Joe: Lewis, I'm going to give you a number that should terrify anyone who's ever had a great idea: 72 percent. Lewis: Okay, 72 percent of what? Marriages that end in arguments over the remote? Joe: Close. 72 percent of all new products fail to meet their revenue goals. They flop. Billions of dollars, countless hours of genius... just gone. Lewis: Whoa. That can't be right. Seventy-two percent? That's basically three out of every four new things you see on the shelf. How is that even possible? I always figured if you build something great, people will eventually find it and buy it. Joe: That's the exact myth that leads to this massive graveyard of failed innovations. And it's the central problem tackled in a book that’s become something of a bible in Silicon Valley, Monetizing Innovation: How Smart Companies Design the Product around the Price by Madhavan Ramanujam and Georg Tacke. Lewis: Monetizing Innovation. I like that title. It’s direct. So who are these guys? Joe: They aren't just academics. They're senior partners at Simon-Kucher, which is the world's largest pricing and monetization consultancy. The book is built on their experience from over ten thousand projects. They've seen this 72 percent failure rate happen again and again, up close. Lewis: Okay, so they have the receipts. They’ve been in the trenches watching these brilliant ideas crash and burn. That gives them a unique perspective. So, let's get into it. Why are we so bad at this?

Joe: The core issue is a flawed mindset. We romanticize the innovator as this lone artist, like a Van Gogh or a Steve Jobs, who locks themselves in a garage, creates a masterpiece, and then reveals it to a grateful world. The book calls this the "build it, and they will come" mentality. Lewis: Right, and it's a great story. We love those stories. The scrappy underdog who proves all the doubters wrong. Joe: We do. But for every one of those, there are thousands of failures. The book gives this perfect cautionary tale. Imagine a startup called 'InnovateTech'. They see the smart home market emerging and decide to build the ultimate, all-in-one Smart Hub. Their engineers are brilliant, and they pour millions into R&D. Lewis: I can picture it. Sleek design, more features than anyone else, AI-driven everything. The works. Joe: Exactly. It's technically superior in every way. The product team is incredibly proud. They've built the best thing on the market. So, they decide to launch it at a premium price: $499. They figure, "We spent a fortune on R&D, and our tech is way better than the competition, so it's worth it." Lewis: That logic seems sound, on the surface. You get what you pay for. Joe: It seems sound, but it's the fatal flaw. They launched the product, and the sales were abysmal. It was a complete flop. They were only selling to a tiny niche of tech enthusiasts who appreciated the engineering. The average person, who was just getting into smart homes, looked at the $499 price tag and then looked at an Amazon Echo or Google Home for a fraction of the price and just couldn't see the value. Lewis: Oh, that's just heartbreaking. All that work, all that genius, down the drain because the price was wrong. They were speaking a different language than their customers. Joe: Precisely. They never stopped to have what the book calls the "Willingness-to-Pay" conversation. They were so focused on their own costs and their own belief in their product's superiority that they never actually asked, "What problem are we solving for the customer, and what is that solution worth to them?" Lewis: It's like a chef spending a week making a complex, ten-course meal and then trying to sell it out of a food truck for $500. The food might be amazing, but the context and the customer's expectation are completely wrong. Joe: That's a perfect analogy. The book points out this "wild asymmetry of precision" in most companies. They'll have spreadsheets tracking the cost of every screw and every hour of labor down to the penny. But when it comes to the revenue side—the most important part—their projection is basically an educated guess. A hope. Lewis: And hope is not a business strategy. Okay, so building in a vacuum is a recipe for disaster. I get it. So what's the alternative? How do you figure out what people will actually pay before you've even built the thing?

Joe: This is where the book's central, and I think brilliant, idea comes in. You have to flip the entire process on its head. You don't design a product and then slap a price on it. You design the product around the price. And to do that, you have to understand segmentation. Lewis: Hold on, segmentation sounds like marketing jargon. You mean like, targeting millennials, or high-income households, or people who live in cities? Joe: That's the exact trap most companies fall into, and the book has the most memorable analogy I've ever heard for why that's wrong. It's the Prince Charles versus Ozzy Osbourne principle. Lewis: I'm listening. This sounds good. Joe: Okay, so imagine you're a product designer. Your marketing team gives you a customer profile. It reads: "Male, born in 1948, raised in the UK, married twice, lives in a castle, wealthy, and successful." Who do you picture? Lewis: That’s easy. Prince Charles. Now King Charles. Got it. Joe: Right. So you start designing a product for him. Maybe a refined fountain pen, a subscription to a classical music service, a pair of bespoke tweed driving gloves. But here's the twist. Ozzy Osbourne, the Prince of Darkness, fits that exact same demographic profile. Lewis: Oh my god. That's incredible. He was born in 1948? And lives in a castle? You're right. They are demographically identical. And you would absolutely not try to sell them the same thing. Joe: You'd be laughed out of the room! One wants a quiet evening with a history book; the other famously bit the head off a bat. Designing one product for the "average" of those two would result in something that neither of them wants. And that, the book argues, is what most companies do. They design for a faceless, average customer based on superficial data. Lewis: That is such a powerful way to explain it. So, if demographics are useless for product design, what's the right way? Joe: You have to segment based on needs and, crucially, Willingness-to-Pay. The book tells another great story about a North American paper packaging company. For years, they segmented their customers the lazy way: small, medium, and large businesses. Lewis: Seems logical. Joe: But it was useless. Their sales team kept saying, "Some of our biggest clients are the cheapest, they only want basic boxes. And some of our smallest clients would pay a fortune for special services like just-in-time delivery." The segmentation didn't match reality. Lewis: I can see how that would be frustrating. The people on the ground know the truth, but the strategy is based on a flawed model. Joe: Exactly. So they threw out the old model and did a deep study. They surveyed 200 customers, not about who they were, but about what they needed. And they discovered four completely new segments that had nothing to do with size. There was the "Want Price Only" group, the "Want It Now" group who would pay a premium for speed, the "Want Product Only" group who cared about quality, and the "Want the Best" group who wanted top quality, top service, and were the least price-sensitive. Lewis: Wow. And I bet those groups were a mix of small, medium, and large companies. Joe: A complete mix. The old model was totally misleading. But with this new map, everything changed. The product team suddenly knew exactly what to build. For the "Want It Now" segment, they could design a premium logistics service and know exactly what to charge for it. For the "Want Price Only" segment, they could create a no-frills, bulk offering. They stopped building one-size-fits-none products and started creating tailored solutions that customers were genuinely happy to pay for. Lewis: That's the shift. It’s moving from guessing to knowing. They had a blueprint for what the market actually valued.

Joe: That's the whole philosophy of the book in a nutshell. It's about having those tough, crucial conversations about value and price at the very beginning of the journey, not at the end when it's too late. Lewis: It’s a fundamental re-framing. The question isn't "We built this, how much can we charge for it?" The question is "There's a group of people willing to pay 'X' for a certain solution. How can we build that solution for them, profitably?" Joe: Exactly. The authors say it's about moving from 'hoping' to 'knowing.' You stop hoping your invention will find a market and start knowing it will because you designed it for a specific market, at a specific price, from day one. The power to segment is the power to monetize. Lewis: So for anyone listening who's an entrepreneur, a creator, a product manager... the first step isn't another line of code or another feature. It's a real, honest conversation about value with a potential customer. Joe: Absolutely. And it's a discipline. It's less about a single flash of genius and more about a rigorous process of listening. We're actually curious to hear from our listeners on this. Have you ever seen a product you loved, or even worked on, that failed because the price was just totally out of sync with its value? Lewis: Oh, that's a great question. I can think of a few. Share your stories with the Aibrary community on our social channels. We'd love to see what cautionary tales are out there. Joe: It’s a lesson that costs companies billions, but the insight behind it is priceless. Lewis: This is Aibrary, signing off.