Monetising Innovation

Designing the product around the price

20th June 2018

Dr. Peter Colman
Partner & shareholder
Notice
This document contains original concepts which are the property of Simon‐Kucher &
Partners. They are our intellectual capital and a competitive advantage.
We therefore kindly request our clients to treat them with the same level of
confidentiality as we have towards them. In particular, our documents are not to be
exposed to any of our competitors.
Accepting this document means a commitment to maintaining such a level of
confidentiality.
This document, whether partly or entirely, should not be photocopied or transmitted
without the prior agreement of a Partner of Simon‐Kucher & Partners. All recipients of
this document agree to respect this confidentiality agreement.

2
Innovation is a pervasive topic in manufacturing
Additive manufacturing
Industry 4.0
Generative design
Internet of Things
Big data
Servitization
Artificial intelligence
Improved reliability
Reduced TCO
Increased throughput

3
Four numbers

4
Four numbers

5
Innovation: R&D investments higher than ever
COMPANIES WITH HIGHEST INNOVATION EXPENDITURE
Global
Amazon 16.1 (11.8%)
R&D investments
Alphabet 13.9 (15.5%)
$1.7 trillion Intel 12.7 (21.5%)
(that’s $1,700,000,000,000)
Samsung 12.7 (7.6%)

VW 12.2 (5.3%)

Microsoft 12.0 (14.1%)

Roche 11.4 (21.9%)

R&D investments 2016/2017 in $bn1 (share of turnover)

1 Source: Battelle, R&D Magazine 2016; PwC

6
Four numbers

7
How did your last new product launch perform?
Are your new products meeting their profit targets?

On average only 28%

Yes
28%
of new products meet
their profit targets
No
72%

Share of products

8
Dodge Dart:
Designed without customer WTP at the centre
Disastrous sales performance
Second biggest new product flop in
2012 after the Apple iPhone map
Discontinued in 2016

I can tell you right now that both the Chrysler 200 and the
Dodge Dart, as great products as they were, were the least
financially rewarding enterprises that we've carried out
inside FCA in the last eight years. I don't know one
investment that was as bad as these two were..

Sergio Marchionne, CEO

9
Porsche Cayenne:
Roaring success driven by focus on the customer
Challenge Outcome
Needed a new innovation Most profitable car in the
outside traditional sports car automotive industry
niche
Most important car in
Decided to make an SUV/ Porsche portfolio
family car
73,000 units sold in 2015
Zero experience
in the category ~50% of total company
profit
Inconsistent
with the Porsche brand at the
time (speed, power, daring and
engineering)

10
Four numbers

11
There are only four types of innovation flops
#1: Feature Shock #2: Hidden Gem
(over-engineered (potential not recognised)
or wrong features)

#3: Minivation #4: Undead

(underpriced or "undervolumed") (born to fail)

12
Four numbers

13
Pricing strategy:
Use value‐based pricing, rather than cost‐plus
Application value Price implication
Tyres
Reducing tyre weight
Filament Reducing fuel consumption 100
yarn Improving comfort
Transmission belts
Higher dimensional stability 180
Yarn Higher fatigue, temperature resistance
Pulp
manufacturer Lower operating noise
Application-specific
Heat protection products performance guarantees
Extreme heat resistance provide basis for price
Short (up to 700 °C) premiums
staple fiber
Ballistic protection product
380
Higher impact resistance
Better energy absorption properties €/kg price index

14
Revenue model:
How you charge is more important than how much!
Case study: Tyres

Old model New model

Tyre manufacturer Solution provider:

"Keep your truck rolling"

Price/tyre Price/km (trucker's cost

aligned with revenue basis)

Higher price for better value "Automatically" higher price

almost impossible for better value (duration)

15
9 key steps for success:
How many will you integrate into your NPD processes?
1 2 3
Segment! The core:
Have the
One size fits all Product configuration
WTP talk early
doesn't work! and bundling

4 5 6
Monetisation model: Pick the winning Outside‐in
How you charge price strategy: business case:
trumps what you charge Skimming vs. penetration from hoping to knowing

7 Value 8 9
Use
communication: Maintain your
behavioural pricing
The product as such price integrity
to fine‐tune
is not sufficient

16
Final words…
There are three kinds of companies:

Those who make things happen,

those who watch things happen,

and those who wonder what happened.

17
monetizinginnovation.com | Diagnose your current innovation process

18
Simon‐Kucher & Partners at a glance
Best consultancy in World #1 in pricing Global presence and local Continuous long term
sales and marketing expertise revenue growth (€m)
The Financial Times “World leader in giving 34 offices worldwide, 107 Partners, 00 24
Gold ranking: Marketing, advice to companies on how > 1,100 employees 01 29
brand, pricing to price their products”
02 30
BusinessWeek 03 39
brand eins Thema
04 47
#1: Marketing, sales,
05 53
pricing
“The world’s leading pricing 06 64
Capital consultancy”
07 81
#1: Marketing, sales, The Economist 08 99
Amsterdam Hamburg San Francisco
pricing 09 89
Atlanta Hong Kong Santiago de
Barcelona Istanbul Chile 10 105
Forbes
“Pricing strategy specialists” Beijing London São Paulo 11 121
Marketing, brand, pricing Bonn Luxembourg Singapore
The Wall Street Journal 12 145
Boston Madrid Stockholm
Source: Financial Times, list of the UK's Leading
Sydney
13 152
Management Consultants, January 2018 Brussels Milan
Source: brand eins Thema special edition: Consulting – Tokyo 14 170
industry report from brand eins Wissen and Statista, online
Cologne Mountain
survey, May 2014, 2015, 2016, 2017 “In pricing you offer Copenhagen View Toronto 15 209
Source: Capital, survey of the best consultancies in France,
something nobody else does” Dubai Munich Vienna 16 241
October 2016
Source: Forbes, Survey of best management consulting Frankfurt New York Warsaw
Professor Peter Drucker 17 252
firms in the US, October 2016 Paris Zurich
Geneva

19
Our commercial expertise covers the full range of strategy,
sales, marketing, pricing and digital topics
Commercial Strategy/Marketing Sales Effectiveness Pricing/Margin Management
Growth strategy &
Channel management £ Price architecture & willingness-to-pay
business area expansion

Market segmentation & positioning Sales structure & process optimisation Product bundling/bundle pricing

Product/portfolio management £ Value-selling & negotiation £ Optimisation of pricing processes

Innovation management Customer retention/customer value Harmonisation of discount structures

Customer segmentation Sales incentive schemes £

Price perception

Digitalisation/Digital Transformation

20
We go to market through industry specialisation and work
with leaders and specialists in every sector
Our industry practices are global networks of specialists that develop tailored commercial solutions capitalising on that sector’s opportunities,
challenges and trends.

Automotive Banking Business Services Chemicals & Consumer & Industrial & Insurance Leisure, Travel & Life Sciences Logistics Telecommunications, Energy & Utilities
Construction Retail Technology Transportation (LTT) Internet & Media

Audi American Express 2 of the top 4 AkzoNobel Adidas ABB AdvoCard Accor 24 of the top 25 Canada Post BT BP/Aral
auditors pharma DB Schenker Citrix Castrol
BMW Barclays BASF Beiersdorf Bosch Allianz British Airways
companies De Post Disney natGAS
Continental BNP Paribas 7S Group Bayer Ferrero Caterpillar AON Center Parcs 35 of the top 40 Hermes Novell Orlen
Kia Credit Suisse CPA Global Cognis Henkel Honeywell DAS Hilton medtech
Kuehne+Nagel SAP RheinEnergie
Equinix companies
Maserati Deutsche Bank DSM Nestlé Intel Euler Hermes Lufthansa La Poste Skype RWE
Porsche GE Capital G4S Hochtief Nikon Osram Friends Provident Navigon Parcelforce T‐Mobile Shell
Toyota HSBC Loomis Merck Penny Panasonic Gerling Thomas Cook TNT The Economist Tank & Rast
Volvo RBS Quintiles Rockwool PepsiCo Siemens Mannheimer Travelport Virgin Atlantic Vodafone Trina Solar
Securitas Cargo
VW Virgin Money Wacker Swarovski Schaeffler Munchener Ruck TUI
Dow Jones

Selected clients – other clients excluded due to confidentiality

21
Biography
Dr. Peter Colman
Partner, London
1 Plough Place, London EC4A 1DE
+44 (0) 7515 998 075
peter.colman@simon‐kucher.com
www.linkedin.com/in/petercolman

Dr. Peter Colman is a Partner and shareholder at Simon-Kucher. Peter joined in 2008 and divides his time between his base in the North of England and the London office. He leads the
consultancy’s Technology & Industrials and Sales Effectiveness practices for the UK and Ireland.
Peter has generated strong profit enhancement results throughout his 19 years in consulting and industry. He specialises in Commercial Excellence programmes to address strategy,
sales & marketing, pricing, product management and digital transformation topics. He has worked for corporate clients, private equity-backed companies and venture capital-backed start-
ups on 75+ interventions across Europe and North America.
Peter has written 20+ articles for publications such as The Chartered Institute of Marketing, Sales Initiative Magazine, The Professional Pricing Society and The Manufacturer. He is a
regular speaker / panellist at conferences and is a Member of The Institute of Sales Management, The Chartered Institute of Marketing and The Institute of Directors.
Prior to joining Simon-Kucher, Peter worked for digital marketing and technology consultancies focusing on eCommerce and Customer Relationship Management transformation
programmes. He started his business career in a global account team at BT.
Peter holds a PhD in Electronics from the University of Cambridge.

22
Thank you!