In his keynote at this year’s Manufacturing Innovation Summit, Dr Peter Colman – a partner at the global pricing strategy consultancy, Simon-Kucher & Partners – explained the importance of designing a product around price.
During a packed day of roundtable conversations, Dr Peter Colman took to the stage to deliver his Manufacturing Innovation Summit 2018 keynote.
Innovation is the most important driver for growth, Colman noted. Consequently companies spend significant expense designing new products/services, yet most struggle to hit their financial targets. What do smart companies do differently to achieve commercial success?
Colman’s presentation was built around four numbers: 1.7, 72, four, and nine.
Global R&D investments currently total US$1.7 trillion (that’s 11 ‘zeros’)! That’s a monumental number, and is higher than ever, Colman commented.
The companies with the highest innovation expenditure in 2016/17 include: Amazon, Alphabet (Google), Intel, Samsung, VW, Microsoft, and Roche.
On average, Colman continued, only 28% of new products meet their profit targets. That creates a strange paradigm, because on the one side you have huge investment, yet on the other you have many products failing to hit target.
When it comes to innovation, hitting targets is vital, he noted, as the profits made are typically reinvested to fund the next product or development.
Colman offered a case study comparing the Dodge Dart and the Porsche Cayenne. The Dodge Dart was reportedly designed without customer WTP (willing to pay) at its centre. As such, it had a ‘disastrous sales performance’ and was quietly discontinued in 2016, he warned.
The Porsche Cayenne, however, is the ‘most profitable car in the automotive industry’ and the most important model in Porsche’s portfolio; with the 73,000 units sold in 2015 accounting for around 50% of its total profit that financial year.
Despite Porsche’s lack of experience in the SUV/family car category, despite the model being inconsistent with its brand at the time (speed, daring, power, engineering), the success of the Cayenne demonstrates what can happen when you put customer WTP front and centre.
“Every single aspect and feature of the Cayenne was tested with customers as to whether they were willing to pay for it,” Colman noted.
According to Colman, there are only four types of innovation flops: Feature Shocks (over-engineered or have the wrong features), Hidden Gems (have potential, but not recognised widely), ‘Minivation’ (under-priced or ‘under-volumed’), and Undead (born to fail).
Colman offered nine steps for innovation success – challenging delegates to integrate as many of them as possible into their NPD processes:
- Have the WTP talk early
- Segment – one size fits all doesn’t work!
- The Core – product configuration and bundling
- Monetisation model – how you charge trumps what you charge
- Pick the winning price strategy – skimming versus penetration
- Outside-in business case – move from hoping to knowing
- Value communication – the product as such is not sufficient
- Use behavioural pricing to fine-tune
- Maintain your price integrity
His closing words were that there are three kinds of companies:
- Those who make things happen
- Those who watch things happen
- Those who wonder what happened
Which one accurately describes your business?