Innovation crisis? New products fall short - Business Works
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Innovation crisis? New products fall short

by Mark Billige, Managing Partner, Simon-Kucher & Partners Only one-third of planned price increases actually get implemented in the market, the lowest rate ever for price increases, says Mark Billige, Managing Partner of Simon-Kucher & Partners.

Most new products fall short of profit expectations because companies neglect or ignore essential pricing and marketing activities in their new product development processes. These low returns choke off resources for future product development. This spiral can put companies' long-term profitability and survival at risk.

Market conditions are oppressive, forcing companies to seek new profit opportunities. Yet most new products they launch fail to meet profit targets. The 'best' companies (about 10% of our sample) launch profitable innovations and thrive despite oppressive market conditions. Respondents cite the fact that leadership and strategy account for this success due to clear direction, guidelines and ownership at Board level.

Two years ago, companies achieved, on average, about half their price increases. This is according to our third Global Pricing Study 2014 conducted in collaboration with the independent Professional Pricing Society (PPS). Over 1600 directors and managers across all industries and from over 40 countries took part in the survey.

'New products' were hailed as by far the best way to overcome price pressure, with 77% of the 1600 managers and directors that took part in the survey citing these as the best new profit opportunities. Still, almost three-quarters of all new products miss their profit targets.

achieve the prices you want

This is bad news for companies, but it is something that can be addressed. Price pressure, price wars and competition shouldn't hold businesses back from achieving the prices they want.

Across the globe, 83% of companies said they were suffering increasing price pressures and 58% admit that they are currently involved in a price war. Instead of trying to find out where things may have gone wrong internally, 89% point the finger at their competitors. Either way, the respondents are not able to enforce their prices. For example, companies that wanted to raise their prices by five percent only managed 1.9%. In 2012, they were able to implement half of their price increases.

Despite the fact that respondents in the study cited new products as the best means of achieving higher market prices - 72% of all new products fail to meet their profit targets. One-quarter of the respondents acknowledged that not a single one of their new products fulfilled its profit targets.

Despite the economic recovery and attempted price increases, 39% of the respondents were unable to improve their margins in the last few years, leaving the long-term profitability of companies seriously at risk.

If you know the true value of your product, you can set the right price. This also means having the courage to kill new products if it becomes clear that they won't meet their profit targets. Everyone, including C-levels and project teams, should take this to heart.

Here are six immediate recommendations for executives and senior managers to use innovation as a means to escape price pressure and boost profits:

  1. Priorities: Make pricing and new product development your priorities. It pays off!

  2. People: Include pricing, value and market experts in every new product development team

  3. Investment: Set aside enough money for research to measure customer value and willingness to pay

  4. Personal presence: Attend occasional milestone meetings in your new product development process. You will be amazed at the focus and positive effect your presence brings

  5. Standards: Not every project needs to result in a product. Empower, even incentivize your team to kill new products even right before launch if it becomes clear that they will not meet their profit targets

  6. Leadership: Kill one or more products yourself

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