Literary notes from reading Monetizing Innovation.
Product failure is rooted in failure to put the customer’s willingness to pay for a new product at the core of product design.
There are four kinds of failures
- Feature shocks are when there are too many features that don’t deliver a lot of value. They are nice to haves not gotta haves. The root is usually too much inside out thinking. Examples include the fire phone and the useless features like spatial 3D.
- Minivations occur when the product is underpriced for the value it generates. This underestimation leads to what can look like a success, selling out and second hand markets, but they are actually a failure to capture the potential upside. Cost plus pricing can be comfortable, but does not consider total value to the customer. Examples include park assist that was marked up 4x by car companies.
- A hidden gem is when you don’t know what you have until someone else does it. This usually occurs when there is lack of transparency (no one wants to risk new ideas) or when there is a large existing business (e.g. not our culture). Examples include Kodak who had the digital camera a decade before anyone else.
- Undeads occur when a product is an answer to a question no body is asking or the wrong answer to the right question. For example Google glass or Segway.
Having the willingness to pay talk.
Discuss value, don’t need to say pay. There are five methods to help drive the discussion:
- Direct questions: what do you think is an acceptable price? What would be too expensive?
- Purchase probability questions: show the product concept and price and ask on a scale from 1 to 5 how would you rate. If 3 or less lower the price and ask again.
- Most/least questions: show a set of ten features then groups of six and ask what is most valuable what is least valuable? Repeat until you exhaust combinations.
- Build your own questions: give customers a feature list and ask them to build their ideal product. Adding features increases the cost so they need to make tradeoff.
- Purchase simulation: show a product with a specific set of features and a price. Ask if they would buy it and look for their reactions. Show 5-8 combinations. This helps estimate the value and willingness to pay for each feature.
Remember to ask why. Look at distributions not averages.
Segmentation
- Segments should break down the market into different groups on which you can act differently
- Pressure test your findings—are there features one segment wants strongly that the others do not? Can salespeople sort their clients into the segments you came up with?
Product configuration Based on the segments and willingness to pay, configure different configurations to match based on what they value.
You must have the guts to take features away. You must resist giving away value added features to please customers.
Limit the number of offerings to a small number otherwise it’s overwhelming to customers who now need to choose. This also makes each offering more distinct and less likely to cannibalize sales.
Each offering should have less than 9 benefits or 4 bundled products to avoid cognitive overload.
Leaders, fillers, and killers Go through your benefits and features and classify them by segment and by designation of value
- Leaders drive customers to buy
- Fillers are of moderate importance or nice to haves
- Killers are feature that will kill the deal if customers are forced to pay for them (these are usually of little importance except a select few who find value in them)
Good, better, best This is the most common (dropbox style) and it helps sell people on the middle offering because people avoid extremes. Sales people can switch between the better and best offering depending on whether the customer is more price conscious or quality oriented.
If 50% of your customers buy the entry level you are giving too much away.