May 26, 2016

Your New Hit Product Might Be Underpriced – HBR

The odds are stacked against new products or services. Between 65% and 75% miss their revenue or profit goals, depending on whose research you look at. We have diagnosed thousands of product failures over the last 30 years, and have found recurring patterns. Often new products are over-engineered with too many features, usually at too high a price. Some products are truly innovative but stay walled up too long in R&D and then are released to market when they are no longer unique. Other failed products either answer a question no one cares about or are the wrong answer to the right question – Google Glass or the Segway personal transporter, for example.

But one innovation pitfall is particularly insidious because it doesn’t involve an outright failure; in fact, these product launches actually do well in the marketplace. But they don’t do nearly as well as they could, leaving big revenue and profit on the table.

We term these product launches “minivations” and they are the result of product developers who don’t realize just how much value their offerings would provide to customers. They then grossly underestimate how much customers would be willing to pay for them and charge prices far below what they could have charged.

The problem with wildly successful products
Four examples in very different industries help illustrate the pitfalls of minivations. They also show how determining customers’ willingness-to-pay before setting a new product price can help companies ensure they capture the full value of their new offering.

The toy set that sold out in no time. Most parents have heard of Playmobil. How could they not have? Nearly 3 billion of its colorful plastic toy people and animals have populated children’s playrooms and toy chests since 1974. The product, owned by Germany’s Brandstatter Group, generated 90% of the firm’s $696 million in sales last year. Playmobil toys have become a staple for young children.

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