Field Notes 1: Quantifying the value proposition of your product

Two days ago, I went on a field visit to a farm in Telengana, near Hyderabad, India. Yes, this was a real visit to a field! I was meeting a farmer who was growing tomatoes using a greenhouse designed and sold by an ag tech startup called Kheyti, co-founded by my former Kellogg MBA student Saumya . She and I co-authored a Kellogg case study a few years ago about the early days of Kheyti, so it was great to see the product on the ground.

The value proposition of the Kheyti greenhouse product is simple yet compelling – “to improve the economic well-being of small farmers by generating a higher and more predictable crop yield”.?

But product managers need to do better than simply defining their value proposition in conceptual terms. They need to define their value proposition in economic terms by quantifying the benefits of their products. Let us see how to do this for the Kheyti greenhouse.

The first step is to identify the key economic benefits of the product. Each benefit should be defined in terms of three elements:

1.?????The definition of the benefit

2.?????The source of the benefit

3.?????A metric for the benefit.

Each benefit statement for your product should be written as: “Benefit X, due to Source Y, measured in terms of Metric Z.

Each benefit statement for your product should be written as:
“Benefit X, due to Source Y, measured in terms of Metric Z.        

For protected cultivation, there are five key economic benefits:

1.?????Improved crop yield, due to faster crop maturation and healthier plants, measured in terms of number of crops per year and tons per acre per crop.

2.?????Reduced variability of yield, due to protection from drought, excessive rain and excessive heat, measured in terms of reduced probability of crop loss from adverse climate conditions.

3.?????Improved crop quality, due to lower percentage of “off-grade” tomatoes, measured in terms of lower price discounts for off-grade tomatoes.

4.?????Improved price realization, due to ability to produce vegetables off-season, measured in terms of higher price per kilo.

5.?????Reduced pesticide consumption, due to protection against pests, measured in terms of reduced cost of pesticide use per acre.

The next step is to conduct customer discovery to quantify the benefits. In some cases, the benefit can be quantified precisely. In other cases, the quantification may have to be subjective. My advice on quantification:

• Aim for the highest precision in quantifying the most important benefits
• Start with your best subjective estimates for each benefit and use customer data to validate and refine the estimates over time.

Here are the quantified benefits of protected cultivation:

1. 50% higher crop yield, due to the ability to harvest 4 crops per year instead of 3 crops, as well as 12.5% higher yield per crop (1.125x4/3).
2. 75% lower probability of a crop loss of 50%, which happens once every three years, which translates into 12.5% higher yield (0.75x0.5x0.33).
3. Elimination of 30% off-grade tomatoes in the crop, sold at 20% discount, which translates into 6% higher yield (0.3x0.2).
4. Improved price realization of 20% per kilo, due to “playing the off-season market”. Incidentally, the farmer told me that prices of tomatoes can range from 10 Rupees per kilo to 100 Rupees per kilo in the same year, so "market timing" is a key profit driver.
5. 25% lower pesticide cost, which is 10% of total cost of production, translating into 2.5% lower cost.

Finally, we add up the benefits in terms of the total economic impact. In our example, the total economic benefit is = 50+12.5+6+20+2.5 = 91%. This is the “bottom line” of the value proposition. The quantification exercise allows Kheyti to make a precise claim - "our greenhouse product will improve the income from growing tomatoes by 90%”. If the farmer sells tomatoes at 25 rupees per kilo and produces 2,000 kilos of tomatoes without the greenhouse, the incremental crop yield (1,800 kilos) is worth 45,000 rupees The greenhouse costs about 100,000 rupees, which yields a payback period of about 2 years.

To quantify your value proposition, first identify the key benefits of your product. Next, quantify each benefit in terms of economic metrics. Finally, estimate the total economic value for the customer by adding up the dollar value of the economic benefits.        

This real-life example shows how product managers can quantify their the value proposition of their products by identifying the key benefits of their product, quantifying each benefit in terms of economic metrics, and calculating the total economic benefit for the customer.

In the next post (Field Notes 2), I will use the Kheyti example to illustrate how to use the Jobs to be Done (JTBD) framework.