Hitting the sweet spot: How to optimize product cost and value

By Jochen Gleisberg, Oliver Knapp and Lukas Hofmann

Achieving – and maintaining – product profitability while satisfying customer requirements is no easy task. Manufacturers currently face a growing list of challenges to their product margins, from escalating material costs to changing customer preferences and more intense low-cost competition.

Companies can address these challenges by optimizing the balance between product cost and value. Applying a holistic design-to-value approach can help identify the ideal level for your product offering.

Finding the sweet spot

Product cost optimization isn’t just about cutting costs – it’s about finding the sweet spot for any given product. This is the price range that customers are willing to pay according to their ideal value proposition. By optimizing product cost, features, and pricing towards the customer's sweet spot, companies can achieve higher product margins while increasing customer loyalty and market share.

To identify the sweet spot, companies need to consider three perspectives: market, value, and cost.

Market optimization focuses on a holistic understanding of market dynamics and customer preferences to obtain a product’s optimal positioning.

Value optimization involves balancing cost-effective engineering parameters with requirements management as early as possible in the product development process.

And cost optimization requires a cross-functional analysis of all efficiency potential across the entire value chain, from design to service.

The four-step project approach

Roland Berger’s holistic four-step project approach covers the entire product optimization process, from product selection to implementation.

1. Product scoping and planning: We start by determining product parameters, identifying competitor products, and reviewing product data.
2. Sweet spot definition and ideation: We then conduct market and value analyses, set the product price range and cost targets, and identify optimization levers and potential.
3. Idea validation and measure detailing: Product-teardowns, cost calculations, and detailed benchmarking kick off step three. Then we increase measure maturity with areas such as savings potential, timing, business case, and feasibility.
4. Implementation ramp-up: Finally, to prepare for roll-out, we prioritize measures, assign ownership, set up teams, define key activities, and fix a timeline.

This four-step product optimization approach has enabled us to deliver significant results for clients from a range of industries, including cost savings of up to 40% and revenue increases of up to 15%.

Sustained business success

Effective product cost optimization requires a balanced approach that considers cost reduction, customer satisfaction, and market positioning. By implementing a comprehensive cost optimization strategy covering a range of methodologies and tools, companies in the engineered products sector can optimize product pricing and cost efficiency, leading to sustained business success.

If you’d like to learn more about how we can help you identify the sweet spot for your products, join our webinar on June 26th from 5-6 pm CET. Click here to register for the webinar.

We look forward to sharing our expertise and experience, and helping you optimize your product cost and value.

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