The Aerospace and Defense (A&D) industry has long been a source of considerable innovation for both the public and private sectors. With discoveries like memory foam, smartphone sensors, weather radar and super glue, the traditionally government-focused industry has created numerous products over the years that have found commercial success in the hands of the public. But what happened to the other innovations that showed promise but failed to find a life outside of the military or government sectors? Why didn’t they succeed?
Over the course of Simon-Kucher’s nearly 40 years of experience, we’ve found that a primary reason innovations fail to achieve commercial success is due to the lack of a sound monetization strategy. Companies often get caught up in product and feature development without giving adequate attention to commercialization. While the product may perform as intended, companies often fail to verify it will generate the intended value for the company. A&D companies are no different. Like in other industries, it is critical to consider commercial implications early and often in the product development lifecycle to make sure the company will generate its expected return on investment.
Our experts have shared some tips to help A&D companies get started on the path to monetization success.
1. Leverage market research to understand customer preferences and determine willingness-to-pay (WTP)
Successfully monetizing an innovation begins with understanding your target customers: who they are, what they want, and ultimately how much they are willing to pay. It is important to start these conversations early in the product development process; even more so when the target customers are different from your traditional customer base. By understanding who these customers are, your product team can focus on addressing specific pain points and delivering a product that addresses a set of specific needs. This, in turn, focuses the product team on the development of features that will generate the greatest value for the customer. Additionally, by having a keen awareness of WTP, your company will be able to make more informed product feature trade-offs.
2. Appropriately segment your customers
A&D companies typically approach product development with the view that customers are a homogenous group with similar needs and preferences. While this may be true in traditional A&D markets, product development teams must bear in mind that in most other markets customers are not uniform, and it is impossible to be all things to all customers. As such, it is important to leverage market research and develop distinct customer segments, recognizing that each segment will likely have different pain points and WTP. A sound customer segmentation strategy will also help guide the product development process by focusing the company on the delivery of a final product that addresses needs of the most profitable customer segments.
3. Design offerings that meet the needs of each target segment
While a product’s features and functionality will initially draw customers in, the price and monetization model can be just as important in terms of generating value. After establishing WTP and distinct customer segments, the product will need to be offered in a way that reflects segment-specific preferences. This effort includes developing distinct variations of the product that appeal to different target audiences by offering varying levels of value at different price points. Additionally, companies should understand how best to charge for the product to gain higher adoption. Options may include: one-time fee, subscription, pay-as-you-go, price per usage, and others.
4. Define a well-informed price strategy
Codifying a company’s price strategy is critical to defining the product’s short- and long-term monetization plans. It is important to clearly articulate how the company plans to generate value and how the product fits into that plan. This can take the form of (1) maximizing revenue in the short-term, (2) pricing lower to gain market share and attract new customers, or (3) skimming to capture high WTP customers then lowering price over time. Additionally, the pricing strategy should define how the company will set prices and respond to competitive threats in the future. A well-informed pricing strategy will be particularly helpful to A&D companies looking to sell their innovations to customers in civilian markets.
5. Sell the value of the product by strengthening sales and marketing teams
Sales and marketing teams play a crucial – though often overlooked – role in a company’s ability to successfully monetize an innovation. When bringing any innovation to market, it is important to be able to articulate the product’s overall value, not just a list of its features or specifications. Sales teams must be equipped to convey key product messages in a way that will resonate with the target audience, while also managing objections and limiting concessions. Playbooks and negotiation tools are often used to supplement sales teams and increase success rates. This is especially true for companies in the A&D industry as they bring their technology to new industries where customers may have less familiarity.
Are you ready to implement a proven monetization plan for your organization’s innovations?
At Simon-Kucher, we pride ourselves on being leaders in the development and launch of commercial strategies. We understand that innovation alone is not enough; it must be accompanied by a sound monetization framework that enables our clients to achieve a higher success rate and return on investment. Our team of experts will work closely with you to identify key opportunities and develop a tailored solution that aligns with your specific growth ambitions. If you are ready to discuss your specific needs and take your growth to the next level, contact us today.