The failure rate for innovation is shockingly high,” according to Georg Tacke and Madhavan Ramanujam, authors of the bestselling 2016 Simon-Kucher book Monetizing Innovation. “Nearly three out of four new products or services miss their revenue and profit goals. Many of those crash and burn entirely, and some take their companies with them.”
But the authors promise, “It doesn’t have to be that way.”
A big part of the problem is focusing on a single metric of viability rather than the broader potential of a business idea or product, according to Eddie Hartman, an internal editor on that book and a partner and board member of the global strategy consultancy firm Simon-Kucher.
“When we start businesses of any kind, we primarily metric ourselves on whether or not it will work—not whether or not it will work optimally,” Hartman says. “We don’t say... ‘I’m going to open a bakery and sell cupcakes, but only if it generates an average per cupcake profit of $3.' We just don’t think that way. We think, ‘I just want a successful bakery.'
“And if you follow that chain of thought, what it leads you to saying is that when you start a business, you’re pretty much willing to accept any price, so long as the price doesn’t make you go bankrupt.”
Market Share vs. Wallet Share
The right research should allow a new product to be launched with confidence, but too often startups approach the process in reverse—they design, build, market and then price. As Hartman and the authors of Monetizing Innovation put it, you should be designing the product around the price. To do that, you must understand both your audience and what they’re willing to pay. In other words, you need to research market share and wallet share.
“The premise of the book actually is when you do take that step, and you say, ‘I need to create growth, profitable growth.' Too many people lean on their natural bias to either go for market share (that’s people coming through the door) or wallet share (that’s ensuring I make enough cash to stay afloat even in bad times),” says Hartman, who specializes in developing high-growth revenue strategies and effective go-to-market planning. “Thinking about both is actually the only thing that works in the long run.”
This might mean going outside your comfort zone or against your instincts if you’ve previously been focused on one or the other. “If you are the sort of person that loves humans and you just want a lot of customers and you want loyal customers, it may be very antithetical to your nature to say, ‘Now, I have to go for wallets here. I have to charge more,' right?
“If, on the other hand, you’re the person who’s only comfortable charging, think of it as all that the traffic can bear, and you feel like that’s part of your identity, it’s going to be outside of your nature to say, ‘Well, how can you reach a bigger audience and potentially go to a lower price point?'”
He uses the example of a person looking to launch a bakery selling cupcakes. If you’re focused on making enough money on each cupcake, your wallet share, you might not be thinking of potential ways to draw more customers, such as special discounts, promotions or subscriptions, thereby cutting your potential market share short.
Conversely, if you’re solely focused on market share, or getting as many customers as possible, you might also need to find a way to charge more in order to make enough profit to see you through potential rough times ahead.
Hartman adds that, too often, startups focus on “single engine” strategies—for example, hoping their product quality is enough to draw customers and make profits; focusing on only very niche customers willing to pay top price for their product or relying on a loyal customer base to keep a business afloat.
“Each one of them has got a good engine of growth, but they’ve got single engines. They don’t have twin engines. And, inevitably, a single engine strategy fails,” he says. “You really have to get to a place where you’re going for wallet share and market share, and I think that requires a really, really good road map.”
3 Steps to Price a New Product
That road map involves three key steps, according to Hartman. The first is to understand that you have different potential customers; you need to figure out what their different needs are and what they’re willing to pay to satisfy those needs.
“Anyone who says, ‘Oh I know my customer [and] what my customer wants,' makes the fatal assumption that all customers are the same,” he says. “Price is really nothing more than a way that we measure value.”
The second step is to unlock what those customers perceive as valuable. “People don’t exactly pay for value. They pay for perception of value.” How you articulate the benefits of your product will be key when you go to market.
The third step is to figure out how to charge customers for that value. “It turns out how you charge is more important than how much you charge,” Hartman says. “Thinking through how your customer wants to buy is the precursor to saying, ‘And then how much will they spend?'
“How much will they spend is at the end. It’s after you said, ‘Well, who is buying? How do I articulate their needs? How do I find the way they want to buy?' And then it’s actually fairly straightforward, if you’ve gone through all that, to say, ‘And how much should I charge?'
As the book summarizes, “Successful innovators build the right product for the right segment at the right price.”
How to Find Out What Customers Will Pay
Hartman says the most important thing that you can do to understand your audience’s needs and to meet those needs is to talk to your customers. “I cannot tell you how many CEOs I’ve worked with who they’re just so sure they know what their customer wants, and then they talk to their customer, and they find out it’s actually something different,” he adds.
The book advocates for having the “willingness-to-pay” talk early to learn whether you have an opportunity to monetize your product and to figure out through targeted questions which features should take priority, helping you design the specific product within the range your customers say they’d be willing to pay.
Hartman adds that in order to understand your potential market, you need to talk both to people who are your customers and people who aren’t—these may have been customers in the past or have never bought from you. “And from that you can identify their needs. You can identify how they would like to pay. You can identify the words or concepts that create this sense of value for them. And you can find out how much they would be willing to pay once all of those things are well-articulated.”
Too many startups forget to ask these questions and make the mistake of assuming all their customers are the same, designing a “one-size-fits-all” product rather than catering to specific needs.
Referring back to the cupcake analogy, Hartman says, these business owners think, “I’m selling cupcakes, and I hope people will buy them.... And they’ve already leased the bakery, bought the flour and everything, and then they finally say, ‘Gee, how much can I charge for these suckers?'
“It’s a shame. If they just did the process that we just outlined, they would have a much, much higher chance of success.”
Featured image courtesy of Krakenimages.com/Shutterstock
This article was first published in the September 2025 issue of SUCCESS® Digital Edition. Get your FREE copy here.
