Monetizing Innovation

"How you charge trumps what you charge." Flip the traditional process.

"How you charge trumps what you charge." Flip the traditional process. Most companies develop products, then try to figure out how to price them. This leads to a 72% failure rate for new products. Instead, determine what customers value and are willing to pay for before designing the product. This approach: Increases chances of market success Ensures features align with customer needs Avoids overengineering or underpricing Allows for more accurate revenue projections Examples of success with this approach: Porsche Cayenne SUV LinkedIn's InMail and Talent Solutions Michelin's pay-per-kilometer tire service

"If you don't do it early, you won't be able to prioritize the product features you develop, and you won't know whether you're building something customers will pay for until it's in the marketplace." Gather crucial customer insights. Early willingness-to-pay (WTP) conversations provide: Validation of market opportunity Guidance for feature prioritization Prevention of the four types of monetization failures: Feature shocks (overloaded products) Minivations (underpriced innovations) Hidden gems (overlooked potential) Undeads (products nobody wants) Methods for WTP conversations: Direct questioning Purchase probability scenarios Most-least preference analysis Build-your-own product exercises Purchase simulations Key tips: Frame as "value talks," not pricing discussions Ask "why" frequently to uncover deeper insights Analyze distribution of responses, not just averages Combine qualitative and quantitative research

"Like it or not, your customers are different." Avoid one-size-fits-all solutions. Effective segmentation: Guides product development for specific customer groups Enables tailored value propositions and pricing Maximizes revenue potential across segments Steps for effective segmentation: Analyze customer WTP data Identify distinct needs and value perceptions Group customers with similar characteristics Validate segments with sales team input Segmentation pitfalls to avoid: Segmenting too late in the process Relying solely on observable characteristics (e.g., demographics) Creating too many segmentation schemes Example: A paper company identified four distinct segments based on customer needs and WTP, leading to targeted product offerings and improved profitability.

"Bundling helps you determine whether your products and/or services should be sold together or separately." Optimize feature sets and combinations. Strategic product configuration and bundling: Aligns offerings with segment needs and WTP Maximizes value capture across customer groups Simplifies decision-making for customers Key principles: Leaders, Fillers, and Killers Leaders: Must-have features driving purchase decisions Fillers: Nice-to-have features with moderate importance Killers: Features that may deter purchase if forced upon customers Good, Better, Best (G/B/B) options Creates clear value differentiation Appeals to price-conscious, quality-conscious, and compromise-seeking customers Ideal distribution: 30% good, 70% better/best (with at least 10% best) Tips for effective configuration and bundling: Align with customer segments Limit complexity (max 9 benefits or 4 products) Ensure mutual benefit for company and customers Avoid giving away too much in entry-level offerings…