Tuesday, June 26, 2012

How to Sell your New Product at 10 x Price

The magical thing about 10 x is that it instantly moves us away from incremental thinking and dares us to think out-of-the-box. We are made to ask questions that we would have never asked before.

What should we do to sell our product at 10 x the present price ?

To answer this question, we need to understand why folks buy our product - what do they perceive as the value offered by this product - how can we enhance this perceived value ten fold ?

What do the Customers buy this product for ? When will they be ready to pay 10 x more price willingly ?

Coffee in the ordinary hotels in Bangalore is not more than Rs 10. A cup of coffee at Coffee Day costs ~ Rs 50 - let us understand why Customers are ready to 5 x higher price - are they paying for the coffee or for something else ?

CCD - A lot can happen over coffee - CCD is seen more as a "fun" place where youngsters come in groups and have a good time chatting over coffee. It is a hangout zone for youth and is also a  meeting place for business purposes (i have held quite a few of my meetings at CCD in Bangalore & Pune). CCD also offers other facilities like Wi-Fi, Music (Worldspace) etc. Thus around coffee, they are able to create a variety of offerings that Customers would see value for. So Innovation is not about working within the cup of coffee with incremental ideas - but it is about mapping the opportunity space around a cup of coffee.

http://www.indiaretailnews.com/knowledge/134-interviews/22925-interview-with-mr-alok-gupta-director-ccd Interviewer: How does someone end up paying Rs 50 for a coffee and keep coming back for more?
Alok: (smiles) We are an affordable lifestyle format. So our pricing is actually lower than most of our competitors. Having said that, the modern cafe is the third place for the Indian consumer between the home and the office. With more and more Indians out in the workplace, the cafe provides a comfortable environment for him or her to spend time in. The customer attaches a high value to that experience in the cafe. The ease and privacy provided by Cafe Coffee Day helps the customer conduct that business conversation or that interview in a conducive environment.

An alternative question to ask is how to sell 10 x more of our products ?

When will Customers buy 10 x more than what they buy today. Also how to get 10 x more Customers ?

Both telephones and PCs have shown this 10 x increase during 1995 - 2005 in India. During my childhood in Chennai, there were a couple of phones (land line connections) in the entire neighborhood. Now most of us have at least two mobile phones - one personal and one official. When i started my PhD (1992) at IISc Bangalore, my department had one PC in a common room (green display along with a line printer) and there were ~ 20 PCs by the time i finished my PhD (1997). This has been made possible through building infrastructure, relaxing government regulations, reducing product cost etc. 

Innovations within the product alone cannot make this happen - it needs innovations in infrastructure, regulations etc - all these happen in the ecosystem around the products - who will champion these innovations ? If no body does, then the ecosystem is not ready and the analysts conclude that the product was too early to the market. In reality, it is the Innovator's responsibility to ensure that the ecosystem is ready to receive his product. Edison, after inventing the bulb, went on to explore power generation and distribution. He figured this out by asking the simple question "what do people need to use my product ?" - in this case, it is electricity and he went to address that need. Hence he is not the inventor of the electric bulb (it was known for 60 long years before) but is the innovator of electric illumination.

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