New Product Development (NPD) is the holy grail of marketing and as a result, commercial success. Revolutionary new products were and still remain the greatest source of revenues for most successful companies. A study of successful companies shows that companies with more than 20% of revenues from new products year after year continue their growth trajectory and continue to command commercial success as well as brand recognition. Companies that are not able to do so eventually mature and get bought out or stagnate. A huge correlation exists between market capitalization of successful companies and their revenues through new products.
Revolutionary products are now losing their shine to evolutionary products. Products that evolve from newer technologies are stealing the thunder. New drug classes and new technologies are making headlines. The world is changing very rapidly and integration of different technologies across different domains is becoming commonplace.
Over the next few posts, we will discuss the New Product Development Process and see how innovation can change NPD process as well as products.
Innovation Culture and Mindset
A cultural change needs to drive innovation in modern organizations. Only a cultural change can propel us towards an innovation mindset. Here are a couple of interesting blogs and a video on this topic:
http://www.vijaygovindarajan.com/
http://collaboratetoinnovate.blogspot.com/
Of particular interest from the video below is Prof. Govindarajan's assertion that innovations from the emerging markets will fundamentally disrupt products in the developed markets, something that I stated in my last blog entry. I feel this is a huge opportunity for forward looking management teams. This will also pose a huge challenge for management that does not identify this as an opportunity and continues to bury its head in the sand. I have seen firsthand how the emerging markets will yield paradigms that have the power to disrupt mature business models. The writing is on the wall. Open your eyes and see it!
http://www.vijaygovindarajan.com/
http://collaboratetoinnovate.blogspot.com/
Of particular interest from the video below is Prof. Govindarajan's assertion that innovations from the emerging markets will fundamentally disrupt products in the developed markets, something that I stated in my last blog entry. I feel this is a huge opportunity for forward looking management teams. This will also pose a huge challenge for management that does not identify this as an opportunity and continues to bury its head in the sand. I have seen firsthand how the emerging markets will yield paradigms that have the power to disrupt mature business models. The writing is on the wall. Open your eyes and see it!
Interesting perspective on creativity
Creativity may come from a divine source? Elizabeth Gilbert seems to think so:
Innovation in resource limited settings
My last post on innovation friendly countries got a great comment. Resources limited settings are fantastic breeding grounds for breakthrough innovations that have the potential to change the world.
An example is the whole wireless communications revolution that is going on in India. India was never able to ramp up wired communication due to lack of qualified technical people and resources (money) to lay the wired lines for telephones. A pathetically paltry number of people in India had a telephone till about a decade ago.
With the innovation of wireless telecommunications, the issue of laying wired lines was made redundant. Today, over 400 million people in India have phones now and that number is growing every day. Now, the infrastructure is being upgraded to enable 3G networks. So what is innovative about this?
Well, several things. Several out of the box products have come up:
Overall, companies from developed countries have a lot to gain from competing in resource constrained settings. They can learn how the market is evolving and will likely evolve in the future. They can finetune their offerings so that they can make money in these markets. More than anything else, they can charge a lot more for these same services in the developed countries as customers are willing to pay much more in these countries. And that is a VERY smart business model.
An example is the whole wireless communications revolution that is going on in India. India was never able to ramp up wired communication due to lack of qualified technical people and resources (money) to lay the wired lines for telephones. A pathetically paltry number of people in India had a telephone till about a decade ago.
With the innovation of wireless telecommunications, the issue of laying wired lines was made redundant. Today, over 400 million people in India have phones now and that number is growing every day. Now, the infrastructure is being upgraded to enable 3G networks. So what is innovative about this?
Well, several things. Several out of the box products have come up:
- Sloka Telecom, an India based telecom hardware company, has developed a unique design for a base station that is so small it can be installed on a traffic light pole. This base station is 50% cheaper and does not require air-conditioning or cooling. It can be installed out in the open anywhere. The cost of running this base station is 50% lesser. Read the Sloka Telecom success story here: http://specials.rediff.com/money/2009/mar/18slide1-innovation-woes-india-neglects-product-firms.htm
- Innovative mobile platform products have flooded the market. Many applications from mobile gaming to maps to you-name-it have entered the market and are extremely successful. A lot of these products have a market in the developed countries as well. Some of these product companies are getting big clients in the European and American markets.
- Cost of a phone call is the cheapest in India. It costs less than a penny a minute. Incoming calls are free. Unique calling plans have come up.
- Companies like Nokia are developing concepts, testing them and manufacturing products in India. India is their laboratory for mobile platforms.
Overall, companies from developed countries have a lot to gain from competing in resource constrained settings. They can learn how the market is evolving and will likely evolve in the future. They can finetune their offerings so that they can make money in these markets. More than anything else, they can charge a lot more for these same services in the developed countries as customers are willing to pay much more in these countries. And that is a VERY smart business model.
BusinessWeek's Survey of The World's Most Innovative Countries
I read with interest the article in BusinessWeek that ranks countries by their "innovation friendliness". These are countries that have an atmosphere conducive to innovation. The list is that of countries that have "the right mix of pro-innovation policies and superior results".
While there is no argument that pro-innovation policies play a big role in fostering innovation, why should policies matter in the first place? What if a country delivers superior innovations despite pro-innovation policies? Where would such a country fall on the list?
Also, why should innovation input score matter? Is the proof not in the pudding anymore? How does GDP per capita and FDI matter? Does a country have to have large amounts of resources to be able to innovate? Sometimes great innovations are created and delivered in highly resource constrained settings precisely because large amounts of resources are not available. Is such innovation inferior by any means?
The world around us is changing rapidly. The hangover of the industrial revolution is over. Computers and the internet have created an even playing field. Such surveys need to upgrade what they look for and how they measure innovation effectiveness.
Innovation and Tradeoffs?
Is the world of consumers kind to tradeoffs in products?
Ask your customer what they want in their new product and the answer you get is "Everything!". Customers want the most features at the lowest possible cost, even free if possible. Everyone wants a product or service that will do everything for them and not cost a penny.
As marketers know, you cannot make that happen at no cost and no upside in revenues. Businessmen and women know that it is the revenue model that drives the business. No revenue means no business and no customers. So, I have good news for you. Customers are willing to make tradeoffs when it comes to products. This is exactly where Innovation comes into play. The higher the magnitude of the innovation (per definition of a "Marketing Innovation", see below), the higher the willingness of the customer to pay. The more you alleviate a painpoint, the more you can charge for it.
An example would be medicine. Some truly innovate life saving drugs can facilitate tremendous extensions in patient lifespan. They cost a lot to make, and have good amount of margins, but patients are willing to pay more because of the benefit of extension of their lives or pain alleviation.
Questions that come to mind are:
Tools and frameworks like Conjoint Analysis and Pricing models facilitate asking these questions to your customers. A conjoint study is a partial DOE (design of experiment) that can assist you in asking your customers where they are most likely to make tradeoffs. The output of a conjoint study will help you a) find areas to innovate in and b) understand how consumers will make tradeoffs and maximize value delivery.
Value extraction from consumers will come from value based pricing. There are several pricing models that can help you answer the price question. More later on pricing models as applied to innovations.
Ask your customer what they want in their new product and the answer you get is "Everything!". Customers want the most features at the lowest possible cost, even free if possible. Everyone wants a product or service that will do everything for them and not cost a penny.
As marketers know, you cannot make that happen at no cost and no upside in revenues. Businessmen and women know that it is the revenue model that drives the business. No revenue means no business and no customers. So, I have good news for you. Customers are willing to make tradeoffs when it comes to products. This is exactly where Innovation comes into play. The higher the magnitude of the innovation (per definition of a "Marketing Innovation", see below), the higher the willingness of the customer to pay. The more you alleviate a painpoint, the more you can charge for it.
An example would be medicine. Some truly innovate life saving drugs can facilitate tremendous extensions in patient lifespan. They cost a lot to make, and have good amount of margins, but patients are willing to pay more because of the benefit of extension of their lives or pain alleviation.
Another good example is air travel, which is a mature industry and not an innovation anymore. Nevertheless, when passenger air travel was introduced, it was a true innovation. We are still willing to pay a lot more than it costs to drive so that we can get from Point A to Point B faster. We are willing to pay for speed of travel.
Consumers are willing to pay several hundred dollars for an ipod for an iphone for the additional innovative features that they offer.
Overall, this is good news to marketers. Why? Because the better you are at innovating, the more value you can deliver to your customers and the more value you can extract from them.Questions that come to mind are:
- How much more can you charge?
- And how will I know where the customers will be willing to make tradeoffs?
Tools and frameworks like Conjoint Analysis and Pricing models facilitate asking these questions to your customers. A conjoint study is a partial DOE (design of experiment) that can assist you in asking your customers where they are most likely to make tradeoffs. The output of a conjoint study will help you a) find areas to innovate in and b) understand how consumers will make tradeoffs and maximize value delivery.
Value extraction from consumers will come from value based pricing. There are several pricing models that can help you answer the price question. More later on pricing models as applied to innovations.
Marketing Innovation Myths
Here are some common myths on marketing innovation dispelled for you:
- Myth 1: Innovation should be driven by R&D, technology or a function dedicated to innovation.
- Fact 1: Every marketing person is responsible for driving innovation.
- Myth 2: Being creative with marketing projects will lead to innovation.
- Fact 2: Creativity in itself is not enough for innovation. Companies need structure, processes and training of personnel to drive innovation.
- Myth 3: Marketing Innovation is fostered at exotic locales with “out of the box” thinking through right brain activity of creative and artistic marketers.
- Fact 3: Innovation requires utilization of the full brain and not merely the right brain; Innovation can become an every day habit for ordinary individuals who can innovate on demand within the confines of their own offices, given the right tools and processes.
What is a marketing innovation?
A Marketing Innovation is an innovation that satisfies customer needs and develops a competitive advantage through differentiation along one or more of the following performance characteristics:
- Desired Product Features and Design
- Size
- Usability/Service
- Quality
- Time
- Price
- Cost savings/ Incremental Revenues
As a rule of thumb, a good innovation strives to achieve a multiple or division of 2 to improve the above performance characteristics, which is called the Innovation Rule of 2.
Subscribe to:
Posts (Atom)