The table below presents, from the perspective of Boston Consulting Group, Fast Company and Forbes, the top ten most innovative companies in 2018. Of note, Amazon appears in all three while half of the firms appear in 2 out of the 3 lists.

Let’s focus on the leader. As Jeff Bezo’s speaks about "It is Always Day One,"  he mentions four key principals that underlies everything done at Amazon:

• Customer Obsession – “Customers will always be discontent… and they will always be pulling you along.”

• Eagerness to Invent (Love to Pioneer) – “Need to have something that is differentiated unique and something that customers would like that we kind of leading with.”

• Long-term Thinking – “Willing to take some time and be patient with our business initiatives”

• Operational Excellence – “Know how you have high standards and do things right.”

In this post, I concentrate on the elements of customer obsession and eagerness to invent. It is the relationship of these elements that transform a mere invention into an innovation, an innovation that matters. Innovations are only successful when they create value—and, value creation should always begin with customer value.  

What is customer obsession?

At Amazon, customer obsession means starting with the customer and working backward. Work vigorously to earn and keep customer trust. Leaders pay attention to competitors, but they obsess over customers. Bezos articulates it as such, if you are in front of your competitor, it’s hard to stay motivated by referencing your competitors whereas customers are always wanting more. No matter how far ahead of your competitors, you are still chasing your customers. Customers are leading and pulling you forward.

To be customer obsessed, we need to know our customers’ needs and wants, better if we can anticipate these, better yet is our ability to provide a vision that exceeds our customer’s imagination.

What about the eagerness to invent?

Bezos terms eagerness to invent as the love to pioneer. He mentions that every time Amazon has tried to do something in a “me too” fashion, they have failed. He goes on to relate the importance of having something that is unique and differentiated but couples this clause with “that customers are going to like and that we’re leading with.” 

Pioneering implies being first, it implies being in the lead. Amazon’s principles page describes its principles around invent and simplify as “Leaders expect and require innovation and invention from their teams and always find ways to simplify. They are externally aware, look for new ideas from everywhere, and are not limited by ‘not invented here’. As we do new things, we accept that we may be misunderstood for long periods of time.”

Bringing together customer obsession and eagerness to invent is what fuels differentiation. Differentiation enables operational excellence and long-term sustained success. Doing this well requires making choices and being focused.

How do you price new innovations?

Begin by understanding how value is created

If you have read our posts before, you will know that you have to begin by understanding value from the perspective of your customer. Research and validate emotional and economic value drivers for all market participants. Understanding and quantifying the economic and emotional value your customers experience allows you to focus your marketing and positioning efforts on those customers that will provide you with the greatest long-term value.  This provides insight on where your outward (customer) focus should be. In turn, these then inform where your inward (offer development and operations) focus should be—which inventions you should invest in to create value (and transform into innovations).

Bear in mind that value is specific to your customer. Peter Fader describes customer centricity in his book, Customer Centricity: Focus on the Right Customers for Strategic Advantage, as "a strategy that aligns a company's development and delivery of its products and services with the current and future needs of a select set of customers in order to maximize their long-term financial value to the firm." Interestingly, he mentions in this order that Amazon, IBM, Harrahs, Tesco and Netflix (3 of these firms are recognized for innovation) are companies that execute on customer centricity. Customer centricity acknowledges that: not all customers are equal; businesses need to identify those that matter; there is a willingness to invest more to deliver to those customers what they want. Doing this creates a lucrative, more profitable future.

Segment the Market and Target Customers

Find segments that get value in the same value and buy in the same way. Developing market segmentations based on emotional and economic value drivers, buying processes and other differentiation axes that emerge bottom-up from your customer data has proven effective for our customers as they continue to understand how to build differentiation.

Customer data to design, collect and analyze include:

• Interview data

• Survey data (we develop custom designed surveys to uncover economic and emotional value drivers)

• Social media data

• Usage data (including measures of engagement and predictive engagement)

• CRM (customer relationship management) data

• Invoicing data

Look for patterns in sentiment and buying behaviour so that you can target segments that get the most value (and have the highest lifetime customer value) with reasonable CAC (Customer Acquisition Costs).

Monetize the Value

To do this you’ll need to design a pricing model. Identify all of the value metrics (the measures of how users get value). Use these to design the pricing metric (how users are charged) and the pricing architecture. Pricing is where all of your critical marketing decisions come together. Buyers and sellers can disagree on many things, but at the end of the day, they have to agree on price.

Set and Monitor Prices and Performance

Set prices to optimize for company goals (market share, revenue, profit, cashflow). Establish a monitoring system to ensure continuous improvement.

The Value of Innovation

Ibbaka is committed to driving the value of innovation. We aim to provoke thinking about your innovation, how it is valued and measured, and how this impacts your pricing strategies.