Monetizing Innovation: How Smart Companies Design the Product Around the Price

If you have more than three, you are headed for organizational confusion.

These tactics can markedly increase the success of a new product launch. Based on behavioral economic theories we've tested in many different customer settings, these six tactics become more powerful when you combine them. Here they are, along with examples that illustrate them: Compromise effect: Make decisions easier for people who can't choose.

Pennies-a-day pricing: Reduce sticker shock and build loyalty.

The benefit statements, such as “beautiful design” and “unlimited storage,” were music to many ears. The average customer could now quickly understand what they would get with each product offering. If you wanted only photo storage, you would choose basic. Want personalization? Choose power. Did you want to sell online? Choose portfolio.

Psychological price thresholds: Avoid falling off the price cliffs. You might wonder why you rarely see prices like $101 in retail; you almost always see $99 or $99.99. The reason is that customers typically have price thresholds in mind.

Penetration: With this pricing strategy, you intentionally price your product lower than in a maximization strategy to rapidly gain market share. This is also known as a land-and-expand strategy.

Dynamic Pricing

We want to understand the perceived value that the innovation holds for the customer. How much is the customer willing to pay for that value? What would the demand be? Seen in this light, price is both an indication of what customers value and a measure of how much they are willing to pay for that value.

Paid pilots: Instead of giving the product to beta-testers for free, LinkedIn typically goes to market and sells the beta version of the product. Why? It provides another layer of validation for the monetizing potential of the new service based on the value delivered. In the words of Josh Gold, “Our beta users have skin in the game by actually payi