Profit At Risk Node
The Profit At Risk node is designed to take a set of Products in a Market and determine how easy or difficult it would be for Competitive Rivals to win those Customers away.
A Vendor’s Revenue stream from a Product Portfolio that could be easily reduced by a Competitor offering a simple Price Discount is a Competitive Weakness. Similarly, a Competitor who can attract customers away from the Vendor’s Product Portfolio by simply increasing the Marketing or adjusting the Positioning of the Competitor’s Products is an example of a weakness in the Vendor’s Product Portfolio.
On the other hand, a Vendor’s Product Portfolio that is impervious to the Discounts of other competing Products is a Competitive Strength. If a very substantial Discount were offered by a Competitor, or even if the competitive Product was offered for free, Customers would continue to buy the Vendor’s Products.
Product Portfolios with Competitive Strengths offer a unique and differentiating value that is more important to Customers than a cheaper Price.
Product Portfolios have different strengths and weaknesses with respect to different Competitors. For example, luxury Products may only be threatened by other luxury Products, and not by mainstream Products.
A Vendor is threatened by Competitors who can easily attack and reduce their Revenue and Profitability. This node calculates the degree of threat the Vendor has from every Competitor in the Market.
But a Vendor also has an opportunity when it is easy to attack and reduce the Revenue and Profitability of a Competitor. This node calculates the degree of opportunity the Vendor has with respect to every Competitor in the Market. Vendors are advised to protect their weaknesses while exploiting their opportunities.
In addition, the Profit At Risk node also generates a number of Willingness To Pay (WTP) metrics which can be used to generate the following charts:
- Blue Ocean: The Blue Ocean chart plots Price against WTP and identifies gaps in the market where new Products can be Profitably placed.
- Value Created: The Value Created chart plots Profit against Value Created. Value Created equals WTP minus Cost. When a Vendor improves a Product but at a Cost, that Vendor may not have created any additional value. The Value Created chart visualizes how effective a Product is at generating Profit and guides a user to determine whether to increase the Value or lower the Cost of that Product.
Profit At Risk
The Profit At Risk node is designed to take a set of Products in a Market and determine how easy or difficult it would be for Competitive Rivals to win those Customers away. A Competitor may design a coupon that precisely identifies those Customers who would have bought the Competitive Product offering the exact value that would induce the Customer to switch.
Input Product Array
The set of Products that define the Market. Each row corresponds to a Product that competes for customers in the Market.
Input WTP Matrix
The Willingness To Pay (WTP) Customer Distribution matrix for each Product column in the Market by each Virtual Customer row. The total number of Virtual Available Customers is equal to the number of rows in the WTP Matrix.
The user can specify the size of the ‘Top-N’ Products Bin. This ‘Top-N’ bin is used within the Output Value Gap to describe which Customers are at risk of switching to one of their Top-N alternative Product choices. These Customers will then be used to calculate the Value Gap in Consumer Surplus between the Purchased Product and the Rival Products.
Blue Ocean Chart
The Blue Ocean chart plots Price against WTP and identifies gaps in the market where new Products can be Profitably placed.
The average Value Gap between the Purchased Product and each Rival Product that falls within the ‘Top-N’ bin. The size of the ‘Top-N’ bin is set in the Value Gap Options. The Value Gap is measured as the difference between Consumer Surplus of the Purchased Product and the Rival Product.
Profit At Risk
The number of Virtual Customers that the Competitive Rival would take from the Purchased Product if the Competitive Rival were to increase Value (or lower Price) by the ‘Value Change’.