Pricing Innovation

One of the most difficult overcomings in marketing and commercializing innovation is pricing. Most visionary entrepreneurs and intrapreneurs spend months defining prices for their products.

Why is innovation pricing so hard?

1. Competition-based pricing strategies, such as Value Mapping, don't work anymore as there is absence of reference points (what marketers call Blue Ocean).

2. For technology in general, added-value pricing strategies based on measuring value chain stages are no longer coherent with target market demand. As an example consider web-based apps, such as Twitter. The largest social networks MVP's, having produced profitable results, were rather technically limited and coarse, relatively poor in value chain.  Also, mobile apps displayed in the app store can be developed by two people in few days and yet profit millions of dollars.

As in every other aspect of a business model, true innovation withstands the pressure of uncertainty at the highest levels. Some authors have suggested innovation pricing strategies, based on customer decision choices, such as presenting three different options with different prices and reach,   advising the customer to buy the one in the middle (not the cheapest, not the most expensive) and playing with the contrast principle.

Shedding some light

Once again, the lean startup approach is the best way of gathering the right information and make the best decisions (even better than market studies, as I will demonstrate in other blogs). Unfortunately, for mobile apps the pricing range has narrowed so much that it's sometimes worthless to even embark on the lean pricing methodology, as any price hypothesis test would be more a value test by itself.

Some more light can be shed on other innovation channels, including web apps, as the Plan-Build-Learn acknowledgement cycle may work pretty well on a wide pricing range. You should always keep in mind that pricing is also subject to the innovation industry: No matter how revolutionary your brand new project manager is (even so revolutionary you may not call it "Project Manager"), be sure it will be very hard to exceed the currently positioned project managers.

Innovation pricing in third-world countries isn't different, except in that revenue per capita, other financial indicators and severe personal budget restrictions may also serve as a pricing guide in B2C, C2C and some B2B models.

To conclude...

One would think that, almost by definition, the existence of an innovation pricing methodology is impossible, as innovation is usually thought as something not done before. In a free trade market you're free to sell whatever you want to whoever you wish at the price you're able/willing to (keeping legal). The old fashioned pricing strategies might not work for innovation and once again ancient sages need to understand innovation pricing is a science, not an established dogma.

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