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
5
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.
13
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
16
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
(Gustafsson et. al., 2000)
Deciding form of input data, metric or non-metric
(Prasad et. al., 2010)
Estimation of benefit values
(Gustafsson et. al., 2000)
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
Introduction to case
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
Customers’ need recognition and purchasing decision making
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.
Customer value spread
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
Paper factory case 3
Introduction to case
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
Customers’ need recognition and purchasing decision making
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.
Customer value spread
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.
Fig. 27. Average customer value spread for paper making company
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.
Fig. 28. Customer value spread per task for paper making company
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
Paper factory case 4
Introduction to case
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.
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Fig. 30. Dry end cranes of paper making company
Customers’ need recognition and purchasing decision making
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.
Customer value spread
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.
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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.
Fig. 31. Average customer value spread for paper making company
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.
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Fig. 32. Customer value spread per task for paper making company
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.
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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
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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.
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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
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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
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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.
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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
74
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)
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