Is the Opportunity Worth Pursuing? The Five P's of Innovation
(Marketing Memo October 2010)
The press is full of articles on innovation; yet, few help you evaluate
which innovations are worth pursuing. Besides demonstrating that an
innovative product or service works, you also need to prove that the
innovation will generate large enough profits to be worthwhile.
Following are some tips for evaluating innovations that are based on
an article by Scott Anthony, writing for the online Harvard Business
To "size" an opportunity, Anthony recommends that you consider the
four 'P's' of innovation: population, penetration, price, and
purchase frequency. To these four, add profit margin, Anthony
says. Here are some tips to help you make the right assumptions about
the five 'P's' of innovation:
First, define your target market. Which segments of the target market
are likely to want/need and afford your product? Which of these segments
can you reach? How large do you think the target market is? Talk to
customers, salespeople, and industry experts to make sure your projections
are realistic. Realize that it is difficult to move from one market
or one segment to another. If you sell consumer electronics, it will
be challenging to sell electronics to the enterprise market. Imagine
if AARP attempted to sell travel services to twenty-five year olds!
How much of your target population can you reach this year? In the next
two to three years? What reason(s) do you have to believe you can achieve
these targets? Is your offering so novel or so risky that adoption will
be slow? Could any of these segments turn to competitors? What could
prevent you from achieving your projections, and what can you do about
Besides production costs, prices must take into account the value your
offering brings to customers, as well as what customers are paying for
similar products. Set prices well before launch date.
Purchase frequency can affect price. If you are selling printer
cartridges or other essential consumables, you have a somewhat predictable
revenue stream. You also have a lot of competition.
Many companies project revenue, not profit, failing to factor in
the cost of producing, marketing, and selling the offering. Profit then
becomes the product of Population, Penetration Percent, Price, Purchase
Frequency, and Profit Margin.
We can help you test assumptions concerning Population, Penetration,
and Purchase Frequency so that your profit projections are realistic.
 Scott Anthony, "The 4 Ps of Innovation," Harvard Business Review
Copyright © 2011 Ruth Winett. All rights reserved.
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