla and Ms. Milla Tikkanen, and my relatives, who have taught and supported me

through life’s ups and downs in many ways. I would like to thank my beloved girlfriend

Ms. Mirja Tuure, who has continuously supported, loved and endured me (especially in

the morning).

November 9, 2012 Hyvinkää

Henri Tikkanen

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Table of Contents

Abstract

Tiivistelmä

Acknowledgements Table of Contents Abbreviations 1 Introduction .................................................................................................................... 8

1.1 Background .............................................................................................................. 8 1.2 Research problem .................................................................................................... 8

1.3 Research method ...................................................................................................... 9 1.4 Structure ................................................................................................................... 9

2 Literature review .......................................................................................................... 11

2.1 Paradoxical concept of value ................................................................................. 11

2.2 Concept of customer value .................................................................................... 13 2.2.1 Customer value orchestration .......................................................................... 15

2.2.2 Value creation for customer ............................................................................. 15 2.2.3 Value delivery to customer and value supply-chains ...................................... 16

2.3 Customer value measurement techniques and concepts ........................................ 19

2.3.1 Customer value research methods ................................................................... 19 2.4. Concept of value-based pricing (VBP) ................................................................. 26

2.4.1. Hinterhuber functional framework for value delivery and VBP .................... 28 2.4.2 Storbacka’s solution business model ............................................................... 32

2.5 Summary of theory ................................................................................................ 36

3 Empirical section .......................................................................................................... 37 3.1 Scope ...................................................................................................................... 37

3.1.1 Introduction to Konecranes world ................................................................... 38 3.1.2 Industrial crane solutions (ICS) business line and segments........................... 39

3.2 Equipment assessment plan (EAP) ........................................................................ 40 3.3 In-depth study with customers – Customer value framework creation ................. 41

3.3.1 Value research .................................................................................................. 42 3.3.2 Value chains - Consultant firm case 5 ............................................................. 59

3.4 Key findings and value proposition ....................................................................... 61

4 Discussions ................................................................................................................... 64 4.1 Answering the research questions .......................................................................... 64

4.1.1 RQ1: What is valuable for the customer? ........................................................ 64

4.1.2 RQ2: How is the need for new crane and feature purchase born? .................. 65 4.1.3 RQ3: What kind of new product features are of great importance to the

customer? .................................................................................................................. 65 4.1.4 RQ4: What is the actual usage of new product features? ................................ 66

4.2 Validity and reliability ........................................................................................... 67

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4.3 Further research ..................................................................................................... 67 5 Conclusions .................................................................................................................. 69 List of references ............................................................................................................. 70 Appendix A

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Abbreviations

B Benefit

C Cost

Ex Expensiveness of brand

Ii Relative importance of i-th product attributes

Pia The performance perceived in the supply of the product or brand

Pmax/min The maximum and minimum price levels

Px The perceived performance of brand

P(b) Price of competitor’s product

Umax/min Utility coefficients

V(a) Value for own product

V(b) Value for competitor product

Va Customer value

Vx Value perceived in the brand

ABC Activity-Based-Calculations

CRM Customer relationship management

CVP Cost Volume Profit calculations

EAP Equipment Assessment Plan

EOT Electric Overhead Travelling crane

ERP Enterprise Resource Planning

EVC Economic Value to Customer analysis

GM General Manufacturing

IEC International Electrotechnical Commission

ICS Industrial Crane Solutions

LINMAP The Linear Programming Technique for Multidimensional Analysis of

Preference

MAP Maintenance Assessment Plan

MONANOVA Monotone Regression

MTMM The Multitrait-Multimethod Matrix

MTS Machine Tool Services

PREFMAP Preferred Mapping

PDM Product Data Management

R&D Research and Development

QFD Quality Function Deployment

TCO Total Cost of Ownership

VBP Value Based Pricing

WTP Willingness to Pay

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1 Introduction

1.1 Background

This research focuses on the concept of customer value. The field of research is a hot

topic in the fast and intensively industrialized world, where understanding customers’

needs and wants has a deeper meaning in order to gain competitive advantage. The

customer is more aware of price levels, importance and the quality of the crane solution

and service. The purchasing price has great importance to the customer. However, by

means of life-cycle cost of product or benefits of offering, the importance of price is can

be faded. The approach in this thesis is to focus on the benefits of the crane, in a way

that emphasizes price differentiation from competitors. The battle between cost and

value-based approaches inspired the author to select the subject of the thesis.

A firm can also differentiate from its competitors with the help of new technologies.

Here, technology means particularly the ability to do things. The importance of new

product features is measured using the value-based method and compared to its cost.

The research is quite new at Konecranes. Konecranes operates many customer

industries, e.g. Pulp and Paper, Energy from Waste, Automotive, Steel and Power, but it

may still offer the same product family to each segment. This generates a problematic

situation. Is the customer’s need for product features the same for each segment? If, not

what is it?

1.2 Research problem

The aim of the thesis is to detect what the customer need is and what Steel Industry and

Pulp and Paper customers in Finland find valuable. Results create a value framework,

which will hopefully help the company to gain customer insight for new product

features and be argument for price differentiation. Research is carried out with the help

of three Pulp and Paper Industry customers, one Steel further processing plant and one

consultant. Many internal stakeholders guide and help throughout the process, too. This

research continues previous researches further by not being only a market research of

the customer need but also measuring the actual usage of new product features of the

crane. This thesis also utilizes a tool which helps measuring the customer satisfaction.

The challenge of this work is to create an objective and a measurable survey for

customer value.

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Table 1. Research questions

RQ 1 What is valuable for the customer?

RQ 2 How is the need for new crane and feature purchase born?

RQ 3 What kind of new product features are of great importance to the customer?

RQ 4 What is the actual usage of new product features?

The answer for the first question helps one to understand industry-specific matters,

which should influence on crane suppliers offering. More concrete the need for specific

product features is measured. Research questions 3 and 4 measures and investigate the

importance and the level of actual usage of product features of the crane. Overview of

the whole research is presented on value framework for customer value in the

conclusions chapter.

1.3 Research method

This research can be categorized into case studies, which means that objectively

evaluated individual cases manifest regularity. The number of cases is limited but each

case is investigated deeply. More than five persons with different job titles are

interviewed per case. In order to create a value framework for product features, the

similarities between cases are searched. However, it must be remembered that the basis

of the concept of customer value is very unique and case-specific.

Here, two basic research methods, quantitative and qualitative, are used.

Quantitative method uses an excel-tool (EAP) that is specifically developed to this

thesis, and it gathers questionnaire surveys’ numerical data in a readable and easily

understandable form. Qualitative method means face-to-face interview with every

respondent. Face-to-face interview helps to understand the results of the questionnaire

survey and creates a more relaxed atmosphere for trustworthy and understandable

answers. Equipment assessment plan (EAP) is developed based on service Maintenance

Assessment Plan (MAP). MAP is a tool for measuring customer satisfaction.

Respondent evaluates Konecranes’ performance by giving it a rating from 1 to 4. The

same idea is used for EAP creation, but instead of evaluating the performance, the

importance is measured.

1.4 Structure

This thesis is divided into 5 chapters (see Fig.1). The first chapter introduces the topic

by telling the background for the study, describing the research problem and methods

and presenting the structure of the thesis.

Chapters 2 and 3 form focal theoretical and empirical parts. The theoretical part is

divided into four subchapters, which go through the elements of values daily life and

business point of view. The aim of the chapter is to introduce the reader to the concept

of customer value and create a scientific background for this thesis. The last chapter of

the theoretical part summarizes the author’s view about most important theories

presented. The empirical part starts with the scope of the work and contains a brief

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introduction to Konecranes, the company where this thesis is done. The core of the

empirical part is an in-depth study with Case customers, which are introduced as well.

The key findings are summarized in this chapter. Chapters 4 and 5 are the final chapters

of the thesis. The discussion chapter concludes the literature review and the empirical

part of the thesis. Furthermore, the need for further study is discussed in this chapter, as

well.

Fig. 1. Structure of thesis

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2 Literature review

2.1 Paradoxical concept of value

“There is no such thing as absolute value in this world. You can only estimate what a

thing is worth for you” Warner C. 19th century

The controversial truth in Warner’s quote from the 19th century still exists (Value

quotes, 2003). In spite of the increased need for value study, unity for definition of

value (Mikkola, 2003), conceptualization or measurement of value has not yet been

accomplished (Hitlin, 2004).

General descriptions of values:

Distinctive of an individual or characteristic of a group, (either implicitly or

explicitly) of the desirable, which affects the selection from available modes,

means, and ends of action. (Hitlin, 2004)

Are internalized social representations, moral beliefs or cultural ideals that

people appeal to as the ultimate rationale for their actions (Kuczynski, 2002) at

an early age in an absolute manner (Mooij, 2010)

Can be considered to be anything social actors appreciate, appraise, and wish to

obtain, recommend, set up or propose as ideal

A set of objective, subjective and functional acts aimed to deserve company’s

needs (Meitner, 2004)

Values can be linked to:

Culture, social structure and individual behavior (Hitlin, 2004)

Group behavior (Kuczynski, 2002)

Financial activities (Meitner, 2004)

Attitudes, traits, norms and needs (Hitlin, 2004)

Ideas, emotions, moral deeds, acts, institutions, material things (Kuczynski,

2002)

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How do we know that values exist? Kuczynski (2002) suggests primarily four options:

(1) individual testimony; people say what values they hold, (2) behavioral choices;

value differences may be imputed from behavior, (3) cultural and social structure;

cultural products such as expenditure of resources, time, energy and structuring of the

natural environment seen as concrete residues of value-based choices and (4) social

interchange observation; identification of what is socially valued, by observation of

what is rewarded or punished, praised or vilified.

According to Kuczynski L. (2002), value has four dimensions: (1) object, (2)

judgment, (3) norms and (4) value holders. What is valued or prized (the nation, Muslim

faith, work, profit, honesty, the family has an object. Whether the object is qualified

valuable or contemptible, as good or bad, as useful or useless, as true or false, as

desirable or not, as beautiful or ugly etc., in any case, it includes judgment. When values

begin to command either regulate conducts, or prescribe a course of action they become

norms; you have to comply with Islam prescription and defend your country if you

consider that Islam is true, time when your country is inviolable. Value holders can be

individual actors, collective actors, or social groups, and they are able to talk about

values of such and such person.

Mooij (2010) argues that values are very cultural-dependant, cultural-specific and

taught at an early age in an absolute manner. She defines culture as glue that binds

groups together and offers a set of control mechanisms – plans, rules instructions for the

governing behavior and collective mental programming of the people in an

environment. She also notes that individuals are products of their culture and what

memory is to individual, culture is to society. Values that are relevant to one culture may

not exist in another. Mooij warns of falling into the pit of ethnocentrism when

classifying cultural values. People tend to consider their own values as truth.

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2.2 Concept of customer value

How does value have anything to do with business? How to connect company’s

perception of value with customers? How to create superior customer value, satisfaction

and loyalty?

This chapter introduces us to the concept of customer value, which is necessary to be

familiar with to understand customer needs and studying them systematically, by

answering the questions proposed above. According to Henneberg and Mouzas (2008),

the notion of value in business environment is based on an exchange theory. They argue

that if parties concerned perceive that value can be created and delivered in accordance

with their specific needs and wants exemplified in their goal functions, exchange

happens. Kotler (2005) continues to say that customers form an expectation of value, act

on it and buy from the firm that they perceive to offer the highest customer-delivered

value.

Canhoto et. al. (2011) argues that in order to capture the highest customer value,

competitors have to be taken into account (see Fig.2). The choice is done between

different offerings based on delivered value. The components of customer-perceived

value are called value drivers and cost drivers. The figure below shows nine main value

drivers and six cost drivers. Many different factors (some indirect and some direct)

influence the positive or negative perception of value.

Fig. 2. Customer-perceived value (Canhoto, 2011)

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Hinterhuber (2008) regards customer value as a subjective concept, a trade-off

between (1) benefits (2) sacrifices. Lindgreen et. al. (2012) states that customer’s

received benefits can be divided into; economic, technical, service and social classes.

The perceived sacrifices can be categorized into monetary e.g. price paid (Busacca) and

bundle of other costs such as time, energy and psychic costs (Kotler, 2005). Kauppinen

(2002) adds that customer value creation is guided by morals and ethics.

In order to capture customer value, sources of value should be recognized. Smith

(2007) states 5 types of sources (Table 2):

Table 2. Sources of value (adapted from Smith (2007))

Source of value Example

Quality of information Quality of training, availability of information, quality of

information

Quality of product

Functionality, reliability, additional features,

customization, ease of use, technical level, speed,

usability, performance

Frequency of interactions Call frequency, duration, service interactions and

responsiveness with systems and employees

Environment Decorative features (furniture, fixtures, lighting, layout)

Degree of possession

transfer

Correct, accurate and timely fulfillment processes (order

taking, picking/packing and delivery)

Kotler (2005) argues that in successful marketing companies, the customer is at the top

of the organization pyramid as seen in Fig.3. Top management is at the base, whose

work is to hire and support middle managers. Middle managers support front-line

people, who meet, serve and satisfy customers. Kotler also highlights customer-centric

approach in all firms’ levels, by noting that managers at every level should be

personally involved in knowing, meeting and serving the customer.

Fig. 3. Traditional organization Modern customer-orientated company

In an ideal situation, the customer makes the buying decision if the perceived value

exceeds the costs assumed. However, there are situations where the highest value

perceived doesn’t always win. The buyer may have their own motives, various

constraint and weights whether choose personal or company’s benefit. Porter notes: the

buyer might be under orders to buy at the lowest price; the buyer will retire before the

company realizes that its product is too expensive; or buyer enjoys a long-term

friendship with the other player.

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Kotler (2005) notes that the value promised to the customer consists of all the

benefits and the company’s market offering that the company promises to deliver. This

statement is value proposition. To form a long-lasting relationship with the customer,

the company has to show loyalty and earn the customer’s satisfaction. Kotler (2005)

defines loyalty as a deeply held commitment, which - in spite of the fact that situational

impact and marketing efforts would usually have the potential to change the customer’s

behavior - helps to re-buy or re-patronize the product or service preferred with the

customer in the future too. Satisfaction is a performance-resulted feeling of pleasure or

disappointment of a product or a service, compared to expectations.

2.2.1 Customer value orchestration

According to Lindgreen (2012) in a recent survey of business and industrial managers

(2011), value quantification and value communication were voted #1 trend. He

highlights the need for new ways of demonstrating the value that their solutions offer in

the customer business and the challenge of deepening relationship to the customer.

Hinterhuber (2008) emphasizes that not only quantifying and communicating value is

important, but building customer value by creating innovative product and services to

customers through pricing and marketing activities. Lindgreen (2012) proposes value

orchestration model in his resource management point of view, which has three basic

operations: value creation, value delivery and value analysis, as seen in table 3.

Table 3. Value orchestration: Adapted from Lindgreen (2012), Kotler (2005), Busacca

(2008) and Hinterhuber (2008)

Value

orchestration Definition Activity

Value creation

Trade-off between benefits and

sacrifices in customer dealings

with suppliers

Branding, networking

Value delivery

System the expectancies

customer receives on the way to

obtaining and using the offering

Pricing, sourcing, making,

distributing, servicing

Value analysis

Tool to understand drivers of

customer perceptions and

behaviors

Product and service

development

Value

communication

Interactive process which creates

a suitable brand environment

between producer and consumer

Pricing, marketing, sales

promotion, advertising

2.2.2 Value creation for customer

According to Porter’s best-seller Competitive advantage - Creating and sustaining

superior performance (1990), companies create value to customers through the

performance of activities. To be a productive company, the value that is created and

delivered to the customer has to be bigger than the total costs. Lindgreen (2012) states

that the focal element for core to the purpose of exchange and company survival is

value creation, delivery and analyze, especially when dramatic changes lead to

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fundamental shifts. He continues to argue that value creation exists everywhere – not in

isolation – and companies need to produce it also to customers. Cova (2008) examines

that a company can co-create value with its customer to improve competitiveness. Co-

creation logic approaches in a service-dominant, complex and intertwined way,

emphasizing the role of experiences share and relationships creation in customer value

creation.

Busacca (2008) ties a company’s processes together with the six central assumptions

of customer-based value creation. Value of the firm’s customer base is called

shareholder value (customer equity). The size and quality of the market and customer

relationships originate from customer equity. The firm’s capability to manage customer

value over time depends not only on customer satisfaction, trust and loyalty, but firm’s

stock of resources, competences and capabilities too. Investments to customer value

management capabilities have to enhance resources and competences invariably.

Kotler (2005) agrees that customers are value-maximizers. Hinterhuber (2008) also

takes the nature of business into account. Especially in industrial business settings,

because of fewer and more educated customers, large and long investments, trained

buying centers, etc. the concept of value varies, which tends to make value creation

variable and difficult to model.

2.2.3 Value delivery to customer and value supply-chains

Another quite important topic, which influences firm’s overall efficiency and

profitability, is value delivery to the customer and how the firm’s internal and external

value chains are linked together. Logic of data transfer to customer value is another

topic, which relates to quality of value delivery very closely. Canhoto (2011) argues that

data-to-value cycle (see Fig.4) bridges the gap between the customer perception of

value and those placed upon it by the organization. The model below describes the

manner in which organizations seek to use market intelligence and customer knowledge.

It also shows the complex nature of information exchange.

Fig. 4. The data-to-value cycle (Canhoto, 2011)

Kotler (2005) describes value delivery system the sum of the expectancies, which

customer receives on the way to obtaining and using the offering. The value delivery

17

process begins proactively, before there is a product, and then continues while it is being

developed and after it comes available. Value delivery needs marketing channels (also

called trade channels or distribution channels), and network behind to work. As sets of

interdependent organizations, the purpose of the marketing channels is to make a

product or service available for use or consumption. Value network is a set of

partnership and alliances that the firm needs to orchestrate, source, augment and deliver

its offerings. When delivered value often, substantial investment in infrastructure and

capabilities is needed, as well.

Value delivery process is also known as value supply and can be seen as (1)

traditional physical process sequence and (2) value creation and delivery sequence.

Traditional process consists of basic operations, such as making and selling the product.

Value supply process includes three phases that focus on cost implication:

1) Choosing the value, which stands for “the homework” marketers, must do before

products exist

2) Providing value by determining features, prices and distribution

3) Communicating the value, by utilizing communication tools to announce and

promote the product

Ketchen et. al. (2008) determines that the best supply chains deliver superior total value

to customers in terms of speed, cost, quality and flexibility and this way enhances their

own performance. Presutti (2003) highlights the importance that strategic supply

management has in two ways: first, it has a huge impact on the firm’s value creation,

and second, it has major monetary influence on usage of sales revenue to help support

the company’s operations. Lindgreen (2012) emphasizes the importance of focus on

specific customers’ relationships in the larger network. He also considers it important to

determine the value framework as a guideline to management and control.

Kotler (2005) argues that with company’s own value proposition, value delivery

needs internal and external supply chains, also known as value delivery network or

value-chain, to make products and bring them to markets. Porter (1990) links value-

chain influence in company’s strategy, by arguing that value-chain provides a deeper

point of view, not only the types of competitiveness, but also positioning at battlefield.

He notes that competitiveness is based on a way in which companies organize and

execute activities, such as sales and service activities, product and process planning, and

procurement. Henneberg, Mouzas (2008), Cova and Salle (2008) and Iyer (2009) argue

that value systems become to more complex, service-orientated and closer to solution

selling, seen in Table 4 below.

Table 4. Value systems: Adapted from Porter (1990), Parolini (1999), Henneberg and

Mouzas (2008), Cova and Salle (2008) and Iyer (2009)

View to value system Nature of activities

Porter 1985

Set of value chains between

supplier, firm, channel and

buyer from the firm’s point of

view

Primary (logistics, operations, marketing, sales and

service)

Supportive (firms’ infrastructure, human resource

and technology management and procurement)

18

Parolini 1999

Wide set of activities,

determined from the end-

customers’ point of view

Realization (purchasing and sales (contracts))

Supportive (planning, I.S and database management,

HRM, procurement, marketing and infrast. activities)

External (Operations, quality control, transportation,

warehousing, pre-sale customer, additional and post-

sale assistance services)

Henneberg, Mouzas 2008

Set of value horizons and

value chains tied straight to

the essence of marketing and

strategy

Subjective, idiosyncratic and task-specific

networks, which are too complex to achieve unified

absolute value horizon.

Cova and Salle 2008

Set of services supporting the

customer’s action and

supplier product and services

supporting the customer’s

network actors

Pre or before purchase activities (searching,

deciding, and acquiring)

During (installing, using and operating)

Post or after purchasing (reviewing, renewing,

extending, upgrading and updating)

Iyer 2009

Symbiosis of internal and

external value chains

Internal (designing, producing, delivering,

supporting)

External (customer’s purchasing, creation and

delivery of purchase, creation of the product,

disseminating product information, selling, delivering

and after-sales-services, returning)

19

2.3 Customer value measurement techniques and concepts

This chapter determines the most common customer value analysis concepts. According

to Hinterhuber (2008), the key to value delivery and value-based pricing is to achieve an

understanding and a quantification of customer value. He suggests that the

understanding of customer value has a simultaneous influence on increasing the sales

and profitability, as well as knowledge about where to increase prices and launch.

Busacca (2008) regards the company’s ability to manage customer value-creation

processes as a critical role in the company’s success, because it leads to positive

financial outcomes generated by loyalty effects. Woodside et. al. (2008, 2) continues

that customer value assessment and evaluations strongly affect acceptance and initial

purchase. Woodside (2008) approaches need for customer value measurement by noting

a bias: 80% of the companies tend to believe that they deliver superior customer value,

but only 8% of the customers describe their experience as superior.

Hinterhuber (2008) widens the need for analyses, by arguing that to provide

effective pricing strategy in industrial markets, the cornerstone of the process is to

analyze and measure the value through customer analysis, cost-volume profit (CVP)

calculations, competitive intelligence and channel analysis. Analyses are tools for

decision making, as well.

Hinterhuber states that CVP calculations solve the implications of price and volume

changes on company profitability. The results of the CVP analysis answer questions

such as what happens if the price goes up by 10 % and how much turnover company

affords to lose if the overall profit is at least maintained. Competitive analysis informs

of trends in competitive pricing, product offerings and strategies. Channel analysis aims

to win channel support by gaining understanding of channel options, channel functions,

and channel perceptions. This field of investigation is focal because no customer can

buy the product through a sufficiently widely-dispersed distribution network. The

principle can be summarized in the following formula:

𝑉𝑥 =𝐵 𝑥 𝑃𝑥

𝐶 𝑥 𝐸𝑥, where (1)

Vx denotes value perceived in the brand

Px / Ex means the ratio between the perceived performance and expensiveness of the

brand

B / C benefit and cost ratio

Value is the outcome of this formula. Perceived benefits and sacrifices can be measured

individually, too. (Busacca, 2008)

2.3.1 Customer value research methods

In order to measure the customer value accurately, extensive background research has to

be done first. This research is called customer value analysis. Storbacka (2011)

recommends doing the customer value analysis by using research methods that sort out

what is valuable for customers in early stages of the solution development process. Lead

customers that are willing to work with provider in order to develop their joint activities

in regular planning are involved in innovation and idea creation. Iyer (2009) considers

20

the following questions to be the core of customer analysis: what is wanted now? What

will be wanted in future? Can the customer discern minor differences in quality,

functionality, and price?

Hinterhuber (2008) notes that customer value analysis provides information from

sources of economic value of the product to different clusters of customers. Customer

value analysis focuses on putting oneself in the mind of the customer and searching for

sources of differentiation from the best competitive offering by analyzing customer

buying habits and requirements. Busacca (2008) argues that understanding drivers of

customer perceptions and behaviors is the main goal of economic value analysis. He

approaches customer value measurement from two perspectives: management-based

and customer-based, because translating value into economic terms varies because of

the measuring approaches and techniques. Economic value for the customer method

(EVC) and total-cost of ownership (TCO) measure value more from a management-

based perspective - yet customer value perceptions taken into account, the Fishbein

technique is in the middle of these approaches and Conjoint analysis is more in

qualitative and extensive quantitative customer perspective (see Fig. 5.).

Fig. 5. Customer value measurement techniques. Busacca (2008)

Busacca emphasizes the importance of quality function (QFD) or weighted

measurement techniques if measuring performance perceived with respect to the

product’s various attributes or the main benefits for the customer, too. He mentions that

the best-known practice to make these measurements is the Fishbein technique. Tradeoff

between the effectiveness of the expected outcomes and the deployment of resources

required to carry out the measurement process depends on the selection of technique or

approach. Hinterhuber (2008) proposes 9 tools to quantify value (see Fig.6.). He

highlights that focus group value assessments and importance ratings are the most

widely used tools, while conjoint analysis has the highest practical success rate.

21

Fig. 6. 9 quantification tools. Hinterhuber (2008)

Total cost of ownership analysis (TCO)

Sacrifices - that customer faces during product life-cycle - can be measured with total

cost of ownership (TCO) analysis (Fig. 7.). Wouters et al. (2004) notes that TCO is a

cost accounting application, which helps decision-makers to connect value and price in

making sourcing decisions, as well. Degraeve et al. (1999) continues that TCO goes

through the extended value chain of company also far beyond price. Herrera Piscopo

(2008) argues that TCO is a method that assesses the true overall cost of a purchase.

This assessment is the sum of the formula below:

TCO = Purchase price + all other expenses – salvage or resale price

Fig. 7. Total Cost of Ownership as a component of customer value

According to Busacca (2008), TCO, which is a relational analyzing tool, aims more

to determine value and price and suits for B2B markets and semi durables or durables,

22

or investment goods. Herrera Piscopo (2008) argues that it is not an easy task to do,

because practical applications are scarce. Nevertheless, TCO analysis can be a powerful

selling tool that documents, measures, and communicates the value that offering

represents to a customer, from the seller’s point of view. He notes 3 fundamental

notions for TCO concept:

1) Counting all expenses attributable to a certain purchase

2) The adoption of a long-term perspective that endures throughout the lifetime of a

product or service

3) The identification of the cost influence on all activities related with the purchase

situation

Cost categories can be divided into (1) direct versus indirect, (2) order of

occurrence, and (3) activities. Direct costs include expenses such as price or delivery,

and they are easily attributable to the purchase, unlike indirect costs, like downtime cost

due to repairs or the loss of customers due to poor quality, which result from activities

implicitly. Classification based on the order in which they occur can be identified as

pre-transaction costs, where costs are calculated from the time a problem is recognized,

transaction costs, measured at the time of order placement and receipt, and post

transaction costs, noted from owning a purchase to time of disposal. Grouping by

activities falls into ABC-using (activity-based calculations) categories such as

acquisition expenses (search costs, processing orders, and delivery charges), conversion

costs (handling and storing items, installation or incorporation into the production

process, maintenance, and repairs and downtime), and disposal costs, which aim to

discard the remains of the product after use. Basic phases for Herrera Piscopo and

alternative IEC standard approaches for TCO are introduced below (See Table 5.).

Table 5. Alternative TCO methods: Adapted from Herrera Piscopo (2008, 11), IEC

60300-3-3(2007)

Herrera Piscopo, 2008 IEC standard

1. Analyze current scenario 1. Determine objective

2. Map processes and activities 2. Define basis of calculation model and its

limitations

3. Identify cost drivers 3. Prepare implementation part and acquire

information

4. Collect activity usage data 4. Plan and test the model

5. Identify potential solution 5. Compile life-cycle-cost calculation

6. Estimate potential cost drivers’

improvements 6. Do sensitivity analysis

7. Calculate TCO for both scenarios 7. Analyze results and do conclusions

8. Present results to customer 8. Utilize the results of analyze

23

Fishbein analysis

According to Busacca (2008), the Fishbein technique measures attitudes of customers,

and interprets the value for customer as the summation of the relative importance of the

various products’ attributes weighted under the relevant performance perceptions. The

next formula expresses the Fishbein value measurement:

∑𝑉𝑎 = ∑ 𝐼𝑖𝑛𝐼=1 𝑥𝑃𝑖𝑎 (2)

, where

Va is customer value

Ii is the relative importance of the i-th attribute and

Pia is the performance perceived in the supply of the product or brand

Busacca (2008) argues that formula should also allow attributes that the customer

associates with the costs required to purchase and enjoy the specific benefits. The

exhaustive formula, which takes the expensiveness of the brand or product investigated

into account, then becomes:

𝑉𝑎 =∑ 𝐼𝑖

𝑛𝐼=1 𝑥𝑃𝑖𝑎

∑ 𝐼𝑖𝑛𝐼=1 𝑥𝐸𝑖𝑎

(3)

, where

Eia is the expensiveness perceived by customers

The pricing also needs the identification of the competitors’ price and application in the

formula below:

𝑃𝑟𝑖𝑐𝑒 𝑎 = 𝑉(𝑎)

𝑉(𝑏)𝑥𝑃(𝑏) (4)

, where

V(a) is the value for own product

V(b) is the value for the competitor’s product

P(b) is the price of the competitor’s product

Busacca argues that the full absorption of the differential value presented in the

formula cannot be reached and thus price has to be set lower than the one resulting from

the Fishbein measurement.

24

Conjoint analysis

According to Busacca (2008), Conjoint analysis is a technique to simulate customers’

evaluation and selection process under real circumstances. Naes (2000, 1) et al. argues

that it is also a very powerful tool for obtaining information about the influence of

different product attributes. Jeon et al. (2010) define that the analysis is about the

measuring the value customer places on a feature. He notes that the conjoint analysis

approach predicts which product would be chosen by estimating consumers’ willingness

to pay for each attribute. Busacca (2008) argues that the analysis consists of qualitative

and quantitative phases. Even if conjoint analysis is the most frequently technique used,

it has a number of limitations, because all the possible combinations cannot be tested.

The analysis doesn’t measure brand-related trust and is less effective for products with

high symbolic content. Table 6 below presents commonly used approaches in the field

of study.

Table 6. Possible Conjoint analysis phases and alternative approaches

Reference approach Other approaches

Identification of benefits,

attributes, and minimum-

expected-optional performance

levels (Busacca, 2008)

Selection of the preference function (Gustafsson et.

al., 2000) or formulate the problem (Prasad et. al.,

2010)

Combination of levels and

selection of simulated products

(product profiles or cards) to

be submitted to evaluation

(Busacca, 2008)

Construct the stimuli by two-factor evaluation or

multiple-factor evaluations (Prasad et. al., 2010),

select analysis technique (North, 2002 or selection

of data collection method (Gustafsson et. al., 2000)

Selection of data collection

design

(Gustafsson et. al., 2000)

Combination of levels and selection of simulated

products to be submitted to evaluation (Busacca,

2008)

Selection the way stimuli are

presented (Gustafsson et. al.,

2000)

Select form of presentation of stimuli and nature of

judgments (North, 2002)

Selection of data collection

procedure (Gustafsson et. al.,

2000)

Identification of choice preferences or priorities

related to alternative products (Busacca, 2008)

Selection of the method for

evaluation of the stimuli


Deciding form of input data, metric or non-metric

(Prasad et. al., 2010)

Estimation of benefit values


Measurement of the unit monetary level of utility as

a function of the relationship between the price gap

and the utility/disutility gap (Busacca, 2008) or

calculation of part-worth utility (Prasad et al.,2010)

Busacca (2008) argues that the first phase of the analysis should consist of

reconstructing of the means-end chain, benefits, attributes and performance levels,

which are minimum-expected-optimal. Levels have to be considered with the technical

and economic feasibility consistency of the company. The range of levels – especially in

the case of price – should be weighed more widely than the market one to have a more

25

specific estimation of the utility related to the attributes. In the next phase, hypothetical

product configurations – a set of product profiles – are formed. The means of proper

statistical techniques – the reduction of number of profiles – should be considered

carefully. Gustafsson et. al (2000) emphasize the importance of guiding the way

respondents evaluate incentives. All incentives evaluated should be thoroughly

considered, whether presentation style is verbal or visual. Respondents may also make

their statements relying on the way in which incentive is presented to them (person-to-

person, in writing by mail, or using computer). The scale can be metric (rating, dollar

metric, constant sum scale) or non-metric (non-metric procedures, ranking or paired

profiles comparison). Busacca (2008) emphasizes the estimation of benefit values in the

formula below. Monetary utility of value is the ratio between the maximum deviation of

the price levels and the relevant utility. Gustafsson et. al (2000) present some algorithms

– such as PREFMAP, LINMAP, MONANOVA, MTMM) to gain the same results.

Monetary Value of Utility = (Pmax – Pmin) - (Umax - Umin) (5)

, where

Pmax/min is the maximum and minimum price levels

Umax/min is the corresponding utility coefficients

(Busacca, 2008)

Industrial markets face their own challenges and particularities in value creation,

delivery and pricing, which differ noticeably from consumer goods markets. In

industrial markets, transactions are typically large in value, the usage of the product or

service determine its value, products cannot be mass-produced, and customers don’t

have the same wants (customization), and brands mean only a little to the customer. The

type of customer that is being served and the path to end-customer vary, comparing to

consumer markets.

Selling is a long and complex process, and while retailing isn’t a factor, the

necessity of dealing with the buying center is. The buying center can be an initiator,

user, physical buyer, a gatekeeper or a final decider. It doesn’t only have a professional

purchasing organization, but it also has sets of rules and administrative requirements.

Pricing becomes more difficult because of; (1) customers distinct basis as profit or

budget oriented behavior, (2) customer attendance of purchasing norms and regulations

sellers must agree with, (3) and customers higher level of knowledge about their

product. The next chapter introduces the concept of value-based pricing (VBP) in

industrial settings.

26

2.4. Concept of value-based pricing (VBP)

Before determining the concept of VBP it is important to get familiar with a few pricing

principles. Kulmala (2006) argues that in principle, pricing is the search for the right

price, but in practice, the influence of numerous factors changes pricing set of precise

scientific analysis and daily psychology. He names two goals of pricing from the seller’s

perspective: to sell the product and turn profit. In market economy, the price appears to

be the balancer between demand and supply and that’s why it cannot be set too high.

Hinterhuber (2008) argues that pricing is a focal and strongly neglected tool in

industrial marketing. Hirshleifer et al. (2005) determine price to be a key feature of

markets on which goods are exchanged. The individuals who are the most willing (and

hopefully most ethical) to pay get the commodities. Hinterhuber (2008) simplifies the

abstract of willingness to buy (WTP), by arguing that it is the sum of perceived fairness

of transaction and surplus value of product/service (See Fig. 8.):

Fig. 8. Customer willingness to buy (Hinterhuber, 2008)

Shy (2008) notes that the key to successful pricing is to know your potential

customers’ preferences. He reminds that even if the pricing technique is well chosen and

properly used, there is still no guarantee of profitability. Nevertheless, the probability of

earning higher profit will increase when the price is set according to customer value.

Despite humble intentions to understand the customer, conflicts between buyers and

sellers easily occur and are manifested in the following two rules:

Rule for the seller: “Make an effort to set the price according to buyers’ value, not

according to cost”

Rule for the buyer: “Bargain (if you can) prices closer to marginal cost.”

Myers (2002) argues that the pricing strategy should be similar to the overall strategy of

the firm in order to be valuable. Performance outcomes might be affected if the pricing

strategy does not reflect the organizational goals. Forman (2004) continues to note that

internal (capacity utilization, internal cost structure and market contribution rate) and

external (pricing sensitivity of customers, switching costs and barriers to entry)

decision-making factors highly influence the selection of the pricing strategy. Factors

that are also taken into account in pricing strategy set are international experience,

technological dimensions of products, degree of internationalization, market share and

environmental determinants.

Forman (2004) recognizes the cost-plus strategy as the most widely used pricing

strategy, because it provides the most accurate available information, internal cost

27

figures and risk avoidance mentality. Lancioni (2005) argues that an ethnocentric

approach limits the firm’s opportunity to grow and be profitable in the international

market, and this makes the cost-plus price setting vulnerable.

According to Hinterhuber (2008), authors’ pricing practices are contingent to

relative product advantage and competitive intensity. Intense competition serves cost-

based approach as the best practice well, but time of low competition it isn’t

recommended practice. High product advantage makes competition-informed pricing a

bad practice. On the other hand, customer value-based pricing doesn’t have these

limitations. It has been selected one of the best pricing practices by scholars, as seen in

Table 7 below. Thus, there is a lack of empirical evidence that value-based pricing

increases or cost-based pricing approach decreases company profitability.

Table 7. Adoption of different pricing approaches in industrial markets – a Summary of

published research (Hinterhuber, 2008)

Pricing approach Relative importance

Competition-based pricing approach 43 %

Cost-based pricing approach 37 %

Customer value-based pricing approach 17 %

Other 3 %

Shy (2008) continues to argue that profit-enhancing pricing is not cost-based.

However company’s ability to engage different customers to pay different prices, via

market segmentation or versioning (Pankaj, 2007), which seem to be identical services

is profit-enhancing. On the other hand, market segmentation by different groups of

consumer’s with different value appearing, leads to price discrimination in long run.

Cross (2005) segments customers by value perceptions and buyer behavior, because

significant profit potential comes from understanding the value reflected from product

of each customer segment. Focus is to predict how the customer will respond at the time

of the purchase.

Lancioni (2005) argues that industrial pricing, in particular, is a challenging and

complex field, and requires long-term strategic commitment, because numerous internal

(cost levels, profit maximation objectives, ROI levels, and capacity utilization levels)

and external factors (influences on international price setting include buyer sensitivities

to prices, barriers to entry, distribution infrastructures, and the economic trends in each

country). Christopher and Gattorna (2004) describe this challenging world by noting

that more value driven customers are consequently less brand or supplier loyal, because

of increased value consciousness.

Hinterhuber (2004) warns managers and firms of falling victim to two erroneous beliefs:

“Pricing is in the end a zero-sum game, in a way that what is gained by the firm is lost

by the customer and vice versa”

and

“Managers cannot significantly influence their industry pricing structure.”

He claims that assumption of higher prices and higher market shares are

incompatible is simply incorrect. Based on the research in consumer good markets,

Hinterhuber (2004) suggests that managers as price setters have a general tendency to

overestimate the importance of price for actual and potential customers. According to

Cross (2005), when the perceived value increases, the price should follow up too, but

28

often it does not. A gap - called “consumer surplus” - between what customers is willing

to pay and what he or she actually pays, forms. Furthermore, to acquire revenue

opportunity, there is also a need for an accurate assessment of who will pay what

amount at what time.

The core of value-based pricing (VBP) is that the supplier tries to identify the value

of commodity customer perceives and is willing to pay. Based on this knowledge the

supplier prices the commodity (Kulmala, 2006). However, in some cases before setting

the final selling price, some discounts or share of benefit, may be given (Fig 9). General

market-price may not be known for priced commodity.

Fig. 9. Principle of Value Based Pricing (Kulmala, 2006)

2.4.1. Hinterhuber functional framework for value delivery and VBP

Hinterhuber proposes a functional framework for value-based pricing, which consists of

five steps: (1) defining and communicating goals, (2) creation and delivering value, (3)

communicating value to the customers, (4) price level set and (5) implementing value

delivery and pricing strategy (Fig. 10). He continues by stating that customer needs can

change upon time, so pricing process has to be continuously developed, too.

29

Fig. 10. Hinterhuber model for value delivery and VBP

1) Clearly define and communicate goals

The first step is to choose goals that enhance the possibilities of long-term value

creation and company’s business or corporate level strategy. A firm may seek many,

sometimes mutually exclusive goals, such as market share, market share growth,

revenue growth, profitability growth, growth in absolute profits, share price growth,

growth relative to competitors, dividend growth etc. It is important to learn to link long-

term growth into these goals. In order to achieve the goals, internal consistency of the

firm has to be taken into consideration. Different approaches, rewards and motivations

between e.g. sales, marketing and finance department people, may create difficulties

when implementing organic pricing strategy. The sales manager tries to achieve market

share goals, while other’s goals are linked to profitability.

2) Create and deliver value

The framework for value creation is strongly tied to Hinterhuber six dimensions of

value delivery benefits (See Table 8). From the cost reduction’s point of view, direct

costs, acquisition costs and operation costs should be included too. These nine

dimensions of value creation form a framework for value creation and delivery.

Customer standpoint view the framework compares delivered value by a set of

alternative suppliers. From the firms’ point of view, this model helps the firm to

30

understand which factors influence the most in a rapidly changing business

environment. Hinterhuber underlines the importance of the ease of doing business, for

example, and it is not an option, it is a requisite. The firms’ ability to handle complaints

has a high impact on the firms’ overall customer satisfaction.

Table 8. Sources of benefits: Adapted from Hinterhuber (2008)

Source of benefit Example

Product quality Reliability, durability, environmental profile, safety

Delivery capabilities Delivery speed, delivery reliability, ability to deliver in

small lot sizes, delivery flexibility

Services Installation, application support, information,

customization, maintenance, repair, performance

guarantees, warranties, capabilities to operate plants on

behalf of customers, financial services

Ease of doing business Ease of ordering, ordering costs and time, responsiveness

to order-related enquiries, flexibility, reachability,

complaint-handling procedures

Vendor Vendor know-how, vendor competencies, new product

development, vendor personnel, capability to offer

solutions

Self-enhancement Social status, prestige, aspiration status

3) Communicate value

Hinterhuber notes that each of the following seven components emphasizes to

communicate value proposition for customer and effect on decision making too (Table

9). Economic value is more a trait than inherent component of a product, which

executives can and should manage. Hinterhuber (2008) claims that customer value has

a hard component; the sum of the price of the best alternative and soft component;

differentiation value, which is the subjective source of differentiating attributes to the

customer. He motivates to increase the value of the product perceived, to emphasize the

product’s unique value and create switching costs between products.

Table 9. 7 ways to communicate value: Adapted from Hinterhuber (2008)

Concept Consideration

Substitution effect Increase the value of the product perceived substitutes

Difficult comparison effect Render comparisons between products is difficult or

impossible to measure

End-benefit effect Relate the product to an important end benefit

Price-Quality effect Increase prices, when quality is hard to measure

Switching cost effect Create switching cost between products

Unique value effect Emphasize the products’ unique value

Fairness effect Be fair, because losses have larger negative effect than

gains

4) Set price level

To make profitable pricing decisions, four dimensions – company, customers,

competitions and channel partners – should be considered and analyzed (See table 10).

Cost volume profit analysis (CVP) is a tool to capture company’s internal-perspective,

31

competitive analysis to understand insight on competitive strategies, customer value

analysis to notice sources of value to customers and channel analysis to add in the

channel perspective in pricing. Before the price can be set, customers, channel,

competition and the company must be thoroughly analyzed. Core of analyses are; (1)

price affect volumes and profits, (2) competitors react to different pricing strategies, (3)

parameters to obtain channel support and (4) cost efficient but customer friendly

channel mix creation. The ultimate goal is to find out what the value of the product or

service is to different customer segments.

Table 10. Tools to analyze customer value. Hinterhuber (2008)

Tool to analyze customer

value Goal

Economic value analysis

(Conjoint, Fishbein, TCO)

The understanding of the sources of customer

economic value of product to different clusters of

customers

Cost volume profit analysis

(CVP)

The understanding of the implications of price and

volume changes on company profitability

Competitive analysis The understanding of trends in competitive pricing

product offerings and strategies

Channel analysis

The understanding of channel options, channel

functions, channel perceptions and the design of

instruments to win channel support

5) Implement value delivery and pricing strategy

Finally, after the value is assessed and created, the pricing strategy can be implemented.

With the information given by customer value analyses tools, the justification, the

magnitude (reduction) and the impact of price increase can be estimated. The key task is

to justify, communicate and implement these price changes proactively with

headquarters.

32

2.4.2 Storbacka’s solution business model

In order to satisfy customers’ needs and to create and deliver superior customer value in

solution business environment, definition and principles of solution business should be

first understood. Storbacka describes that solutions can be seen as individualized offers

for complex and unique customer-specific problems in a long period of time. On the

other hand it is compensated on the basis of the customer value-in-use. Nature of

solution business includes high degree of cross-functional and customer involvement in

business planning, but more collaborative and integrated management to product

business too.

Storbacka solution business model involves three core aspects: a process point of

view, a high degree of cross-functionality and a need for new capabilities and

management practices (see Fig.11). From a process point of view, solution process is

categorized into four phases: develop solutions, create demand, sell solution and deliver

solution. The cross-functional issues are divided into three groups: commercialization,

industrialization and solution platform. Commercialization issues are related to

customer interface, by referring to a provider’s ability to understand customer value

creating processes. This process is long-lasting, starting by much before the customer

purchasing process and ends after delivery of the solution. Industrialization capabilities

provide ability to effectively produce and deliver repeatable solutions. Repeatability is a

key measure and it provides integrated solutions to various customers. Learning

vanguard projects, project to project and project to organization are seeds to build new

capabilities. Solution platform capabilities (strategy planning, management systems,

supporting infrastructure and human resources), create support for an effective solution

business model. In order to build sustainable competitive advantage, investment to

solution platform is needed.

Fig. 11. Storbacka solution business model framework

33

Table 11. Develop solutions (Value research & solutions development)Storbacka (2011)

Com

merc

iali

zati

on

Value research

Regular planning is carried out with customers, firm uses research methods to

define what is valuable for customers, a goal of the firm is to initiate innovation

together with selected customers, customer value is quantified in an early phase

of the solution development, lead customers are involved in idea creation and

solution development, there are contract models for lead customer involvement

Ind

ust

riali

zati

on

Solution development

Solution development is focused on customers' processes and financial drivers,

there is an ability to close the gap between customer needs and the firms'

offerings, there is a hierarchical solution structure (e.g. standardized components

defined), standardized solution components are coded in the ERP or PDM

system, rules for structuring solutions permit flexible adaptation to customer

situations.

Solu

tion

pla

tform

Strategy planning

Solution business vision and goals have been defined by top management, the

financial impact of solution business has been estimated to be significant, focus

markets for solution business are defined (e.g. customer groups, industries,

geographical areas), there are defined segment strategies business goals are set

and followed up), solution portfolio management is in place (what solutions to

develop, invest in, drop, launch, outsource etc.), the total risks associated with

different contracts are assessed regularly.

Table 12. Create demand (Value proposition and solution availability). Storbacka (2011)

Com

merc

iali

zati

on

Value proposition

Segment specific value propositions have been defined, the role of sales &

account management is to work proactively with customers already before they

send out a RFQ, the firm co-operates with industry associations to leverage its

own visibility, product managers' campaign plans are developed with sales

management

Ind

ust

ria

liza

tion

Solutions availability:

There are predefined solution configurations for all segments, the documentation

of configurations is based on results from earlier deliveries, solutions are priced

based on value to customers, there are guidelines for differentiating prices

between segments/customers, the performance level that the solutions make

possible for customers is specified, the sales and account management

organization is regularly updated about the availability of different solutions

34

Solu

tion

pla

tform

Management system

The organizational structure enables sales to work efficiently with other

functions, the customer dimension is visible in the organizational structure, the

current roles and responsibilities enable team work cross-functionally, and new

roles (e.g. Solution Manager, Solution Architect or Solution Integration

Engineer) have been established, metrics have been defined for measuring and

managing solution business

Table 13. Sell solution (Value quantification, solution configuration) Storbacka (2011)

Com

merc

iali

zati

on

Value quantification

Customer specific value propositions are linked to customers' business concerns,

dedicated configuration tools are used to create customer-specific solutions, the

dialog with the customers' decision makers covers critical business issues and

the financial value associated with them, sales illustrates the value of the

solution to the customer, the same tools for quantifying customer value are used

across the firm, identified risks are factored into the pricing of the solution.

Ind

ust

riali

zati

on

Solution configuration

Configurators are used for configuring customer solutions, there are contract

models which support value based pricing of solutions, there is a systematic

value based pricing discipline for solutions business case analyses (from the

provider's point of view) are carried out, there is a centralized tendering unit that

provides support for making tenders, business control supports sales by with

standard costing data on solutions and individual solution components

Solu

tion

pla

tform

Infrastructure support

There are specialized intelligence people available to support sales with

analyses, knowledge repositories are used for gathering business intelligence,

customer/model contracts are available in a centralized library, legal support for

contract negotiations is provided (model contracts and/or centralized legal

advice), a CRM system supporting solution sales is in active use across the

organization, solution delivery is managed in the ERP system

Table 14. Deliver solution (Value verification, solution delivery) Storbacka (2011)

Com

merc

iali

zati

on

Value verification

The sales process ensures accurate input to the order-delivery-process, contract

handover to delivery enables quick ramp up of delivery operations, the value

created to the customer is regularly verified, true customer profitability is

measured and followed up systematically, references of solution delivery

projects are shared though a case repository, new solutions (for specific

customers) are documented in a way that they can be sold to other customers

35

Ind

ust

riali

zati

on

Solution delivery

A communication process enables the firm to get/provide information from/to

the

customer at the right time during delivery, delivery is monitored and corrective

actions are taken when delivery is at risk, network partners' roles are clearly

defined in contract models and templates, the interface and communication with

partners is clearly defined, solutions are developed in order to support the

customer's long-term value creation

Solu

tion

pla

tform

Human resources management

There are defined skill profiles for all the roles that relate to solution sales,

competencies needed in solution business have been identified, the bonus

scheme is aligned with company strategy, bonus schemes reward for cross-

functional teamwork (i.e. participating in sales case development, product

development), staff are provided with training in consultative and value selling

According to Sharma and Iyer (2011), the effective way to build competitive advantage

and differentiate offerings to competitors - without the damaging influence of price

competition - is to customize solutions. They conclude that solutions are individualized

offers that are interactively planned. Solutions components offer an integrative added

value by connecting products and/or services so that value is more than the sum of the

components for complex customer problems. Evanschitzy et al. (2011, 1) adds that it is

also an ongoing relational process in which a solution provider continuously satisfies a

defined demand.

36

2.5 Summary of theory

In this chapter, the clear bridge between the theory and empirical sections is created.

The most relevant and useful pieces of theory are listed. Because the concept of value is

very subjective, unique and complex, the conceptual content has to be determined quite

widely. The most important section of the theory is value research. It contains all the

data that is required to start the following phases: value proposition, quantification and

verification. First, value research searches how to create, quantify and communicate the

highest customer value. The firm researches what is valuable to the customer by

involving lead customers to regular planning. Value as a result of co-operation is

quantified in early phase. The sources of benefits are sought to: product quality, delivery

capabilities, services, eases of doing business, vendor and self-enhancement. When

understanding these sources the overall picture of customer value can be created. This

understanding is called segment specific value proposition.

Another focal topic of this thesis and for further study is value quantification and

verification. Case for quantifying value might be difficult, because some attributes are

hard to measure in money (safety, trust, reliability). A customer-specific value

proposition has to be linked to customers’ business concerns. With the help of dedicated

configuration tools and dialog with decision makers, makers, it is possible to illustrate

critical business issues and the financial value associated with them. These tools are

utilized everywhere in the firm. Tools to quantify monetary value of firm offering are in

the very core of pricing. These tools can either illustrate the benefit increase or cost

savings of a product or service. The most well-known customer-based tools are Conjoint

analysis, Fishbein analysis and Total Cost of ownership (TCO). Conjoint and Fishbein

analyses emphasize the benefits and TCO cost savings.

37

3 Empirical section

3.1 Scope

In this section, the theoretical value framework, adapted from mostly Hinterhuber and

Storbacka value framework, is tested in practice. The data, gathered and proceeded from

customers via survey questionnaires, is placed into this framework, which builds a

bridge between theory and practice (see Fig.12). Essential for this value framework –

and for product features, in general - are value research and value proposition phases,

which are carefully evaluated and gathered. The research questions of the thesis

determine the very first phase of the scope, which is to clearly define and communicate

the goals. The answer to these questions covers the core of framework. The customer

survey primarily focuses on value research, but also on finding the principles for value

quantification. The objective of value research is to find segment-specific importance

and actual usage of new product features. Value proposition summarizes the customer

needs and value of segment specific suggestion.

Fig. 12. Scope of thesis

38

3.1.1 Introduction to Konecranes world

Konecranes is an industry-leading group of lifting businesses that offers a complete

range of advanced lifting solutions to many different industries worldwide. Regardless

of customer lifting needs, Konecranes provides lifting equipment and services that

increase the productivity and value of customer business. For over 80 years, Konecranes

has been dedicated to improving the efficiency and performance of businesses in all

types of industry by continuously providing products and services that people can trust.

Konecranes possesses a unique source of global experience and knowledge combined

with local know-how to empower customer lifting solutions and to increase

productivity. Konecranes is today probably the world’s only single-source supplier of

experienced and intelligent lifting solutions on both local and global scale. The

company’s aim is to become the customer’s long-term partner and help to develop

customer business by providing the right lifting solutions and services at every step of

the customer’s growth.

Konecranes’ group strategy is based on the combination of capitalizing extensive

service network, leading technology, fast-paced industrial consolidation and focus on

efficient supply chains. Konecranes’ business mission is Lifting Businesses. Konecranes

wants to deliver the highest lifetime value for the customers, meaning maximizing the

productivity of uptime and minimizing the cost of downtime, see Fig. 13 below. Every

employee in Konecranes should strive for strong customer orientation and attitude to

help increase customers’ productivity and profitability. The company has two

operational models – Alpha and Beta. These both business models are the absolute

foundations of the company and its success. The role of Beta business model

(Konecranes Brand) is to combine the corporate offering though the entire life-time of

the equipment to serve Konecranes customers. Alpha business model (other brands)

offers a local industrial crane solution to customers to maximize the efficiency of

Konecranes equipment supply chain and to support growth with a local alternative to

Konecranes competitors.

Fig. 13. Konecranes customer value spread.

39

3.1.2 Industrial crane solutions (ICS) business line and segments

Konecranes has two business areas – service and equipment. Service business area is

divided into modernizations, parts, machine tool service (MTS), port service and crane

service business line. As for equipment business area, it is divided into business units:

light lifting, alpha, port cranes, lift trucks and industrial cranes, as seen in Fig. 14 below.

Industrial cranes’ business unit is divided into crane products, which means basically

smaller, standard and no pre-engineered crane products and crane solutions business

line, which contains large, customized and pre-engineered crane solutions. Measured by

money, projects in Crane solutions business line can rise up to tens of millions euro’s

investment, whereas in light lifting business line, the price of a crane can be a few

hundred euro’s. Konecranes has over 50 years of experience with heavy-duty lifting

applications across a wide range of process industries on every continent. This thesis is

done for crane solutions business line.

Fig. 14. Konecranes’ organizational structure

Regardless of business unit or line, Konecranes operates various customer segments,

such as Pulp and Paper, Power, General manufacturing (GM), Steel, Automotive and

Energy from Waste Industries. From the customer’s point of view, Konecranes not only

deals with the end customer, but also with many consultants, subcontractors or through

consortia. This thesis deals with a few direct end customers from the Pulp & Paper and

Steel Industry and one consultant, to get a broad spread of customer value.

40

3.2 Equipment assessment plan (EAP)

One focal outcome of this thesis was developing a tool to combine data and make data

analysis automatic. This tool is done by Microsoft Excel’s Visual Basic Application to

link questionnaire of product features, values and general importance to results in a

visual and demonstrating way (see Fig. 15). The basic principles for this tool are taken

from Konecranes Service’s Maintenance assessment plan (MAP), which is a tool to

measure customer satisfaction, cost savings and crane condition. History MAP tool was

first developed for outsourcing purposes, but later on components for customer analyses

have been added to the tool. Here, only the basic idea was re-used but the new tool was

made from zero to this form. Konecranes now has both tools – for Service and

Equipment business areas – which can measure either customer satisfaction and service

performance (MAP) or customer needs and importance to product features (EAP)

EAP is based around existing branded features, where the customer questionnaire is

established, with the help of a group consisting of Konecranes product platform and

sales managers and specialists. The questions are categorized automatically into value

drivers – product quality (usability of product, technical capacity and quality

production), financial values and environmental values (safety and ecological quality of

the crane), which are discussed in the theoretical part of the thesis. Financial values

refer to customer opinions about the purchasing price and sizes of crane components,

for example, but they are not mentioned separately in EAP. The purpose of the tool is to

show the differences between customer opinions and Konecranes’ internal view for

previous categories. The same analysis can also be done directly about product features,

by gathering questions that are feature based. Hopefully, the differences inspire further

investigation for reasons behind them and lead to possible improvements to product

development and sales. Visualization of tools can be seen in Fig.15 below. The results

shown below are hypothetical.

Fig. 15. Visualization of EAP tool for product features.

41

3.3 In-depth study with customers – Customer value framework

creation

The purpose of this chapter is to introduce every customer case one by one and collect

data gathered from the field to support theoretical framework. Every case has a very

specific nature, so many variables have to be taken into account. These variables are

introduced and explained in the introduction part of the case. As an example of

variables: two of the Paper Industry cases were also involved with new crane delivery

projects seen in Fig. 16 below. From research point of view, this may also influence

customer needs and attitudes towards new product features and correspond to

questionnaire answers, when the crane supplier is delivering a new crane in the near

future. On the other hand, in regard to the crane supplier, it is useful information to

know what the customer needs and attitudes are in advance to avoid setbacks. Fig. 16

below also presents the customer category and nature of the project in a rough timeline.

Fig. 16. 5 Customer Cases

Four of the customers were end customers, and one was a consultant. In total, 48

customers were interviewed personally and through a questionnaire. Persons from the

factories that were interviewed can be divided into three basic customer stages,

according to their job titles: operators (66.0% of the respondents), project people

(engineering, management and maintenance, 23.4% of the respondents), and purchasing

officers (10.6% of the respondents). In and output from the customer visit can be seen in

Fig. 17 below.

Case 3 Paper

factory

Case 4 Paper

factory Case 2 Paper

factory

Case 1 Steel

factory

Case 3

Case 4

t

Delivered projects Upcoming projects

Case 5 Consultant

firm

En

d C

ust

om

er

Con

sult

an

t

42

Fig. 17. Input and Output of the thesis

This chapter also consists of three other phases: value proposition, value

quantification and verification sections, which are more or less conclusions of value

research and an important field for further research.

3.3.1 Value research

Chapter distribution to sections is seen in Fig. 18 below. First, cases are introduced

briefly in order to gain understanding of the unique concept of customer value. Every

case has some similarities, but on the other hand there are many exceptions, which is

why they all have to be studied case by case. The section that focuses on need

recognition and purchasing decision making answers questions such as, what is

customer need for product cranes and product features and how do they do purchasing

decisions?

Fig. 18. Value research for customer values

43

Customer value spread section introduces the six most important concepts of customer

value, which were measured in this thesis. Those concepts are usability of crane,

technical capacity of crane, crane quality production, safety of crane and purchasing

price. Six core concepts are explained shortly in the table 15 below. Other values such

as importance of service and maintenance, frequency and quality of information, were

evaluated qualitatively, too.

Table 15. Explanation of concept customer value for crane business

Concept of

customer value Explanation

Usability of crane

Measures how easy and comfort the customer considers the

usage of crane and what is the importance of extra features to

usage. It means ratio of downtime/uptime to customer

Technical

capacity

Measures the need for load handling capabilities of crane and

speed for moving it

Crane quality

production Measures crane ability to contribute paper or steel production

Safety of crane Measures how crane performance, features and usage influence

safety of people and machines

Ecological quality

of crane Measures how important “green values” are in crane and overall

Purchasing price

Measures how important the customer sees the sacrifice of

lowest possible purchasing price compared to 5 benefits (above)

of crane

Lastly, actual usage and importance of product features are measured, when possible. A

few make an exception to this, because there are no specific product features on the

crane. In those cases, the importance of “fictional” product features is measured.

Case 1 Steel factory

Introduction to case

This case has great value for product feature framework from the usage point of view

(see Fig. 19). Many features, which are investigated, truly exist on crane. This steel mill

example should broaden the view of the thesis in segment-specific sense as well. Some

regularity in Pulp and Paper industry may occur in different ways or they cannot be

generalized to other industries. The data to this case was collected from 5 interviewees –

operators, engineers and purchasers - on customer side and several Konecranes Service

people. The purpose of the crane is to lift and transport coils between temporal coil

handling storage and further transportation points, which are end storage, trucks or route

networks. The overhead crane is operated by an operator from the cabin located on top

of the crane. The crane is in heavy process use, which makes it very critical for process

uptime.

Compared to paper factories, this crane is in a different kind of usage (passive

versus active) and in a different place (paper machine dry end versus storage area). The

factory is quite roomy, so the crane operator has a good visibility in the operating area.

Crane operators drive the crane fast and in a daring way. People’s attitudes are more

conservative and negative towards innovations and new product features than in pulp

and paper factories, which may distort results of the questionnaire.

44

Fig. 19. Overhead crane from Steel processing plant

Customers’ need recognition and purchasing decision making

The steel factory had purchased a new crane recently, which makes it a suitable research

target for this thesis. The crane was purchased because the previous crane came at the

end of its life-cycle. The new crane presents more developed technology in many ways

than the old one. The crane has a new cabin with many functions, several new features

and fresh and modern look. In particular, the cabin’s design was developed with co-

operation with crane operators in the purchasing phase. However, attitudes, habits,

fears, and many other factors make the crane operator feel unsure of him/her with new

functionalities of the crane. This causes resistance to change.

The crane operator wants to run the crane like in the good old days. It makes others

of customer organization e.g. project management or purchasing, difficult to drive

change, which isn’t operator-driven. Many innovations – either customer or crane

supplier side – have been disqualified because of this resistance. The benefits and cost

savings earned that are due to the new and good ways to do things should be justified

and communicated in an easily understandable way. This philosophy, which doesn’t

automatically emphasize technology push strategy, may force the crane supplier to shift

closer to market-pull strategy in order to sell more. To fulfill these kinds of customer

needs, the offering should be weighed carefully, when selling a solution.

Customer value spread

In the steel processing plant case, the importance of benefits can be seen distributed

quite evenly. The usability of the crane and safety in general are considered the most

important issues. During visits, ecological environment raised one controversial topic. It

was considered to be more important in the near future. This trend occurs in quantitative

data as well. Whether the crane is ecological is one of the vital benefits. The sacrifice,

which is the purchasing price, isn’t seen as the only criterion of evaluation. It can be

45

seen in Fig. 20 that the purchasing price shouldn’t be as low as possible. In this sense,

the need and wants are controversial.

Fig. 20. Average customer value spread for steel processing company

The attitudes of operators working in a steel processing plant were the most

conservative compared to the other cases in this thesis. Conservatism can be seen also

from quantitative data (Fig. 21), especially in operators’ point of view. All other values

except the usability of the crane, the safety and the ecological quality of the crane are

much lower than engineers’ and purchasers’ opinions. This gap may be explained by the

need for only specific kind of features from the operators’ point of view. On the other

hand, it can describe high resistance to change. This large gap inside the company may

also cause some contradictions between people. Either way, usability and safety are the

most important for all.

Fig. 21. Customer value spread per task for steel processing company

46

Actual usage vs. importance of product features to customer

Operators are frustrated with new features of the crane and aren’t willing to either learn

or use them easily. The case is so that when the operator notices any changes on crane

functionality which don’t seem beneficial in their opinion, they aren’t willing to even

try it. Visible and usage based features aren’t seen beneficial features in general.

Features that aren’t very visible to the crane operator get a good grade. Positioning and

area control, which, in people’s mind, are easily integrated to automation, are not

emphasized at all. Average importance and usage of positioning and area control

features is on low-low-section, which means it is not important for the customer and

hardly ever used (see Fig.22). Load control features are considered more important, but

actual usage is low. On average it means low-high-section. Nevertheless, judgment

based on impression of a crane feature shouldn’t be the only criterion.

Fig. 22. Customer value: Actual usage vs. importance to customer

47

Paper factory case 2


This case is certainly one of the most important ones of this work, because the critical

dry end crane truly includes many features which are actually investigated (see Fig 23).

For this reason, 22 people – 15 operators, 4 project engineers and 3 purchasing

managers – were interviewed. Three of them were from maintenance, which was

outsourced. The crane operates between dry end of board making machine and winder.

Its primary function is to turn the paper roll over and place it to the conveyor, which

moves the roll to the winder, and returns the empty pin to the starting point. Supportive

maintenance and storing work are needed occasionally. The crane is in critical process

use, because paper manufacturing shuts down without this dry end crane. This causes

many requirements for the crane.

The factory building is old and relatively low. This leads to the fact that the crane

doesn’t have much room to operate. The full roll diameter can be over three meters, the

length over seven meters and the weight 65 tons. However, there is only minimal room

on the sides. Because of its size, the roll has to be turned in a certain place, in order not

to damage structures. The operator needs to pay maximum attention to the work. High

accuracy is needed as well.

Fig. 23. Dry end crane in paper factory

48


The factory had purchased a crane recently, which made it a suitable research target for

this thesis. The reason for this crane purchase was asked from three purchasers

separately; where two were the factory’s own people and one was from an outsourced

maintenance company. According to interview data, three main categories for customer

needs in Paper industry were detected when making purchasing decisions:

1) Lack of crane capacity

Lack of crane capacity means usually that either load is becoming too heavy to lift or

lifting height is not sufficient anymore. This is indirect influence, caused by changed

customer process requirements or equipments. For example, a new roller on dry ends

may able the customer to manufacture larger and heavier rolls in paper industry. These

affect crane capabilities in a very direct way. When the paper roll diameter changes, it

becomes more difficult to lift the roll over the machine or to the next process point.

When the roof height cannot be raised, the crane structure has to be lowered.

2) Technology maturation

At some point, the old technology becomes maturated, risky or suppliers don’t provide

components to older cranes anymore. These factors push the customer to invest in new

cranes. Sooner or later, the customer is forced to make a purchasing decision, or

otherwise safety, for example, might become a bigger and more expensive concern.

3) Need for new factory or production line

This refers to a totally new investment to build a new factory. This category was

mentioned in the discussion by name, but experiences were lacking.

According to the project manager, this case was lacking crane capacity caused by

the new roller’s increased need for production capacity. It forced the paper mill to invest

in a new crane too. Otherwise, there would not have been an investment in a new crane.

The decision was made by two project managers and one maintenance manager. The

decision was justified not only by capacity issues, but also by cost savings. The old dry

end crane was placed in the middle of the paper machine, where the old maintenance

crane operated before. This old maintenance crane wasn’t in a good condition anymore.

So, now it is possible to do maintenance work one or two hours faster during

maintenance break. Normally, purchasing decisions are done in a group which consists

of project engineers, purchasing officers and a few operators, too. The price of the new

features was considered to be fair, but because of limited budget on the customer side,

not many features could be accepted. The overall package had to be modified a couple

of times.


The overall picture of customer value spread for measured benefits and sacrifices seems

quite straight-forward based on quantitative data; check Fig. 24. From the purchasing

point of view, quantitative data states usability, safety and technical capacity (seen Fig.)

to be the most beneficial. Based on qualitative study findings purchasing price had a

49

major role too. The purchasing price limited product feature acquirements and affected

the maximum level of benefits, too. The results of the interviews and the questionnaire

for operators and engineers strengthen the overall view of importance of benefits –

usability, safety and technical capacity – needed.

Fig. 24. Average customer value spread for paper making company

When the crane is very critical for the (paper making) process, usability seems to be

emphasized. The clock starts to tick instantly if the crane isn’t working between the

roller and the winder. If the crane stopped unintentionally in this factory, the

maintenance will have time from one to three hours to fix the problem, before the paper

machine has to be shut down. Time elapsing depends on roll positioning and the number

of rolls. Purchasers’ opinion only a small part of usability actually comes from product

features. Here, the level of usability means especially the uptime of crane. Safety means

personal and machine safety at both times and has a high importance. It is always

present, because all lifting movements in this factory are demanding, which is caused by

room limitations. The importance of technical capacity is emphasized too, because its

limitations were core of purchasing a new crane (see Fig. 25). Speed increase is not a

critical requirement from the process point of view, but sometimes occasions appear

where speed has a high value (e.g. when empty pins or hooks are transported long

distances). Crane quality production has some value too. The customer sees no added

value on quality production, but value decrease may occur. If the crane leaks oil and this

oil drops on top of the paper roll, there will be paper quality losses. The paper has to be

cut on winder and the damaged paper removed. Other material cannot fall off into the

paper machine either. Any speed decreases, caused by dirt, oil or mechanical

components are expensive for the customer.

50

Fig. 25. Customer value spread per task for paper making company

Actual usage vs. importance of product features to customer

The customer has many specific product features on the crane, which are used more or

less (table 16). Three categories were measured: load control, positioning and area

control and additional features, and they were all compared to observations regarding

their real usage. The actual usage of the additional features remained unknown because

it couldn’t be said if there were any at all. Anyhow, the importance to the customer was

measured, regardless of whether the usage was real or fictional. As seen in Table 16,

load control features are closer to high-high corner than positioning and area control

features, where the target is supposed to be.

The variance of the results is quite wide, which makes determining the average of the

category difficult indeed. The level of actual usage may be led by several reasons, such

as training (know-how), attitudes and trust. With the help of the interview, the crane

could be divided into three basic pools of know-how and attitudes; (1) has tried product

features and knows how to use them, (2) haven’t ever tried and is not willing to do so

and (3) tried, but did it wrongly. The influence of the category 3 to overall usage may be

remarkable, because this category was noticed to be big. The value of training should be

detected, because in the long run, trust is easily diminished when things are done

wrongly in the very beginning and the benefits of product features are easily forgotten,

when problems occur in general. The problem may be caused by external factors, which

influence perception of product features (e.g. beam straightness) indirectly. The

importance corresponds to the need for the product feature.

51

Table 16. Product features usage



The case differs from the previous ones in the way that the product features that were

investigated and evaluated don’t yet exist on the current crane (see Fig 26). The

company is purchasing a new crane at the moment, and it includes some new features.

The crane will be delivered and installed in the beginning of the year 2013. The features

for the crane are decided only roughly at the moment. This research focused on how

cranes are working in the papermaking line and what features could be important in

people’s minds. Two dry end cranes – which were installed 1987 – were investigated.

The first crane operates between the paper machine dry end and the reeling section, and

the second crane between the reeling section, the super calender and the winder. Cranes

are 75 tons EOT cranes. These cranes are very basic ones with no extra features. Basic

functions such as hoisting up and down movements and hook rotation are included.

Nevertheless, both cranes are critical in the process use, especially the one closer to the

paper machine dry end. In case of emergencies, there is also third crane in dry end,

which can substitute temporary primary dry end cranes.

The upcoming new crane features was simulated and communicated to customer

form of action research. The same form of questionnaire was also used, but

functionalities of the features were first explained. The customer requested to remove

Konecranes’ products from this research, because the customer hadn’t yet decided

which features would be included in the new crane package. High hopes, shouldn’t be

emphasized. However, operators’ needs, wants and values were researched. This case is

also very different from Case 2 from the factory layout point of view, because the

factory is very roomy in every dimension and cranes have a lot of space to operate.

However, it takes more time to move rolls from dry end onwards. The production line

from paper machine dry end to super calender is shown in Fig. 26. For this research, 13

52

people (including 10 operators, two project engineers and purchasing managers) were

interviewed.

Fig. 26. Paper making line dry end; reeler to supercalender


The reason for purchasing a new crane is not so clear in this case. Cranes are old but

still working quite well. The purchasing department is interested in an overall efficient

package, which consists of a crane with an adequate technical level for all kinds of

usage (load control, maintenance etc.) and right purpose. The attention is also on the

modernization of old cranes.). The purchasing price comes after technical level and

maintenance abilities. It has to be reasonable at the same time, because paper customers’

ability to pay seems to be decreasing, while resources are lacking too. The focus in the

conversation about values is changing from technical side to safety. Safety is a topic that

the customer is interested in overall, and the customer states that the crane manufacturer

can do its part in creation and communication. Trend for selection of crane supplier goes

closer to equality. The purchasing department states that in the past, 90% of the products

were purchased locally, but not in the future. Unlike in the previous cases, the operators

are very interested in new product features and willing to have them on the new crane.

Clear need for new product features can be recognized. Although, one should remember

that it doesn’t guarantee absolute usage and customer satisfaction. It is only the

beginning.


The overall picture of customer value spread for measured benefits and sacrifices seems

quite variable based on quantitative data, check Fig. 27. According to quantitative data,

safety and usability of the crane are emphasized. During interviews, safety was

highlighted very clearly. Unsafe moments, such as maintenance work on top of the

crane and malfunctions, are now minimized. A new, safer image was seen in marketing

53

and branding efforts of the factory. Clearly it was in people’s minds, too. Technical

capacity and quality production didn’t play a major role, but it did have some

importance too. Increase in technical capacity was not considered to add value, but was

as easily seen as a safety risk. Increase of quality production of the crane wasn’t

important but lacking was dangerous. For example, leaking oil from the crane could

cause a three-kilometer loss of paper. The ecological quality of the crane wasn’t

important at all but ecological values in the form of recycling were seen as important.

Based on both data collection forms, the lowest possible purchasing price is not

important. On the other hand, the cheapest solution shouldn’t be purchased. The

purchasing price was considered to have a relation to the product quality.


When comparing between operators, engineers, purchasers, a clear pattern can be seen.

Safety, technical capacity and usability of the crane were emphasized by all, but a wide

difference occurs in other categories. When safety is “the word”, the customer may

push the crane supplier to articulate crane safety more instead of technical features.

Quantification of safety seems to be the issue easily. Engineering bargains that safety

should be communicated somehow without numeric data. The responsibility of an

individual is emphasized by the engineering and purchasing crew, especially when

discussing personal safety and avoiding harms. Crane safety also influences personal

safety in a positive way, but in the end, the final decision is made by man.

The need for usability increase can be clearly detected in Fig. 28 and customer

interviews, but “the truth” isn’t as straight-forward when comparing customer

willingness to pay (see difference between importances of purchasing price). The

operator bargains that purchasing price shouldn’t be as low as possible, but the

purchasing department thinks otherwise. However, instead of focusing only on the

cheapest or the most expensive purchasing price in decision making, overall efficient

solution, which optimizes crane technical level, maintenance costs and purchasing price,

is emphasized. Beyond this thesis, the cost and performance of maintenance are very

important. Overall costs for product lifetime should be calculated too. Total cost of

54

ownership (TCO) is a philosophy that customer’ purchasing department emphasizes.

Opinions about quality productions of the crane vary a lot too. A clear bridge between

crane quality production influences and paper quality production wasn’t found. The

ecological quality of the crane wasn’t given much importance.


Customer importance towards new product features

Actual usage couldn’t be measured here, because any such features didn’t exist. A new

crane with these features will be installed soon. So, importance of crane features was

evaluated based on customers’ impression formed by thesis conversations. Such

importance presents the customer need. Fig. 29 shows a big gap between operators,

engineering and purchasing people. The scale is from one to four. One means “not

important at all”, two “has some importance”, three “is quite important”, and four “is

very important”. When evaluating pure need, critical review is needed. A few factors

such as awareness of negotiations for new crane purchasing, understanding of new

features and attitudes may partially explain this gap. The new crane operators’ high

hopes could boost the actual need for new features. On the other hand, engineers and

purchasers may know that not many features will be purchased, so the actual need was

pushed down. Nevertheless, the fact that the operators gave a high importance rating for

new features indicates a reformist attitude, which is surprising and controversial

compared to Case 1 and 2.

The result of the need analysis was that operators and purchasers consider load

control features to be the most important on average (see Fig. 29). Engineers emphasize

positioning & area control and additional features, instead. The operator has a need to

drive and control the load him/herself, not automatically. This may explain the gap

between load control and positioning and area control. Any feature that would boost the

operator’s quality or performance of lifting the load on his/her own is emphasized. A

mutual trend for feature groups cannot be recognized between operators, engineering

55

and purchasing people. Lack of unity makes it difficult to position a product, which

satisfies everyone. However, inside of feature groups, some indications of similarities

could be seen. From the sales point of view, these indications or tips can be marked as

possible leads.

Fig. 29. Customer importance towards product features



This factory’s cranes have only modernized (see Fig 30). New cranes, with new features

don’t yet exist there. However, old cranes are close to the end of their life-cycle, which

makes this case very relevant to this thesis, especially by learning new ways to

understand the customer need for new investments. It’s also unique because the

customer doesn’t know much about new features, which gives a strong base for need

recognition.

Two cranes, which were the most critical in process and for maturation, were

investigated in this thesis. These cranes operate between paper machine dry end and

intermediate roller, coater, super calender and winder (see Fig. 30). The factory had a

long and roomy production line after the paper machine, which caused the need for

more than one crane. Those cranes are very basic ones with no extra features. Basic

functions such as hoisting up and down movements and hook rotation are included. In

case of emergencies, there is also third crane in dry end, which can temporarily

substitute primary dry end cranes. The same form of questionnaire was also used here,

but the functionalities of the features were first explained. For this research, seven

people, four operators and three project engineers, were interviewed.

56

Fig. 30. Dry end cranes of paper making company


Here, need recognition starts with evaluating the condition of the old crane, because the

solution isn’t crystal clear yet; upcoming investments can at this point be either crane

modernization or purchasing of a new one. The factory’s own crew and crane supplier

evaluates the risk level of the crane’s mechanical and electrical components and steel

structure. The need for a new crane is discussed with production and purchasing

people, too. After that, the design and development unit consisting of production, R&D

and maintenance people begin to prepare a budget and investment proposal. Here,

funding for such investments is not applied locally. The crane supplier can affect the

customers’ decision makers through its service and maintenance networks, by creating

and communicating need to the customer proactively.


This factory’s value spread seems to be more fragmented compared to other paper

factories of this thesis. According to quantitative data, only usability of the crane and

safety a bit, too, are important in operators’ and engineering people’s opinion, see Fig.

31. It is interesting that other benefits and sacrifices are placed on same level. Usability

in this factory means that the crane is in the right place, in the right time. Easiness of use

or new features doesn’t play a major role in usability at all. Safety is always both

machinery and personal safety, but here safety means more machine safety (at least to

engineers). From the operator’s point of view, personal safety is emphasized too, but it

clearly doesn’t have such a strong image in people’s minds as in Case 3.

57

The purchasing price shouldn’t be the lowest possible. The customer also values

information about maintenance and usage history of the crane and need for spare parts.

The customer is interested in doing calculations for total cost of ownership (TCO), but

in this case, it happens to be difficult because of lack of data. Crane data is lacking from

their own product data systems. That’s why it is needed from the crane supplier.


When comparing between operators and engineering people, a clear pattern can be seen

only in importance of usability of the crane and in technical capacity (see Fig 32). For

engineers, safety, quality production of crane, ecological quality of the crane or

purchasing price isn’t as important. Both quantitative and qualitative data indicates the

same. The gap of importance of safety is almost frightening especially, when

engineering knows crane steel structure conditioning already. Crane quality production

doesn’t have any added value for paper making process sense, but quality losses may

occur if doesn’t work or if it leaks grease or oil. Technical capacity in terms of speed

has added value for some users, because this factory is exceptionally roomy and lifts

can be long lasting. Operators bargains that the purchasing price shouldn’t be as low as

possible, but engineers think otherwise. Due to the lack of experiences in crane

purchases, here monetary opinions must see quite subjectively. The ecological quality of

the crane wasn’t given high importance rating.

58


Customer importance towards product features

Actual usage couldn’t be measured here either, because any such features didn’t exist.

Anyhow, the importance rating of these yet “fictional” features to the customer was

measured. As seen in Fig. 33, there is a large gap between operators and engineers.

During engineer interviews, new features weren’t emphasized too much. Some people

had previous experiences of some kind of new feature try-outs, but they weren’t

successful. New features were easily seen as problems and as something that slows

down the process, instead of in a value-adding way. Also, attitudes towards future usage

of any new features threw a shadow upon new product concepts.

The results of the interviews and the survey questionnaire show that there is some

kind of need for a few new product features among operators. Fig. 32 shows that a clear

need for load control features exists. The operator may feel that the best accuracy and

easiness to use cannot be gained with the existing crane. The same trend of previous

cases continues here with positioning & area control and additional features. It may be

so that the crane supplier faces many challenges, in these sorts’ factories, before the

actual usage is on a high level. However, some indications of similarities were noticed

inside of feature groups and turned to possible leads.

59

Fig. 33. Customer importance towards product features

3.3.2 Value chains - Consultant firm case 5

In this case, one factory construction/layout representative of a Finnish consulting

company was interviewed. Company works with crane supplier end customer, much

before when crane supplier relationship to this customer exists, or inquiry to any crane

manufacturer is proposed (see Fig. 34). This case usually exists when new production

factories e.g. in pulp and paper industry are executed. Before purchasing the crane, new

factory layout and production line has to be planned first. Production line designing

includes decisions on e.g. hall’s main dimensions, beam pitch, number of production

machines and cranes and spans of the crane needed too.

Fig. 34. Value chain and directions of interactions between parties

In the very beginning, the consultant gives a rough estimate of the investment costs

to the customer. This is called as preliminary study. When time goes by, the consultant

may start to do pre-engineering, which aims to give a highly accurate budget offer to the

customer. At the end of this phase, factory layout and equipment are more carefully

planned and the crane supplier joins to the game. Usually, the end customer makes

inquiries to the crane supplier in order to ask for an offer of the crane. This is the

60

moment when the consultant, end customer and crane supplier start to co-operate.

Consultants’ and crane suppliers’ functional relationship ends in crane installation. Until

then, the consultant has the responsibility to support both parties.

In order to support proactive behavior, the relationship to the consultant should be

formed before the upcoming project, because the relationship has many valuable usages

in many phases of the project. The consultant can be the first advisor for the end

customer to suggest also the selection of the crane manufacturer (information sharing is

crucial in order to make the right selection, e.g. in terms of engineering) in the early

phase of the project). Information sharing of technique (span, dimensions, load) and

customer need has great value in tough competition.

Value chain sense the relationship to the consultant can be seen as external value

chain, as Parolini (1999) sees it. Parolini argues that an example of this kind of activity

would be pre-sale to the customer. On the other hand, Cove and Salle’s (2008) theory

that value chains are a set of services supporting the customer’s action is also relevant to

this case. From the customer’s point of view, the consultant, who gives advice to the

most potential crane supplier, does this kind of work. Crane supplier can determine

features of pre or before purchase activities.

61

3.4 Key findings and value proposition

The most focal and segment-specific customer values and product features are presented

here. Two different value propositions are presented, one for Pulp and Paper Industry

and another for Steel Industry. Value proposition is the comparison of benefits and

sacrifices when deciding which things really matter. The customer-centric view suggests

that the most important customer values should be taken into consideration in the firm’s

own processes in the firm’s own processes. Value proposition is a guideline and “the

best guessing” that is used especially in product development, marketing and sales, and

centralizing resources to the right things at the right time. Based on value proposition,

the company can plan a strategy for achieving its goals.

The first value proposition for paper factories is presented below in Fig. 35. Every

case was unique when measured by either crane usage, number of respondents,

attitudes, knowledge or values. Determination for one value proposition has to be done

carefully and all the differences have to be acknowledged. Case 2 weighs a lot for the

thesis, because the crane was configured with many important new features. This is why

over 20 people were interviewed to get a broad view. The opinion of 15 crane operators

and the importance rating that they gave for these features can be seen in Fig. 35 in the

actual usage section. Not all crane operators had tried all the features, but still, most

users had a pretty wide usage-based view. Therefore, it can be stated that customer need

for load control features was measured to have the highest importance. Additional

features were least important as a group. In cases 3 and 4, customer need cannot be

based on such solid ground (essence of usage) because no new crane features were

purchased to those cranes.

Anyhow, the cases weren’t fully identical in terms of impressions of product

features. A new crane is coming soon to Case 3 factory, which made some interviewees

challengeable to say their opinions based on first impression only. Both results are

gathered to model under impression only, see Fig. 35. The actual usage and impressions

of product features are identical. The conclusion at first glance could be that the

impression beforehand and actual usage are relational and that customers are satisfied.

But those two are separate cases, which makes it impossible to say so. More important

is to search for reasons why points for feature groups are so low and how important

values should be utilized to these feature groups. The relationship between

benefits/sacrifices and product features are the core for customer value creation. Overall

attitudes towards new product features in pulp and paper industry were very fragmented

and conservative, especially in Cases 2 and 4.

Possible changes in customer attitudes because of the study were weighed too, but

the influence on total results is considered to be low. Possible attitude changes caused

by group pressure were minimized by interviewing participants one by one. The

customer values usability of the crane and safety (personal and machine) a lot, but it

can’t be stated directly in Fig. 35 that it is achieved with new product features.

Conversations with customer turned easily the other way around. New features were

considered to be the cause of more problems in the way that they actually decreased

usability and safety of the crane. Actually, reasons behind these statements varied a lot.

In many cases, there was a lack of knowledge of how to use new ways to do things.

New features were used in the wrong way, which caused added-value break-downs.

Tightened frequency and value of information could help to prevent this problem. Those

factors are closely connected to customer relationship management (CRM). Need for

better product was communicated via importance of purchasing price, which was

62

considered to have high importance. Fig. 35 shows that lowest possible crane shouldn’t

be purchased.

Fig. 35. Value proposition for Pulp and Paper industry

Value proposition for Steel Industry indicates many similarities in comparison to Pulp

and Paper value proposition (see Fig. 36). It includes completely the same elements,

too. Here, only one Case is analyzed, which has to be remembered when proposing “the

segment-specific truth”. In terms of crane usage, number of respondents, attitudes,

knowledge or values, this case had some specific characteristics too. The actual usage of

product features is critically measured here too.

Results indicate that increase in usability and safety of the crane is also the most

important matters. Segment-specific difference can be seen in importance of crane

quality production. Steel industry crane performance, usage and the way of driving

influence the end product quality. Partial explanation comes from nature of crane use,

because in 24/7, heavy process use where components are lifted and positioned with

hurry, quality losses are possible. Crane quality production is easily tied to coil quality

production. In the steel process factory case, ecological quality of the crane seems to

have a relatively high importance. The general attitude towards recycling and green

values may cause this kind of behavior, but any indications for the need for more green

values in practice couldn’t be detected.

Crane usage and attitudes go hand-in-hand. A heavy process-use crane operator

needs to drive the crane fast, which makes attitudes really conservative in relation to

change. Change means the necessity to learn something new. Learning takes time. Time

– until a new and better way is learned – is out of productive working. Attitudes towards

a topic like automation can cause deeper resistance to change when strong emotions

(like fear of losing a job) are deeply involved. New features are accepted only if the

operator doesn’t notice their presence. However, Fig. 36 shows that load control

features are the most important ones. Operators feel that he/she does the job better

personally.

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Fig. 36. Value proposition for Steel industry

64

4 Discussions

The research problem of this thesis was to understand what is valuable to Pulp & Paper and

Steel customer, and what the actual usage of a new product feature concept is. Moreover,

the quality of a new product feature concept was measured. This research answers to basic

questions like “what is important” and “how important”. By means of 10 different customer

visits and after 48 interviews with factories in two months, cause-effect relationships are

formed. First, Chapter 4.1 presents conclusions of value research by combining theoretical

and empirical results. Here, the author answers to the research question based on customer

information. Next, Chapters 4.2 and 4.3 deal with validity and reliability of the research and

suggestions for further research, thereby evaluating the quality of this thesis and need for

further study.

4.1 Answering the research questions

4.1.1 RQ1: What is valuable for the customer?

Like mentioned in the customer value proposition chapter, the customer rates the

importance of safety and usability of the crane very highly. The crane operates on top of

people and machines, which always makes it a risk factor. Any dropping of material

(bolts, knots or oil) can be fatal for a human but also cause quality and production

losses, e.g. three kilometers of oily paper. The customer is more concerned about how

often the crane operates during up and downtime of production and which way.

Usability of the crane means ratio of downtime / uptime of crane. Usability is also seen

through easiness and convenience of use, but not to a very high degree. Reliability and

trust are interrelated with safety and usability of crane.

The customer demands a 100% usability ratio, especially in Pulp and Paper industry

during both and up and downtime. The cost of production (not to speak of human lives)

is very high but willingness to pay for it varies. Usability has great market potential but

it is difficult to concretize and communicate as added value. Customer refuses to see the

added value. Trust is a much wider concept to the customer than only technical

specification of the crane. The customer may have some difficulties with interpreting

information of the crane easily and isn’t satisfied with frequency of information, which

makes him/her concerned and suspicious. At the moment, the customer only wants a

reliable and safe crane, with basic settings. This may mean shift from technical side to

safety.

65

4.1.2 RQ2: How is the need for new crane and feature purchase born?

According to value research, three major reasons for a new crane purchase have been

revealed: (1) lack of crane capacity, (2) technical maturation or (3) need for new factory

or production line. Nevertheless, production methods are being developed in factories,

which results in a need for higher production capacities. In such cases, the crane lifting

capacity may become limited as well, and the need for modernization or a totally new

crane installation suddenly appears. Crane technical maturation poses a threat for safe

use of the crane. Nowadays, a safety risk opens a potential market window not only for

an investment in a new crane, but for new features sales to the customer, too. Often the

availability of spare parts to a crane with old technology becomes harder too, which

pushes the customer into investing in a new one.

The need for new product features isn’t born automatically in any of these cases.

Something needs to happen first. One action is a new crane investment, which creates

an opportunity for the crane supplier to market new product features to the customer.

Another focal action is a fatal accident in a factory. Accidents mean that the safety

hasn’t been on such a high level. The crane supplier can help the customer to reduce

future risks, by offering new solutions to increase safety and usability of the crane. This

kind of situation helps crane operators to get their voice heard, because the management

is forced to listen. However, the seed for change must be set proactively because the

operator is not willing to use any new product features easily if the initiative doesn’t

come from themselves.

4.1.3 RQ3: What kind of new product features are of great importance to

the customer?

In the research, three categories of product features – load control, positioning and area

control and additional features – were investigated. The need for specific group of

features varied a lot between the cases. Also, it has to be noted that respondents’ view of

the importance of new product features was based mostly on actual usage in Cases 1

and 2, whereas in Cases 3 and 4 it was only based on impressions (see Table 17). The

importance rating for new product features without actual usage resulted in more

positive scores.

Anyhow, load control features generated the biggest interest for both segments. This

finding corresponds with both quantitative and qualitative data. Based on quantitative

data (questionnaire), load control features were considered approximately 10 percent

more important than other feature groups. Interviews supported the fact that crane

operators resisted automation of the crane, which had a major role in positioning and

area control features. Additional features had some good qualities, which was seen

especially safety and information increase. There was a difference between the

importance of passive and active features. Overall, the customer need of new product

features was a lot more narrow than expected. Many of the features weren’t considered

to add value but an increase in malfunction. The crane seems to be only a tool for the

customer.

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Table 17. Importance of new product features

Feature

Mostly actual usage Impression only

Case 1: Steel

further processing

plant

Case 2: Paper

factory

Case 3:

Paper

factory

Case 4:

Paper

factory

Load control Quite high Quite high In the

middle Quite high

Positioning and

area control Quite low In the middle Quite low Quite low

Additional

features Not known Quite low Quite low Quite low

4.1.4 RQ4: What is the actual usage of new product features?

This question can be answered based on the results of only cases 1 and 2 (see Table 18.).

The results of the steel plant (Case 1) show that the actual usage of new product features

is lower than in the paper factory (Case 2). Case 1: Positioning and area control features

weren’t used basically at all. Features that improved safety had some value, but only

when automation wasn’t connected to the conversation. On the other hand, automation

wasn’t “a curse word” in the paper factory, because they really had difficulties to

position a roll to the winder or side to the paper machine. The difference between the

cases is that the Steel plant’s crane operators were full-time crane users, but in paper

factories only half-time or partial, because their main responsibility area was to take

care of the paper machine in many ways. Full-time and partial crane operators may have

different fears of losing their jobs because of automation. Anyhow, some positioning

and area control features were quite important for paper factory workers in many ways.

The nature of crane usage in Case 1 varies a lot from Case 2 by how much and

which way the crane is used per day. Steel plant operators don’t want a lot of new load

control features either, because it decreases their efficiency for a moment. They refuse

to do their work faster and more effective, if it cannot be seen in monetary terms too.

All they need is stability. However, they are willing to accept features that are passive

but help them to drive the crane as they want. Passive features usually mean that they

don’t have to learn anything new. Safety issues in the paper factory require looking at

things bit differently, at least from the engineering and purchasing point of view. Some

features are used with no suspicions in the paper factory, while steel plant operators

refuse to use them at all.

Table 18. Actual usage of feature groups Case 1 and 2

Feature Case 1: Steel plant Case 2: Paper

factory

Load control Quite low Mid-high

Positioning and area control Low In the middle

Additional No features Not known

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4.2 Validity and reliability

Here, validity and reliability of the research is evaluated. Konecranes has launched the

concept for new EOT crane features only a few years ago, which makes it an interesting

subject to observe now. The product is one of the most important ones for Industrial

Cranes Business Unit and made this research very valuable.

Reliability refers basically to the question of whether this research discussed the

right things in the right way. Reliability inside of this research is evaluated by a small

discrete reliability survey. The difference between the qualitative and quantitative data

was measured by simply changing both to same numerical form. When the feature was

mentioned to be important in the discussion, it got 4 for this evaluation part. Because of

the difficulty to determine a numerical form for “not very important “ features, only

important features in the discussion took part in this reliability survey. The hit rate for

over 3.5 points was 47 %. The explanation for the fairly low hit rate can result from the

nature of discussions, which didn’t focus on going through the exact importance of

every 20 feature one by one, because of time limits.

The reference group for this reliability survey was selected from a crane applications

team (3 persons), because information change and feature need recognition was most

wide during this thesis. The difference was calculated for each individual of the group

and was identified to be from 5.6 % to 15.6 %. The total difference between data

gathering form was 11.25 %, in case of reference group. This difference means 0.45

points on a 4-step scale. Basically it means that when product features were mentioned

in the discussion to be “really important” they were quantitatively in the middle of

“quite important” and “really important”.

4.3 Further research

Already during thesis process it was evident that there are plenty of opportunities for

further research. The thesis covers basically two first phases, value research and value

proposition of Hinterhuber (2008) and Storbackas (2011) value framework (see Table

19). Value research for new product features would need further research, in order to

show its validity and reliability globally. This research focused only on national

markets. More knowledge from developed and emerging markets would be useful.

Segment specific value proposition to China markets could be of great value.

Value quantification and verification would be the author’s proposal for onward

studies (see Table 19). This thesis has shown why it is important to research how to

communicate value. The value of product features has to be converted into numbers.

This is very challenging when thinking of e.g. safety. How can one say in a reliable way

that “dear customer, your safety is increased by 15% with the use of Feature X”.

Anyhow, this knowledge is useful to sell solutions with high confidence and gross

margin in the near future.

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Table 19. Hinterhuber’s and Storbacka’s operational model for Value-based pricing

Thus far, the research is only level of commercialization of customer value.

Basically it means that basic notions of customer value is researched, but further actions

are planned. Further actions should utilize this model everything, which is related to

solution making. Basic industrialization is already done, but further development could

mean the use of more segment-specific knowledge. Much farther is to set value-based

thinking to human heads, office routines and tie to all activities. The difficulty is to do

the attitudinal change from cost-based approach to value-based approach.

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5 Conclusions

This research is situated between market research and product development.

Konecranes has an existing concept for new product features, but now its market

potential was investigated. Before this thesis, there were assumptions of the state of new

product feature usage and importance to the customer, but now customer insight is

captured. Konecranes offerings bottlenecks for customer value creation are detected.

During the customer data gathering, the author also noticed in practice how far the

customer data is from customer value. To have customer insight means far more than

was expected. Existence of barriers – like conservative attitudes towards innovations,

false impression and knowledge of the crane and fear from the customer side – make it

difficult for the crane supplier to gain superior customer value. This thesis proved that

superior customer value isn’t automatically achieved, but is a long and patient process.

Actually, one of the most important outcomes of this thesis is simply becoming

more aware of problems related to usage of new product features. The shift from

customer data to customer knowledge is needed in order to drive a change to a more

customer-centric direction. Here, customer knowledge should be seen as the better

understanding of what is valuable to the customer in crane business. According to the

results, the customer values especially the increase in usability and safety. The customer

is probably the most willing to accept the crane supplier’s new feature solutions if they

increase those specific qualities. However, the main issue is that the customer resists

seeing the added value of usability and safety through new product features in these

cases. Those values usually refer to simple and reliable cranes, rather than high-tech and

intelligent cranes at the moment.

Solutions – which makes operators’ life easier and more comfortable (also causes

engineering (1) less complaining and (2) decrease the need of maintenance and spare

parts, which means (3) cost savings and (4) impression of safety increase to purchasing

and management) – do have a natural market pull when the crane supplier is capable of

communicating the value to the customer in a practical way.

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Appendix A

No. Question: How important is it that...

1 A crane has better positioning accuracy and shorter cycle time because the load or hooks obey the operator's

steering without swaying.

2 New crane operators learn their work faster because they need not learn to prevent and eliminate the sway

manually

3 The general safety of people and equipment improves with sway control

4 The work can be done faster, when necessary, with sway control, which increases the length of coffee or

lunch break

5 A load can be moved 2 to 10 cm at a time with a press of a button

6 The load can also be moved at a micro speed

7 The bridge beam does not sway or shake when lifting a load

8 The crane's steel structure, mechanical components, ropes, lifting gear, and rail last longer because the crane

is more stable

9 The crane reduces jerking and bouncing at the beginning of lifting, when starting

10 The objects handled are not damaged when ropes are inadvertently operated too low

11 The crane can be programmed so that the lowering motion slows down automatically when the load is close

to its final destination

12 The load management cycle is optimized so that the lifting motion stops as soon as the load touches the

ground

13 The lifting beam stops when it encounters the floor or the surface of a roller, so there is no risk of rolling

down from the top of the roller

14 A double lifting and lowering speed is achieved when operating with a light or empty load

15 The size of mechanic or electronic components does not increase when the speed increases (lack of space and

appearance factors)

16 An extended speed range is a standard feature in all cranes

17 After stopping, the crane responds to a command without delay

18 The load does not tilt when lifting with two hooks

19 When lowering a load with two hooks, its both ends reach the rail, frame or floor at the same time

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20 Operating the hooks at the same level saves time

21 Safety limits are defined for a load that is lifted and moved regularly

22 The operating limits help prevent crane movements in areas with valuable or easily breakable objects

23 Collision with immovable objects is prevented electrically, so the operator can work by merely providing a

directional command

24 The crane is programmable so that the load will not bump into other fixed production machinery or structures

25 The blocking of protected areas can easily be cancelled

26 The aim of semiautomatic positioning is to decrease the risk of accidents

27 Automated final positioning replaces manual positioning

28 The operator can send a load to an indicated location at a safe height by a press of a button

29 The crane will carry out the final positioning once the operator has taken the load within two meters of the

goal

30 The work cycle shortens because the crane automatically identifies the positioning area

31 The crane is only operated manually from start to finish

32 It is not necessary to clean or replace resistors and motor drives do not cause disturbances in the electrical

power network

33 The crane is ecological

34 The crane helps save electrical energy

35 The operation of two different cranes can be synchronized

36 The weight of a load can be read on a display

37 The crane automatically decelerates when it detects another crane on the same trajectory nearby

38 The purchase of a crane provides personal benefit, such as personal gain (bonuses), own competence or

reputation is emphasized

39 The benefit a company gains from a crane purchase is as high as possible (increased turnover, improved

efficiency)

40 The crane is as cheap as possible

41 The personal sacrifice arising from the purchase of a crane is as low as possible (risks, uncertainty, unpleasant

decisions, delay)

42 The crane has high quality production ability, that is, it has a direct of indirect positive impact on the quality

of a product or the image of a company

43 The crane provides safety

44 The crane has high technical capacity (speed and load weight)

45 The crane brings cost savings to a company

46 The usability of the crane is at a good level (reliability, serviceability and maintenance support performance)

Customer value framework for EOT crane product features (9-11-2012)

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