Madhavan Ramanujam, Partner, Simon-Kucher & Partners
Date: Friday, June 09, 2017
Location: San Francisco
Product innovation is paramount to success, especially in Silicon Valley. However, the pricing strategy is just as important. This was the central thesis of our Keynote Speaker Madhavan Ramanujam, who led an insightful discussion during our Alliance Regional meeting on March 9th in Santa Clara. Madhavan, a partner at Simon-Kucher & Partners, has conducted extensive research on innovation and pricing, and co-authored the book Monetizing Innovation: How Smart Companies Design the Product Around the Price.
In a major recent study, 80% of companies reported having price pressure and a full 60% described themselves engaged in a price war. Many companies choose to mitigate this pricing compression by innovating and then pricing differently on the innovation. However, 72% of innovations did not hit profit and revenue targets. Failure has become accepted as a necessary part of innovation. But how can business leaders leverage pricing strategies to fail smart or, even better, produce successful innovations that generate market advantage and profit? Madhavan maintains that the key is to understand if people will pay for your innovation before a business starts innovating.
According to Madhavan, there are four principal reasons that innovations fail. First, what he calls “feature shock,” is when a product is over-engineered to the point that one size fits none. The way to avoid this is restraint. Second is “minivation,” where the product-market fit is great, but the company fails to have the courage to charge the right price. They undercut themselves. Third, are the “hidden gems,” fantastic innovations that lurk in the product portfolio and are not adequately promoted, leading to a failure to monetize. Finally, there are zombie products called the “undead” that simply should never have been engineered or launched in the first place.
The bottom line, argues Madhavan, is that successful products are priced before they are created. Having the price early in the process guides smart business decisions and results in a more realistic, vetted go-to-market strategy. Madhavan also recommended that the CEO be directly involved in the pricing discussion from inception to product launch, as this demonstrably improves performance.
The talk was filled with gems of wisdom, all of which are compiled in Madhavan’s book. Some key take aways resonated with the crowd, such as the importance of having a willingness to walk away from features to keep price realistic. Madhavan also encouraged the audience to recognize that markets are heterogeneous and to engineer customized products for various segments. He stressed that how you charge is often more important than what you charge, and underscored the importance of communicating clearly to the market about the real value of the innovation. To read case studies and learn more about his book, you can visit http://monetizinginnovation.com/.