Solving Price Sensitivity With Value Engineering and Lean Development

Muthukumaran Kanniappan November 6, 2015

Price_sensitivityIn today’s bustling global marketplaces, ensuring your business’s price competitiveness can help you influence market price sensitivity with value engineering in your favor, which is essential for maintaining any advantages your products have opposed to others in the same market.

Between initiatives to optimize product quality, cost and time-to-market, achieving the right balance between consumer demand and supply (the ideal point just above price equilibrium that proves most profitable) often seems like an unattainable dream; an ideal goal, or company benchmark, that’s difficult to determine and even harder to reach.

The most effective ways to reduce price sensitivity for products currently on the market revolve around how consumers perceive those product lines and their value.

Things like brand loyalty, perceived value, market monopolization and environmental compliance all affect the price sensitivity of your products; by making overall manufacturing more affordable and reducing high costs at various stages of the product lifecycle, companies can more flexibly tend to these tasks, and reduce their sensitivity throughout.

In this article, we’ll break down the major factors to price sensitivity within various manufacturing industries, as well as introduce innovative ways your company can reduce this sensitivity within the product development lifecycle. Initiatives such as value engineering and lean product development can be everything your company needs to achieve the fastest time-to-market and most successful product cost optimization (PCO).

Price Sensitivity Toward Your Company’s Products

Generally, consumer price sensitivity held toward your products is determined by a few main elements, which are as follows:

  • How consumers relate your product price tag to value; what value does a consumer gain from spending such a price, and how do changes in this price affect the perception of value?
  • Company branding
  • Your company’s ability to adjust price based on ongoing market trends, competition and new technologies
  • Comparable market offers; can consumers purchase similar quality alternatives elsewhere, at lower cost?

PCO solutions (globalization, standardization, lean development, etc.) are best implemented with specific cost areas and stages within the product lifecycle in mind. For equipment manufacturing and industrial machinery sectors, price sensitivity is largely determined by perceived ROI; when faced with multiple, comparable products or equipment solutions, consumers will generally make buying decisions based on their familiarity with a company’s brand and bottom line price.

This is where PCO solutions fit into the price sensitivity equation: strategically implemented for key cost areas within development, your company can significantly reduce the costs of certain high priority goods, and in turn adjust their market price to build and sustain revenue.

Just like your own budget for manufacturing goods, your consumers will have their own spending limitations. This is why it’s so important for manufacturing companies to optimize their own costs with various PCO solutions. With lowered engineering cost, your company will be able to adjust the price tag of its products for market sustainability.

For the price sensitivity problem in particular, value engineering and lean product development often prove to be the most effective practices for strategically managing cost.

The Influence of Value Engineering and Lean Development

Value engineering, as it relates to manufacturing price sensitivity and market strategy, is the practice of using lower cost part alternatives throughout your company’s manufacturing process.

This substitution eliminates much of the unnecessarily high costs associated with mass volume product manufacturing, while retaining a standard of quality; working in tandem, these factors often generate the reduced price sensitivity companies need to sustain market standing.

Lean product development, in simple terms, is the holistic use of linear manufacturing processes, which simplifies development and helps companies see huge reductions in time-to-market.

Each practice, when used to improve control over price sensitivity for your company’s product lines, has a rippling effect on other spending areas within your product development. For instance, with full implementation of value engineering methodologies, you can expect to see the following for your business:

  • Functionally identical, more affordable part alternatives used throughout manufacturing can help your company see vast reductions in material cost
  • These alternative solutions also extent current product lifecycles and create expanded opportunities for manufacturing simplification
  • Improved reengineering capabilities and reduced part count at no effect to manufacturing/end product quality
  • Improved cost-efficiency for materials used

On the other hand, lean product development brings its own positive effects for cost optimization. This includes:

  • Limited risk of product defects, accompanied with high efficiency part procurement for a much reduced time-to-market
  • Synergy between product designers, engineers and the technologies both parties use
  • Simplified floor-level engineering that gives companies a firmer grasp over their costs (and in turn, their price sensitivity)

Being able to adjust product prices flexibly to accommodate for sensitivity is essential to sustaining your company’s market performance. PCO practices, such as value engineering and lean development, make managing price sensitivity not only possible, but also profitable.

Cost-Reduction-Through-Value-Engineering

Topics Product Cost Optimization Competitive Advantage Product Development Solutions