The Porsche Cayenne is an undeniable hit for Porsche. Considered heresy by some when launched in 2002 the Cayenne today comprises over a third of all Porsches sold globally.
Madhavan Ramanujam and Georg Tacke were partners at Simon-Kucher and co-authors of a terrific book Monetizing Innovation: How Smart Companies Design the Product Around the Price that used the launch of the Cayenne as an example of how to build your new product around price. They describe the lengths Porsche went to understand exactly what the customer wanted out of a SUV from Porsche and then they ruthlessly included only what the customer would pay for. In came the big cup holders and out went the manual transmission with the Porsche heritage cemented in the new model through a focus on handling and performance so it felt like a Porsche.
So, what can we learn as brand operators about the launch of this monster hero product?
#1 Put price first
Porsche knew exactly the price points they wanted to hit and how those would fit in with their other cars. They built backwards from that price point instead of cooking something up, adding up the costs and their profit and slapping on a price. Start with a price you are confident the customer will pay. Not a price you need them to pay in order for this new product to work out.
#2 Make sure the price works for your business model
Does your business model support your price? If you are going DTC, is the price high enough to support the likely acquisition costs? Also, does the price support your other offerings? If your AOV is $200 and you roll out a $50 product in order to ‘help bring in new customers’ are you supporting your brand and other products with that new low priced item or damaging it? Are you bringing in new customers who can get to $200 AOV’s or just spending tons of ad dollars on never profitable customers?
#3 Ruthlessly include only what the customer will pay for
Everyone, especially founders, have their favorite features and ideas. You can’t blame them. Their gut has usually gotten the company where it is. But will that extra strap, the cool color, the expensive ingredient make the customer pay more? Do you know?
Those little extras add up in COGS, timing, MOQ’s and ads and your new product is more expensive, less profitable, requires bigger quantities and more ad spend. So start with what you now customers will pay for and you can experiment later with all the ‘what ifs’ once you know you have a success.
I coach founders to wealth through improved cash flows. If you are sick of your status quo and ready to make a change, let’s talk.