Monetizing Innovation

Ramanujam and Tacke, both from the pricing consultancy Simon-Kucher, argue that most product failures are pricing failures, and that the standard sequence of designing a product and then setting a price is backwards. Their prescription is to have the pricing conversation with customers before the product is built.

They classify failures into four types. Feature shocks contain too many features and satisfy nobody at a price anyone accepts. Minivations are innovations priced too low to capture the value they deliver. Hidden gems are innovations the company fails to commercialise because they sit outside the core business. Undead innovations are products nobody wanted, built because the question was never asked.

Their method has nine rules, of which the first is having the willingness-to-pay conversation early. They give specific techniques for the conversation, including asking about acceptable, expensive and prohibitive price points rather than asking what a customer would pay, and using purchase probability questions with a discount applied to stated intent.

They also cover segmentation by willingness to pay rather than by demographics, product configuration and bundling built from that segmentation, choosing a monetisation model including subscription, usage-based and outcome-based pricing, and building the business case on pricing assumptions that have been tested. The book is consultancy-derived and the cases are client engagements presented favourably. It is repetitive and the nine rules overlap. The core instruction, to test willingness to pay before building, is straightforward and is not done by most companies, which is why the book exists.