Monetizing Innovation: How Smart Companies Design the Product Around the Price
by Madhavan Ramanujam
Hikers want to be safe, so they need a device to navigate the wilderness. Runners want to improve their performance, so they need to track distance, time, and speed. People driving cars want a GPS device that tells them where the traffic is. Golfers need to navigate a course in as few strokes as possible and choose the right golf club (to avoid sand and water). They need a device that tells them how far they are from the pin (so they can use the right club) and where the sand and water are. It's hard to imagine one device (no matter how brilliantly engineered) that would please all Garmin customer segments. As a result, Garmin makes a variety of navigation devices. It could have easily created a feature shock product by designing a one-size-fits-all handheld or wearable GPS product. Instead, the company used sensible segmentation to develop multiple products. That approach makes total sense. Does our product development team have serious pricing discussions with customers in the early stages of the new product's development process? If not, why not? What data do we have to show there's a viable market that can and will pay for our new product? Do we know our market's WTP range for our product concept? Do we know what price range the market considers acceptable? What's considered expensive? How did we find out? Do we know what features customers truly value and are willing to pay for, and which ones they don't and won't? And have we killed or added to the features as a consequence of this data? If not, why not? What are our product's differentiating features versus competitors' features? How much do customers value our features over the competition's features?
We see this scenario over and over again: A company guesses what customers will value about its product and what they'd pay for it. Don't just hope; find out! Amazon could have found out whether customers valued the 3-D features in the Fire Phone. Validate feature value and willingness to pay, and you'll build far more successful products.
The most important aspect of moving to a “design the product around the price” innovation process is finding out as early as you can whether customers value your innovation and would pay for it. You can only determine customers' WTP by actually asking them—not by imagining what they will say.
“What do you think could be an acceptable price?” “What do you think would be an expensive price?” “What do you think would be a prohibitively expensive price?” “Would you buy this product at $XYZ?” Then follow each question with the most powerful question of all: “Why?”
New products fail for many reasons. But the root of all innovation evil—what billionaire entrepreneur Elon Musk would call the set of “first principles”—is the failure to put the customer's willingness to pay for a new product at the very core of product design.
You need to create segments in order to design highly attractive products for each segment. And you must base your segmentation on customers' needs, value, and WTP. This way, segmentation becomes a driver of product design and development, not an afterthought.
"Hikers want to be safe, so they need a device to navigate the wilderness. Runners want to improve their performance, so they need to track distance, time, and speed. People driving cars want a GPS device that tells them where the traffic is. Golfers need to navigate a course in as few strokes as possible and choose the right golf club (to avoid sand and water). They need a device that tells them how far they are from the pin (so they can use the right club) and where the sand and water are. It's hard to imagine one device (no matter how brilliantly engineered) that would please all Garmin customer segments. As a result, Garmin makes a variety of navigation devices. It could have easily created a feature shock product by designing a one-size-fits-all handheld or wearable GPS product. Instead, the company used sensible segmentation to develop multiple products. That approach makes total sense."
"Does our product development team have serious pricing discussions with customers in the early stages of the new product's development process? If not, why not? What data do we have to show there's a viable market that can and will pay for our new product? Do we know our market's WTP range for our product concept? Do we know what price range the market considers acceptable? What's considered expensive? How did we find out? Do we know what features customers truly value and are willing to pay for, and which ones they don't and won't? And have we killed or added to the features as a consequence of this data? If not, why not? What are our product's differentiating features versus competitors' features? How much do customers value our features over the competition's features?"
"actually have found that monetizing failures fall into only four categories: Feature shock: cramming too many features into one product—sometimes even unwanted features—creates a product that does not fully resonate with customers and is often overpriced. Minivation: an innovation that, despite being the right product for the right market, is priced too low to achieve its full revenue potential. Hidden gem: a potential blockbuster product that is never properly brought to market, generally because it falls outside of the core business. Undead: an innovation that customers don't want but has nevertheless been brought to market, either because it was the wrong answer to the right question, or an answer to a question no one was asking."
"Of course, part of what Porsche asked these potential customers about was their willingness to pay (WTP) for the cars. This, too, went above and beyond the industry's typical customer research. Most automakers only gather customer perceptions, asking such questions as, “Do you like the car overall, the front, the interior?” or “How do you like this feature?” and “Would you be interested to buy?” But they typically don't take the next crucial step and ask the WTP questions (as we explored in Chapter"
"Figure 10.5 Adobe Creative Cloud's Messaging for Each Customer Segment Source: www.adobe.com/creativecloud.html For Adobe's Individuals segment, the messaging includes “getting all the creative apps” and “being able to search 45 million stock images and videos.” For the Enterprise segment, Adobe's messaging is “customized provisioning deployment,” “enterprise level support,” and “streamlined license management and deployment.”"
"We see this scenario over and over again: A company guesses what customers will value about its product and what they'd pay for it. Don't just hope; find out! Amazon could have found out whether customers valued the 3-D features in the Fire Phone. Validate feature value and willingness to pay, and you'll build far more successful products."
"The most important aspect of moving to a “design the product around the price” innovation process is finding out as early as you can whether customers value your innovation and would pay for it. You can only determine customers' WTP by actually asking them—not by imagining what they will say."
- →We see this scenario over and over again: A company guesses what customers will value about its product and what they'd pay for it. Don't just hope; find out! Amazon could have found out whether customers valued the 3-D features in the Fire Phone. Validate feature value and willingness to pay, and you'll build far more successful products.
- →“What do you think could be an acceptable price?” “What do you think would be an expensive price?” “What do you think would be a prohibitively expensive price?” “Would you buy this product at $XYZ?” Then follow each question with the most powerful question of all: “Why?”
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