Considering Value and Pricing Power in New Product Development
Understanding how companies are using value and pricing tools in their NPD processes
Research Hypothesis
Companies that are leaders in innovation have worked hard to implement new product development and engineering processes that drive on-time releases at the appropriate quality and cost, yet truly understanding the value of a new product is often a guessing game. In trying to solve this issue, most companies have developed some form of rudimentary analytical capability factoring future price and volume estimates for a new product to set performance expectations. This can range from manually mining data to a back-of-the-envelope approach – with varying degrees of success in creating a repeatable, predictable set of tools for assessing future performance.
While no tool is fail-proof, best-in-class innovation companies are re-evaluating their processes and systems to better estimate the potential value of new products and concepts. This allows for more insightful price setting and future performance forecasting.
Research Objectives
The goal of this research is to determine how innovative companies are using value analytics and pricing strategies to support their new product development initiatives. The research will define and describe a best practices model for using analytics to maximize the return on investment in the innovation processes and to better inform new product development portfolio decision making. The project will assess if companies have a clear process and a set of metrics enabled that define and clearly measure the success of new product introductions. This research project will explore the following questions:
- What are the challenges with defining success criteria and metrics to measure a successful launch? Who establishes metrics and measures new product success?
- What tools and processes are being used to evaluate projected value and pricing power of new products?
- When and at what points during the new product development process is price estimated? Early on during ideation and scoping? Or later after the product has been developed?
- Is price determined by “cost plus” or value based pricing strategies?
- How are the prices of competing or substitute products in the market incorporated into the analysis?
- What, if any, analytical tools and methodologies are used to estimate the price? EVA, Value Mapping, formal pricing optimization software? Pros, Vendavo, etc.?
- How/when are pricing implications to the portfolio of products in a category evaluated? Is a lifecycle pricing strategy developed for launch thru end of life?
- For new products, how is historical sales data from existing products used to estimate sales and price elasticity?
- Does your organization incorporate any type of value analytics into the new product develop-test-refine feedback loop?
- In what ways can phase gate processes be optimized to leverage value analytics and price projection and optimization tools?
- Do you factor in cannibalization of existing product lines into your value assessments?
Research Scope
The research will evaluate performance in the following product development processes and functions:
- Pricing & Profitability Management
- New Product Development
- Portfolio, Project, & Resource Management
- Research and Development
- Product Marketing
- Revenue Management
- Research Deliverables
The project will produce the following specific deliverables:
- Research Whitepaper
- Summary Presentation
- One Page Research Abstract
- Article for Publication
Research Methodology
Primary research will be conducted by interviewing key product development, product marketing, pricing and finance executives at leading innovation companies. These interviews will be conducted mostly by phone by a member of the Kalypso industry team. Each interviewee will be provided with a background document and list of questions in advance of the discussion. Group interviews will be encouraged. Draft results will be validated with a subset of the original research population. Final results will be shared with each participating company in an in-person presentation or workshop.