Monetizing Innovation: How Smart Companies Design the Product Around the Price

The only way to cope with this variance is to embrace customer segmentation. Customer segmentation is the most talked about and at the same time the most misused concept in product design.

The customer's upfront cost has a much bigger psychological impact than the total cost of ownership. Your pricing strategy should be to land a customer by showcasing the lower upfront costs and then expanding on a higher variable amount.

Psychological price thresholds: Avoid falling off the price cliffs. You might wonder why you rarely see prices like $101 in retail; you almost always see $99 or $99.99. The reason is that customers typically have price thresholds in mind.

These tactics can markedly increase the success of a new product launch. Based on behavioral economic theories we've tested in many different customer settings, these six tactics become more powerful when you combine them. Here they are, along with examples that illustrate them: Compromise effect: Make decisions easier for people who can't choose.

Dynamic Pricing

Rule of thumb: The smaller the margin per unit, the bigger the impact of suboptimal pricing.

Our definition of product configuration refers to the decision of which features and functionalities will be included in a product. In some industries, like software and tech, product configuration is also referred to by the term packaging. By bundling, we mean combining a product or service with other products and services. Successful innovators g

A telecommunications firm in Latin America instituted the rule of forcing managers to come up with three nonprice actions before making price cuts. A board member of the company stated afterward: “This simple rule had the highest impact we have ever seen and instilled the right discipline we were seeking. It was simple and everybody understood it.”

“By doing such voice-of-the-customer research, you can ‘test-sell’ your product even though you haven't even started the product development process yet,” Drews says. “Then, when the customer asks when he can have it, you know you created a very powerful product idea.”