The 4 Ps of Innovation

I was reading a blog by Scott Anthony on 4 Ps...... really interesting. Scott Anthony is the Managing Director of Innosight Ventures and has written three books on innovation.

Any marketer can quickly rattle off the so-called "4 Ps" of marketing (product, price, place, and promotion). Innovators should also be able to quickly recite the 4 Ps that capture their idea's potential: population, penetration, price, and purchase frequency.
Companies looking at a specific revenue target can simply multiply the addressable population, the penetration of that population, the price per purchase, and the purchase frequency to get to annual revenues. Typically he suggests people try to be quite precise about their target population, give their best estimate based on in-market analogies of the pricing and purchase frequency, then determine what penetration they would need to hit their targets.

This deceptively simple calculation neatly captures many of the elements of an idea's business model. Does the idea target a niche or a mass population? Is it an occasional or frequent purchase? What channel would support the target price point? What kind of support would be necessary given the purchase frequency?

Once you do the 4P calculation (and of course, if you add in a fifth — profit margin — you can look at profits instead of revenue), the focus shifts to finding systematic ways to determine whether the assumptions behind the calculation have any hope of being true.

The deep thinking that goes into creating complicated spreadsheets for ideas can be very useful. But it also can be a way to mistake motion for progress. Make sure you can answer the simple questions before you worry about the complicated ones.

(Image source: Business-strategy-innovation.com)