I nailed this by BS'ing about this or that. Typical product development stuff: who's the user? what are the unmet needs? What are the challenges of use? Then brainstorming different product solutions, different mechanisms, different iterations, etc. Competitive benchmarking with existing solutions. The interviewer kept asking me what more, what else, and kept pushing. They want to see when you're exhausted I guess. The key is to keep them involved and keep brainstorming. If I were do it over, I'd whiteboard this part out and fill the whiteboard with a structure for attacking this design problem and then populate the possible thoughts/solutions.