Acquisition Efficiency For Units Help
Acquisition Efficiency Definition
Acquisition efficiency exists when a unit of your Offering economically performs better than a comparable unit of a Competitor and when the Customer chooses to realize the benefit of this performance by purchasing less of your Offering.
Examples: For chemicals or ingredients producers, it is often the case that their differentiated product is more efficient per pound or per liter in their customer’s production process or recipe. A more efficient hospital device or diagnostic or a more reliable or durable building product can result in efficiencies by reducing the need of a B2B customer to purchase as much product. For durable equipment producers, acquisition efficiencies occur frequently when one system or machine is more productive than its competitor. In all these circumstances, there is a source of value that may result in different amounts purchased or different product acquisition behavior.
Acquisition efficiency is a source of value, but unlike other value drivers the amount of value that the customer gets depends on purchase prices of your Offering and the Competitor.
Identifying Acquisition Efficiency
LeveragePoint will identify Acquisition Efficiency in the Units & Currency dialog if the conversion inputs for the Competitor Unit and Offering unit indicate a relative performance advantage (or disadvantage) that changes purchasing behavior.
Let’s illustrate using a simple example of paper towels. Your offer,” Super Towel”, wipes up twice the amount of spills versus conventional towels- an obvious performance advantage. Stated differently, a customer only needs to use half as many Super Towels (versus the conventional towels) to clean up identical spills.
So in this case the inputs in the Units & Currency dialog will look as follows:
The two display options for this example are illustrated below.
When acquisition efficiency is displayed (right-hand chart), the low end of Differentiation Value area is set below the reference value. Here the reference value of the Competitor (conventional towel) is $0.04 per spill (2 towels at $0.02 per towel). If the super towel offer were also priced at $0.02 per towel, it would provide the customer $0.02 of value per spill because of its performance advantage (remember, 1 super towel is equal to 2 conventional towels). In this case, the customer would receive 100% of the acquisition efficiency.
Note that if super towel is priced higher, say $0.03 per towel, this display would not change. That is because at this part of the process, we are only interested in the total Differentiation Value provided. Later, in the Value Communications tool, Price tab, you will see how the acquisition efficiency and Differentiation Value are split between the customer and captured value. So at the $0.03 price, the acquisition efficiency would be split 50/50 between the customer and us (value captured). But the overall acquisition efficiency and Differentiation Value do not change.
Hiding the acquisition efficiency (left-hand chart) is a better option if you intend to price systematically in a way that captures ALL of the acquisition efficiency for us. In this case, we would expect to later see other value drivers to stack on top of the reference value. Here, the low end of the Differentiation Value is set at the top of the reference value, the high-end at the top of the value driver stack and presumably the super towel price somewhere in between.
Another Simple Illustration
In the previous example, both the Competitor and Offering ostensibly use a unit of measure with the same name, “per towel” (even though conventional and super towels perform quite differently). In many cases however, Competitor and Offering units will be differently named; for example, per pounds versus per kg, per box versus per roll, etc.
Tweaking the previous example a bit, let’s change the Competitor unit of measure from “per towel” to “per meter” and the Offering unit of measure to “per foot”. So in this case the inputs in the Units & Currency dialog will look as follows:
Note the new section that shows the conversion factor between the Competitor and Offering unit of measures. Everything else works the same as in the earlier example. Note how important it is to have a customer unit of measure to display value
Other Acquisition Efficiency Considerations
Customer responses to potential acquisition efficiencies: When there is potential acquisition efficiency, the customer may realize the benefit of that efficiency by purchasing fewer units of your product than of the competitor’s product. But purchasing less of your good is not the only way the customer might benefit. There are other possible customer responses to improved productivity that may result in different ways to quantify value. Consider the example of more productive equipment. In some circumstances, an equipment purchaser may capitalize on greater productivity by buying the same number of units of the more productive piece of equipment to increase production capacity. In this case the customer probably anticipates that greater capacity (resulting from the better equipment) generates greater revenues and higher profits. This may be entirely quantified as a Revenue Value Driver.
In contrast, a customer with a factory production line designed to produce a fixed, pre-specified output capacity may capitalize on more productive equipment by reducing the units of equipment acquired to produce that fixed capacity. This would naturally be quantified as an Acquisition Efficiency. There could also be situations in between, for example a comparison between purchasing competing pieces of equipment for a fixed capital budget. When Acquisition Efficiencies are potentially involved, it is usually best to start with a simple, natural assumption about how customer purchasing behavior responds to this kind of differentiation. Nuances and other possibilities can come later.
EVE: Acquisition Efficiency Value Drivers
EVE: Wielding a Versatile Tool for Clear Customer Math