Today, more than 80% of the companies innovate and launch their new products using a “product-focused” innovation process. Spearheaded primarily by the industrial companies of the last century, value creation traditionally began by research and development creating a new or better product. Then, finance took over, determined what it cost to build it, and decided on its price based on the margin requirements. Marketing was then asked to "figure out" the value proposition, which was generally viewed more as a "creative" process than an analytical one. Finally, marketing handed the product off to sales to sell and at that point the innovation was taken to the market to see what happens. Then marketing budgets, advertising dollars, promotions, and discounts came into play to drive sales and this cycle repeated with every innovation.
Product-focused innovations fails to align the four key structures of a solution. Most product-focused solutions
Fail to distinguish the needs and expectations for which customers are actually willing to pay from nice to haves
Are built with only a single, primary customer/user in mind and fail to capture different types of buyers’ willingness to pay
Miss the mark on aligning their revenue structures with the benefits received by the different types of buyers
Are not able to execute a market play with a competitive and profitable cost structure.
The problems with this kind of product development model are several. First, by the time you decide what the price will be you already built the thing! You missed the opportunity to build your product with the best cost structure informed by your price points. Second, when you execute your go-to-market that’s primarily the first time you’re testing your value proposition with the customer. There's also the fact that your pricing will lack a quantified value proposition because the value proposition is something that follows the value creation and again you have no idea if your solution is over-engineered. And finally, you may have test through usability testing or other wise if users can use it but you haven’t tested if the users will buy it.
The key is to align all the essential structures of your maket play and do so by validating your monetization opportunity at every step. and that's what value-focused innovation is all about. Stay tuned, we'll be talking about it next week.