The fear of getting your product offering wrong

Developing a new product—or extending your existing range—can be exciting, but it’s easy to focus too much on the product itself and lose sight of what truly needs to be done to make it successful.

By the end of this article, you’ll understand the common challenges of product development and discover a counterintuitive approach to ensure success.

?Common Challenges in Product Development

If you’re a business leader or product owner, you’ve likely faced these hurdles when launching a new product:

• Identifying and covering both your direct and indirect costs.
• Calculating breakeven volumes and understanding your cash burn rate.
• Pricing the product to achieve acceptable margins while driving growth.
• Aligning your team around a clear product vision and strategy.
• Creating a go-to-market plan that maximizes success.

?Why Do So Many Products Fail?

You may have heard that failure rates for new products can reach 80%. While that’s exaggerated, empirical research shows they hover around 40% depending on the industry:

• Software & Services - 39%
• Technology - 42%
• Healthcare - 36%
• Consumer Goods - 45%
• Industrial Services - 43%
• Capital Goods - 35%
• Average - 41%

(Source: Engineering Unleashed)

This is good news to me because it means that the majority of new product launches are successful. However, the journey is still fraught with challenges, pitfalls, traps and dead ends.

?The Consequences of Getting It Wrong

When I was in corporate life, we tried to create and launch a new mobile application to support our franchise proposition. It was beautifully designed, and it tested well in research with both consumer and business users, yet it failed in the execution because it was too complicated to use so it didn’t really help customers to solve the problem we were trying to alleviate. Oh – and we ran out of cash, so eventually we had to stop development and accept it wasn’t going to work out as we hoped.

A failed product launch can impact your business in several ways:

• Financial Loss: development, production, and marketing costs add up quickly.
• Reputation Damage: failure can erode customer trust and brand loyalty.
• Opportunity Cost: valuable time and resources could have been spent elsewhere.
• Team Morale: the confidence of your team may take a hit.

?The Counterintuitive Route to Success

In my view, much of the problems associated with new product launches could be alleviated by spending more time on working out the pricing upfront.

In their seminal book Monetising Innovation, Madhavan Ramanujam & Georg Tacke show how many leading companies identify the price point as early as possible in their product innovation process. This makes it so much easier to design a product that delivers an acceptable margin within the price limit that customers are willing to pay.

This is the opposite approach to what most businesses do which is to design the product first, identify its associated costs and then set a price based on a desired margin (without actually knowing if customers are willing to pay that price).

When you think about it, it makes sense doesn’t it? Propose a product concept, test the level of interest in the idea and then find out how much customers are willing to pay. (There’s a great story about the development of the Porsche Cayenne in the book which explains this approach.)

?A Simplified Process

It can seem a bit daunting to try and do some price testing in the early stages of an innovation process, so here is my simplified process that you should follow if you want to have more likelihood of success.

1. Define Your Ideal Client: Identify who your product is for and hypothesize their needs.
2. Understand their Problem: What issue are you solving? What outcome do they desire?
3. Develop a Concept: Confirm the product’s key benefits and how it stands out.
4. Test the Market: Research customer perceptions of your product’s value and willingness to pay.
5. Set the Price: Develop your pricing model, including metrics, price levels, plans, discounts and payment terms.
6. Define the Product: Finalise your product offering in a way that supports the prices customers will accept.

Note that Step 5 (Pricing) comes before Step 6 (Product). This is critical because if you do it the other way around (as most people would), you will likely use a bottom-up method for setting the price (e.g. cost plus margin) rather than a top-down method (e.g. value-based pricing).

?Practical Ways to Research Pricing

You don’t have to overcomplicate the research process. There are a number of simple techniques any business can use.

• Interviews – conduct some in-depth 1-1 interviews with clients or prospects
• Surveys – use readily available online survey platforms to design a more structured survey to test interest and willingness to pay for your product
• Software – there are plenty of software options available that use AI and data to help you work out the optimum price for your product.

For more information on this process, have a look at a webinar I ran a few years ago called “What your customers are really willing to pay”.

?Real-World Examples

Here are some examples of clients we have worked with to help them define and successfully launch a new product offering using this approach.

• A car leasing company used pricing software to test price points for a new leasing package.
• A SaaS company conducted 1-1 interviews to understand value perceptions and price sensitivity.
• A consulting firm used client feedback to design a new product and set optimal pricing.

?Conclusion

The key to successful product development lies in two things:

1. Understanding the customer’s perceived value of your product.
2. Knowing their willingness to pay.

Master these, and you’ll likely join the 60% of businesses whose new products succeed.

As always, let me know if you need any help with these issues.

#product #pricing #innovation #launches