For many entrepreneurs, the process of creating and launching a new product or service is intense and intimate. Often, you’re so passionate about the idea that you believe its merits will be self-evident to prospective customers; that the innovation is so obvious and exceptional that it will sell itself. Confidence is good — until it gets in the way, causing you to forget (or neglect) one pivotal step in the process: monetization.
Some see monetization as dirty work, detrimental to true innovation. After all, why should big, bold new product concepts be hampered by stopping to ask for a price check? But if you don’t design your product around price — if you don’t understand how much your customers are willing to pay — failure is almost inevitable.
Improve your odds of success by steering clear of these five product innovation misconceptions.
1. If you build a great product first, customers will pay fair value for it.
“Build it, and they will come” is the mantra. But by implementing monetizing innovation strategies (e.g. determine market and assess customer feedback to your product, analyze price, then design and then build) — and understanding that you’ve designed the product with features that customers genuinely want — you won’t hope your innovation will find market success, you’ll know it.
Google’s approach to the development of Google Glass is the epitome of this myth. Google built the product assuming consumers would buy it. As a result, Google Glass was a massive flop. However, had Google targeted commercial applications (e.g., healthcare, manufacturing, the transportation industry) and developed Glass for the professional and B2B segment, the product might have exceeded expectations.
2. The innovation team must work in isolation.
Outside voices — market data, customers’ perspectives and financial considerations, and your finance, marketing and product development gurus — can help bring an innovative product to market. A great example of this is Porsche’s product development process when it launched the Cayenne. Through market data and analyzing customer perspectives, the company designed the Cayenne around the price customers were willing to pay. Not surprisingly, after implementing this monetizing innovation framework, the car became one of Porsche’s bestselling vehicles.
3. High failure rate of innovation is normal and is even necessary.
You can avoid the high failure rate of innovation by designing the product around the price and put into place rules for successful monetization. These include: having the “willingness to pay” talk early with customers, not defaulting to a one-size-fits-all solution, going beyond the price point, picking the winning pricing strategy and communicating the innovation’s value.
4. Customers must experience a product before you can price it.
Some entrepreneurs believe it defies the law of nature to determine how much customers would be willing to pay for an innovation before the innovation is complete.
But by having the “willingness to pay” talk early with customers — and figuring out how much customers will actually pay for your product when it is still in the concept stage — your innovation process becomes far more reliable.
5. Until you know precisely what you’re building you can’t assess its worth.
Understanding if customers are willing to pay for your product, before you commit too many resources to building and launching it, will dramatically increase your likelihood of success.
Innovation is a nail-biting endeavor as it is. Save some sanity — and time, money and reputation — by knowing the market viability of your new product long before you put it out to the market. You’ll have a rigorous assessment of your product’s true market potential at the front end of innovation, not at the back end. You’ll understand how bringing up monetization early can take product development, and your startup, to new heights.
Parts of this post were adapted from the book “Monetizing Innovation: How Smart Companies Design the Product around the Price” (Wiley, May 2016), by Madhavan Ramanujam and Georg Tacke.