monetizing innovation - SKI

July 5, 2016

Madhavan Ramanujam in conversation with The Marketing Journal

Companies invest substantially in designing and building products. Yet they struggle to monetize them. Billions of dollars are spent and lost every year because more than 70 percent of innovations fail to meet financial goals – or fail entirely. Christian Sarkar, CEO, Double Loop Marketing, interviews Madhavan Ramanujam, co-author of Monetizing Innovation about what creates success and how to avoid becoming another statistic.

CS: Monetizing Innovation is an eye-opener. What brought the two of you together to write it?

MR: Every other year, Simon-Kucher & Partners conducts the world’s largest pricing survey. What we have found is that 72 percent of new products introduced over the past five years have failed.

The failure rate is so high, in part, because the factors leading to innovation are under pressure. Traditional research and development is becoming more expensive and disruptive innovation is coming from smaller, nimbler companies. At the same time, the rate of innovation is accelerating around the globe, with Asian countries rapidly growing their share of global R&D spending.

We wanted to analyze how these factors are attributing to new product failure, and come up with solutions to avoid these startling failure rates.

CS: Your work has identified the patterns of failure. What are the four ways that companies fail when it comes to monetizing innovation?

MR: The good news is that we found only four ways for innovation efforts to fail.

Cramming too many features into one product creates a product that does not fully resonate with customers and is often overpriced. We call this feature shock.

A minivation is an innovation that, despite being the right product for the right market, is priced too low to achieve its full revenue potential.

There are also hidden gems, or potential blockbuster products that are never properly brought to market, generally because they fall outside a company’s core business.

Finally, when companies bring to market an innovation that customers don’t want, we call it an undead.

CS: You’ve also identified 9 ways companies can avoid failure. Can you go over each one briefly?

MR: In the book, we boiled down the secrets to avoiding monetization failures into nine rules for innovation success. And let me say that these rules are contrary to what most executives have learned about product development:

Have the “willingness to pay” talk with customers early in the product development process so you know whether you’re building something customers will pay for.

Don’t force a one-size-fits-all solution. Build segments based on differences in your customers’ willingness to pay for a new product.

Product configuration and bundling is more science than art.

Choose the right pricing and revenue model. How you charge is often more important than how much you charge.

Develop your pricing strategy. Look a few steps ahead to maximize gains in the short and long term.

Draft your business case using customer willingness-to-pay data, and establish links between price, value, volume, and cost. Without this, your business case will tell you only what you want to hear, which may be far afield from market realities.

Communicate the value of your offering clearly and compellingly; otherwise you will not get customers to pay full measure.

Read the complete interview at The Marketing Journal.