2.8 Marketing Innovation

Innovation can occur organisational or in a product or process. Things change and this leads to the need of new product/service development (NPD/NSD) even if only to update the solution for a cycle extension. Generally, new products in new markets make only up 10% of the new products. 20% are targeted to old markets and 50%+ are mere updates. It’s the plodding (steadily regenerated) cash cow that continues to dominate development processes in most markets.

Innovation falls into several categories.

1. Continuous innovation is typical for fast-moving consumer goods (FMCG) markets (e.g. washing powder). There are regular innovations here without the need of new customer behaviour.

Companies need to develop their existing products within a changing competitive environment. Here you need to look at something called position drift, which can be shown in a position map, normally a 4 quadrant map with 4 different attributes (for segmentation of the market) on the sides (e.g. basic-luxurious and expensive-economical) which enable the placement of products within these 4 quadrants and further group them in segments (circles within the map).

These attributes (also called dimension) can be found through factor analysis which looks at the factors of a company’s value proposition and ranks them in order of importance to the customer, not the supplier or anyone else, but clearly the customer, through the customer’s eyes. Cluster analysis can then be used to create segments (clusters of customers with similar expectations). Often market research is used here.

Once you found your segment, the center of this segment is the idea product or service for that segment. This is where the drift comes in.

Customer drift: customers’ demands change, the center moves and the cluster size may change.

Competitor drift: competitors change their position and your competitive advantage is reduced. This is especially problematic if one product should fill several segments and then a competitor moves into the center of one of those segments. (a good place is between your competitor and the ideal)

Ego drift: One of the most relevant shifts, where a brand manager or development team reposition their own brand to a less than optimal position. (e.g. Coca Cola’s try with a new image and taste because they thought something new was needed)

That means that those position maps need to be updated frequently and sometimes changes in the environment require a radical shift to a totally new segment. Charities got a problem when the national lottery enabled people to feel that they were giving to charity (25%) while having a chance of winning (50%, 25% goes to the operator and government).

To reach your long-term product objectives you need a product strategy and there are said to be basically 4 different strategies for growth in volume and profit seen in the Ansoff Matrix

Market penetration

Existing products in existing markets (most NPDs go here)

\- increasing sales to existing customers

\- finding new customers

It’s about persuading a customer to buy more of a product either by taking away from another one or by getting people to increase their usage.

Product development

New products in existing markets (traditional NPDs)

Use an existing brand name and extend it into neighbouring fields, called brand extension (e.g. American Express moving into travel, banking, private healthcare, theatre booking, …, Coca-Cola with Diet Coke)

Market development

New products in existing markets

This is about finding new uses for existing products like new geographical areas.

Diversification

New products in new markets

Concentric diversification: when there is a link between the new and old activities

Conglomerate diversification: completely new, sometimes buying a company with the required expertise. The further you move from the home market, the higher the risk.

There are different approaches here like a rational plan, communication web and disciplined problem solving.

Dynamically continuous innovations are significant and require some adaptation by the consumer, e.g. CD-Roms for home computer. In general, this happens in markets that are used to change, like IT.

The changes here need to be inline with the strategy or the strategy needs to be changed. Sony creates around 1000 new products a year, with 200 aimed at new markets. You need to review:

Production capabilities (is skill and firmware there)

Financial performance (affordability of changes, profits and cash flow)

Cannibalism (how much business will come from existing brands)

Match with existing ranges (if complimentary then they are easier to sell, existing distribution patterns)

There are different innovation processes. These might involve regular meetings (formal and informal), brainstorming, formal R&D programs, valuation/identification of the market or a suggestion scheme. Ideas come from every direction, sometimes from unlikely places and an organisations capability to innovate is ‘intangible capital’. Scanning the environment and keeping an open mind is important.

Customer innovation is the greatest source of new ideas. Focus on the customer, listen attentively and use things like employee suggestion schemes.

Innovation imitation, meaning to copy, is another big thing.

Discontinuous innovation (Disruptive technologies?) is rare, totally new, requires a complete change in consumer behaviour, like the first appearance of video recorders. Many products are launched without real research, gap analysis can help here to find possible gaps to fill.

Usage gap = Market potential — Existing usage (most important for brand leaders with more than 30% of the market, looking to expand that market)

Access gap = limits in availability, maximize distribution (not easy)

Product or service gap = part of the market a company is excluded from due to product characteristics

Competitive gap = results from your competitive performance

(Market gap analysis could be used the same way to look at gaps in the market instead of the product.)

The development process is often unpredictable and management tries to minimise the risk with organisation’s corporate and marketing strategies being a guideline for the screening process. In Japan, they have less R&D costs, bring products to market faster and even try them out directly in the market.

More than 80% of ideas of new products fail and for mass markets a concept test is used to assess customer reactions (market research or pilot program). Between the idea and the launch lies product development and market research is needed to find out if what you are trying to build is really what you need. Once there is a workable product you still need to test it on customers and these tests can be used to alter the product a bit. For services, this is often not a good solution but you rather launch in a make or break sense. Test marketing is used to optimize the marketing mix prior to launch.

(Page 37 has a very detailed figure for service development)