Three calls is all that it took to identify a futile effort and how wasteful the investment in an innovation effort had been.
A dear friend and fellow pricing professional related a story of how he had been assigned to help price an innovation at his company. The team that developed the new product had invested significant time and dollars in creating the new product, but didn’t have any research data that showed how much the customer would value the improvements.
The first call he made was a shock — no interest at all. The second call — the same response. The third call — ditto. When he reported his findings the plug was immediately pulled on the project and the investment written off as a loss.
How did the company get to this stage before finding that their ‘innovations’ didn’t have value? More importantly, how do you avoid this costly mistake?
Innovation is risky
Jay Abraham in his book, "Getting Everything You Can Out of All That You’ve Got," consistently drives home the importance of testing ideas before launching full blown campaigns. Whether it’s marketing, sales or pricing strategies, he encourages testing. The same is true for innovation.
Innovation is an inherently risky business, fraught with investment in ideas that will never work. We don’t need to compound that risk by embarking on ideas that we believe will create value without first checking the market to see whether consumers of our products/services will actually be willing to pay for the additional "value."
Typically a few phone calls to some of the customers whom you feel will really benefit from your ‘innovation,’ is all that it takes to evaluate the potential value of that innovation. Here are a few sample questions to ask:
- How frequently does this (the problem you envision) occur?
- How costly is that problem?
- What solutions do you have in place?
- If our product could (solve the problem) would that be a less expensive alternative to the solutions you currently have?
As you can see, we don’t have to get into the question of price to ascertain whether the market will value the innovation we envision. All we’re doing is determining what value, if any, we’ll be creating.
From that value calculation we can make reasonable estimates about how much customers are willing to pay and whether the investment we’re anticipating and the return we’re expecting are a good trade off.
In other words, we’ll have minimized the risk in this innovation.
My friend knew that a few phone calls is a small investment when compared to the cost of creating something that has no value. Unfortunately he didn’t get called into the process until the innovators had made a huge investment. Don’t let that happen in your organization.
Dale Furtwengler is a professional speaker, author and business consultant. His latest book, "Pricing for Profit," is dedicated to helping organizations break the bonds of industry pricing.