Product Innovation-What to Know Before You Start, Part 1
Part 1. Does every product deserve an innovation?
Quantify, don’t guess.
Allocating limited R&D resources can be tricky, especially if the product portfolio is extensive or varied. Multiple products wholly different in nature must somehow be assessed against each other. In order to effectively make this comparison, products must be systematically scored against a common matrix so that they can then be objectively ranked. The tools to construct this matrix are:
- ”Main Parameters of Value” (MPV), a measurement of those functions of a product that customers are willing to pay for.
- “Price Performance” (PP), a measurement of how a product's price compares to that of a similar, competitive product within the same category.
- “Gross Profit Potential” (GPP), the total profit pool available to participants in the market.
MPV analysis helps to unveil those product features that are of greatest value to the customer and which have the best potential for improvement. The ratio of MPV to PP, in turn, gives us Customer Value, a measure of competitive pressure for each of the products. Finally, plotting the products on a GPP vs. Customer Value matrix yields four clusters, each with a different meaning for innovation.
Group 1: Products with high customer value that address a large profit pool. Products in this cluster deliver significant value to their markets and therefore should (barring other barriers to success) enjoy strong market share and profits. This group is the Target Domain.
Group 2: Products that provide low customer value but have a high GPP. Although products in this cluster have a high profit potential, they are—or may become—vulnerable to competitive products with superior value. These products are high-priority candidates for value improvement innovation – which leads to improved market share.
Group 3: Products that have a small profit pool and provide less value to their customers than do competing products. Products in this cluster should be given low priority, but not before testing the potential to improve profit margins and/or market demand.
Group 4: Products that provide relatively high value to their customers but have low GPP. It is possible that the same competencies that created this high value could be applied to adjacent markets through product innovation, but these products should be given low priority.
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Author: Mikhail Verbitsky