It’s a staggering figure, but 72% of all new products don’t meet their revenue targets. Perhaps even more scary, is the finding by Simon-Kucher & Partners that a quarter of companies confess that not one of their new offerings met its profitability goals.
The survey, conducted in collaboration with the Professional Pricing Society polled approximately 1,600 executives and managers from over 40 countries across a range of industries. And before you think that this can’t be about a serious, well-managed B2B company – about two-thirds of respondents were from B2B businesses.
“The problem isn’t generally a technology or R&D failure, but rather a failure in the marketing department to clearly define market segments, and what those segments are willing to pay for the new product,” Georg Tacke (co-CEO of Simon-Kucher) told Sarah Green of the Harvard Business Review.
It seems that most companies only think about pricing at one point in the innovation process – usually right before launch (80% of companies falling into this trap)
How to give the silent killer the slip?
According to Tacke, the number one success factor is for C-level involvement in pricing discussions from the start –and then periodically throughout the process.
The second factor is considering pricing from the very conception of an idea. In many companies, the innovation process is entirely focussed around R&D and only at the last minute is pricing considered. A better way to proceed is to consider pricing throughout the innovation process with customers asked about what they value, and how much they would pay, and how they would prefer to pay for it.
The survey indicates that the actual pricing model, whether on a transactional/subscription basis, can have a greater impact on a customers’ willingness to pay than the price itself.
Of course, in this day and age, its not just about process. The survey also found that the third key factor was the use of technological tools to measure value and willingness to pay in a systematic way so that evidence and facts drive the innovation process. “Our study found that the top 10% of companies use pricing software and technology 40% more often than the bottom 90%,” said Tecke.
Tacke highlights BMW as a company that has been very successful in this area, lauding the fact they do all their research and innovation in one building, and all the functions – finance, marketing, engineering – either come from their offices to that building, or they are already physically located there.
“Having such a building sends a strong signal that all these different functions are committed to the innovation process,” he says. And this helps to the teams to synchronise the four key pillars of development – value, cost, price and volume.
Companies that aren’t so successful start with a business case that details the four key pillars, but after that the development team works in isolation. This often leads to the addition of new features that increase costs, prices and impact upon volumes and, therefore, profitability.
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