Monetizing Innovation: A book review by Bob Morris

Monetizing InnovationMonetizing Innovation: How Smart Companies Design the Product Around the Price
Madhavan Ramanujam and Georg Tacke
John Wiley & Sons (June 2016)

How monetizing the design of new or improved products and/or services will help create or increase demand for them

Here is Madhavan Ramanujam and Georg Tacke’s basic premise: “The most successful product innovators we know start by determining what the customer values [verb] and what they are willing to pay, and then they design the products around those inputs and have a clear monetization strategy that they follow through with.” They reject a number of myths and misconceptions that help to explain why so many innovations fail:

1. “If you simply build a great new product, customers will pay fair market value for it. ‘Build it and they will come’ is the mantra.”
2. “The new product or service must be controlled entirely by the innovation team working in isolation.”
3. “High failure rate of innovation rate is normal and is even necessary.”
4. “Customers must experience a new product before they can say how much they will pay for it.”
5. “Until the business knows precisely what it’s building, it cannot possibly assess what it is worth.”

As Ramanujam and Tacke would presumably agree, there are exceptions. Moreover, Steve Jobs has been perhaps the most outspoken among those who believe that most (if not all five) of these myths and misconceptions are, in fact, true; especially the first two.

With regard to #3, most experts seem to agree that a high number of low-risk experiments (using prototypes) rather than a high failure rate is desirable. The mantra “fail fast” should be subject to reasonable limitations. If DOA, bury it.

The wisdom of the Lakota advises against feeding a dead horse.

These are among the dozens of passages of greatest interest and value to me, also listed to suggest the scope of Ramanujam and Tacke’s coverage:

o Product innovation (Pages 3-13)
o New product development (15-32)
o Feature shocks (16-20)
o Hidden gems (24-27)
o Undeals (27-32)
o Monetization and innovation (33-36)
o Customer Segmentation (53-62)
o Key principles of bundling (71-73)
o Pricing strategies (97-110)
o Business cases for new products (111-120)
o Behavioral pricing (135-147)
o Example of behavioral pricing at Internet companies (137-140)
o Behavioral pricing tactics (140-145)
o Price integrity (149-159)
o Post-Launch (153-157)
o Porsche (164-170)
o The “Porsche Principle”(169-170)
o LinkedIn (170-174)
o B2B (174-182)
o Swarovski (188-193)
o Optimizely (194-200)
o Implementing the “design the product around the price” approach (207-218)

With regard to monetizing failure, Ramanujam and Tacke have found four recurring patterns of product failures that all into four categories:

1. Feature Shock: “Cramming too many features into one product — sometimes even unwanted features — creates a product that does not fully resonate with customers, and is often overpriced.”

Comment: There may not be immediate resonation but a liquid always assumes the shape of its contained. Over time, applications will be used to the limit of the capabilities available. Especially with a new product, offering more can accelerate adoption.

2. Minivation: “An innovation that, despite being the right product for the right market, is priced too low to achieve its full revenue potential.”

Comment: With pricing, almost everything depends on two factors: margins and market appeal.

3. Hidden Gem: “A blockbuster product that is never properly brought to market, generally because it falls outside of the core business.”

Question: Who determines whether or not it is a “blockbuster”?
Answer: Eventually if not immediately, the market.

4. Undead: “An innovation that customers don’t want but has nevertheless been brought to market, either because it was the wrong answer the right question, or an answer to a question no joined was asking.”

Comment: People can’t make a choice they don’t know exists. Some of the most successful products answer questions that consumers had not asked. Swiffer, for example, and handles built into large containers of liquids such as milk and antifreeze.

These are among Madhavan Ramanujam and Georg Tacke’s concluding thoughts: “In a world in which innovation success has become more important and more difficult, we believe no company can afford to build its future on wishes, hopes, and dreams.” I agree. In fact, I cannot recall a prior time when the business world was more volatile, more uncertain, more complex, and more ambiguous than it is now.

This book offers an abundance of information, insights, and counsel that can help leaders in almost any organization—whatever its size and nature may be – to use the principles of monetization to design new or improved products and/or services that are most likely to create or increase demand.

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