Dr Peter Colman explains that when it comes to innovation, smart companies design the product around the price.
Innovation is the most important driver for growth, and so companies spend significant time, effort and money developing new products.
Unfortunately, their chances of commercial success are slim – our research at Simon-Kucher reveals that 72% of new offerings either fail outright or miss their financial goals.
The good news, however, is that the same research shows that companies don’t have to accept those odds. By understanding the four types of new product failures they are more likely to avoid them. We refer to the four failure types as: ‘feature shocks’, ‘minivations’, ‘hidden gems’ and ‘undeads’.
Feature shocks: new products that are over-engineered
These tend to happen when product development teams fall in love with their product and forget about the customer. They cram in too many or the wrong features, therefore increasing costs without understanding whether customers want them, or more importantly whether they are willing to pay extra for them.
With high costs and no willingness-to-pay insights, they resort to a cost-plus price level that is too expensive. When sales volumes fail to materialise, panicking management teams start offering deep discounts, which rapidly erodes profitability. The price is normally blamed, when really, it is the process that is responsible.
Minivations: products that sell themselves short
These are created by product developers who failed to realise how much value their offerings provided to customers. They grossly underestimated how much customers would be willing to pay and consequently undercharged; forgoing large profits that often they weren’t even aware were available.
Hidden gems: would-be winners that don’t leave the starting gate
These products are brilliant ideas that are viewed as anything but brilliant at the top of the companies in which they are born. Senior management don’t recognise the value of the product for its intended audience, and therefore the company puts the product in limbo for too long – not killed, but not launched.
Undeads: destined to become zombies
The undead products either came to market dead on arrival or are products that still exist in the market place, but for all practical purposes are non-existent. These are products a company should have never launched – either they are the wrong answer to the right question, or an answer to a question no one asked.
How to avoid the traps
There are several ways to avoid these traps, the most important of which is having pricing discussions with target customers long before the product development team begins to draw up the engineering plans.
Shockingly, 80% of companies don’t have this type of discussion. Those discussions need to focus on what features customers truly care about and whether they are willing to pay for them. This then allows companies to design the product around the price.
Further reading and case studies can be found at: monetizinginnovation.com
Dr Peter Colman leads the UK Technology & Industrials Practice at Simon-Kucher & Partners, a global consulting firm specialising in TopLine Power, which encompasses strategy, marketing, pricing, and sales.
Founded in 1985, the company now has 1,000 professionals in 33 offices worldwide. Simon-Kucher & Partners is regarded as the world’s leading pricing advisor and a thought leader.