Innovation Driven Pricing
Innovation drives quality, which has an impact on cost. Because of this, the dynamics of innovation govern the dynamics of quality, which in turn influence the dynamics of pricing.
India is now the 5th largest and fastest-growing economy in the world. Innovation is contemplated to be the backbone of the modern Indian economy. As per data provided by Invest India, the Indian Startup Ecosystem has seen exponential growth in the past few years (2015-2022 till date). There has been a 5X increase in the total funding of startups, a 9X increase in the number of investors, and a 7X increase in the number of incubators.
Innovation has a direct relationship to the idea of change. Combining old elements in a fresh, modified way is at the core of innovation. They are seen either as a factor reducing the innovator's edge in the market or as a catalyst for growth. To be innovative, however, requires costly and unpredictable investment in research and development (R&D).
Innovation and the creation of new products are strongly related. Innovation is different from creativity since the latter solely considers the firm's potential for product development, innovation is what is used to capture market commercialisation. This calls for stakeholders, management, scaling up, and teamwork. Growth companies are perceived to be innovative and are expected to generate high value and earnings in the future.
Simon Kuznets, the winner of the 1971 Nobel Prize in economics for his contributions to contemporary economic growth, particularly the connection between population increase and technical advancement, as well as the systematic statistical assessment of economic events, held that rapid population expansion encourages technical innovation because it multiplies the pool of prospective inventors. For instance, Kuznets made the observation that innovation is concentrated in urban areas and makes the case that changes in population and research output are correlated. This is because a growing population enables knowledge spillovers.
Large companies take the lead in the market from the previous leader through effective innovation. Being the market leader gives a company an advantage in the product market, such as a cost or quality advantage, which results in a positive profit difference between the leader and the following. This profit differential encapsulates the market leader's profit advantage.
The riskiest endeavor a company does is undoubtedly "new product development." The markets that are being served are frequently new, and the product that is being produced is a "first" for the company. High levels of uncertainty exist. But recently, this activity has come to be seen as crucial for business survival in the marketplace as well as development.
The era of decacorns (companies with a valuation of more than $10 Bn) is increasingly replacing the era of unicorns. 46 firms worldwide have attained decacorn status as of July 27, 2022. The decacorn list now includes four firms from India: Flipkart, BYJU's, Nykaa, and Swiggy.
India is ranked second among middle-income countries in terms of innovation quality. India's innovation is not restricted to a few industries. With 13% coming from IT services, 9% from healthcare and life sciences, 7% from education, 5% from professional and commercial services, 5% from agriculture, and 5% from food and drinks, startups are finding solutions in 56 different economic sectors. Out of the total 107 unicorns, 44 worth a combined $93.00 billion were born in 2021, while 21 unicorns worth a combined $26.99 billion were created in 2022.
One of the most challenging choices to make in this new era is how to price a new product. Pricing is a cross-functional, incredibly potent instrument for establishing the viability of an invention early on in addition to generating and maximising profitability.
Pricing is sometimes thought of as being limited to that last element, but in reality, it encompasses a complete macro-to-micro process that affects a wide range of organisational functions. The fact that innovators actually only have one chance before the product reaches the market is one of the factors that make the price so crucial for the creation of new products, services, or offers.
When the company charges too much, there is a risk of driving away clients; when the charge is too little, there is a risk of leaving money on the table and casting doubt on the value of the product. When a novel product is introduced that consumers are unfamiliar with, it is considerably more challenging since it is harder to establish clear standards for measuring value.
Innovation drives quality, which has an impact on cost. Because of this, the dynamics of innovation govern the dynamics of quality, which in turn influence the dynamics of pricing. In a broader market, the sales effect is more important since lower prices with a higher quality result in more demand expansion.