Are You Capturing the Value of Your Innovation?

Are You Capturing the Value of Your Innovation?

By Stephan Liozu

Innovation, value and pricing are inseparable. They are part of a dynamic system to create long term sustainable value for firms. As such, they have to be treated with equal attention, with the required sweat equity from top executives and with the necessary levels of investments. Firms invest billions in R&D and innovation processes. They deploy much elaborated new product development and product lifecycle processes in the hope of achieving greater innovation rate. Most firms, however, fall short of defining crisp value propositions, of measuring the differential economic value of their innovation versus their competitors and, of capturing the true value through pricing.

There are many root causes for this fact and I have studied them in my Ph.D. studies over the past five years. One of these causes relates to the lack of conceptualization of what value means and the understanding of the value management process. Another is innovators’ lack of basic pricing skills.

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So, first, what does value management mean? My conceptualization of value management takes a holistic approach to business strategy and include a strong link between the three critical dimensions of value management: value creation, value assessment and value capture. I conjecture that these three dimensions form a dynamic unbreakable chain that can generate greater profit levels for organizations. Many firms I talked to struggle in the area of value creation and therefore have a pricing problem to capture something that does not exist. I challenge them to look at the level of differentiation created through their innovation process.

So the transformation process towards sustainable value excellence starts with significant investments in innovation to generate differentiation and create value. Once value is created, it is critical to measure it and then capture it through value-based pricing. To make the wheel turn in a sustainable fashion, it is then imperative to have strong re-investments in R&D and innovation.

Second, how do you build pricing skills in innovation teams? This is a tricky subject. Innovators already have to balance technical and marketing skills. Asking them to become expert in pricing and value management activities might be a stretch. Value-based pricing is a science that needs to be learned. There is no real need for them to become experts in the subject. Innovators might have access to internal pricing experts or might be helped by consultants. They do have to learn enough of the science and art of value-based pricing to be able to converse with multi-functional teams in the Stage-Gate® process. They need to be able to link the outcome of customer research with deep discussions on need-based segmentation while applying the concept of willingness-to-pay. The reality is that pricing activities cannot be improvised. This is why I have partnered with Stage-Gate® International to create the first training workshop on the subject of “value-based pricing of your innovation”.

Innovators with excellent innovation, technical, and marketing teams can add another set of skills in their toolbox and make a difference on their innovation ROI. Capturing more value for their innovation is what it is all about.

Be bold. Join the value revolution!


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