As the whole world faces the challenges of an economic recession, firms performance is heavily scrutinized as there is a huge pressure to show positive results. As a result from this pressure, firms are forced to try find ways to cut costs and improve margins given the smaller market they have to compete for. But it is during this difficul times that firms need to think very carefully before cutting down on their investment in product development. This is the time when consumers demand more from the brands they buy and are not willing to splurge on products or services that do not add significant value, however this is manifested. Therefore, an opportunity for new products or brands is created as consumers more than ever are willing to change their behavior and try new options in order to adjust to the economic difficulties.
It is not a new idea to say that when the economic outlook is complicated marketing efforts are more necessary in order to remain competitive. Innovation and product development are not indifferent to this idea. To illustrate this better, just look for a moment at the differences between the developed countries with the rest of struggling economies. Most of the underdeveloped countries justify the lack of investment in research and technology on the fact that there are more immediate needs to satisfy and allocating funds to R&D would be considered a luxury. This mindset creates a never ending loop in which the economy never generates additional sources of income and in consequence, will never overcome its underdeveloped state.
As consumers are more protective of every dollar they spend, firms must provide them products and services that go beyond the mere elemental proposition. Instead they will opt for brands that offer significant additional value, making their lives easier, helping them go through the difficult time. New products that can deliver on this promise will attract consumers’ attention and adoption while creating strong relationships that will far outlive the recessive period.
Hi Everyone!
I received some follow up questions from the presentation I gave at last Friday's Center for Brand and Product Management Fall Board meeting. Here is a bit more background on the research that I have done on Consumer Co-Creation for Innovation.
Consumers' Expectation are Changing: Across all industries, consumers expect to be a part of the Innovation process. Yet, for the most part, their only option is limited personalization of existing goods. Consumers don't just buy a bear, they Build-A-Bear. Consumers personalize their running shoes and customize their M&Ms.
Companies Need to Change Their Approach Towards Innovation: Companies currently practice what I call Innovation Validation, which means they ask consumers to provide feedback on a select group of options that the company developed (ex: they ask a focus group to rank new product concepts). If companies want to truly engage consumers in co-creation, they need to adopt a philosophical shift and move towards Uninhibited Innovation. This is where companies ask consumers to tell them what it is that they want (ex: give the consumers a blank sheet of paper).
Communities Vary In Their Level Of Consumer Involvement In Innovation: Not all Online Communities are created equal in terms of their ability to involve consumers in the Innovation process. Some are more geared towards co-creation than others. Below is a Spectrum of Community Involvement for Innovation as well as the definitions of the different buckets I have created.
Repository – Brand provides information for consumers to obtain. Brand does not openly solicit feedback.
• Iams provides consumers with information on products, nutrition, and pet care.
Suggestion Box – Brand provides opportunity for consumers to submit ideas. Consumers receive little follow up.
• Mystarbucksidea.com allows consumers to post, vote, and discuss ideas.
Source of Empowerment – Consumers act as an extension (and on behalf ) of the brand to educate / influence other consumers.
• Virgin Mobile leverages its Insiders group to educate other consumers on the brand, promote local venues, and provide feedback back to the brand.
Vested Panel – A consistent group of consumers primarily used as a standing focus group to contribute and react to ideas.
• Kraft’s online community provided insights on product development, advertising, and in-store execution for the South Beach Diet product line.
Launch Pad – Consumers participate in a major function of the brand (design, advertising). The brand would not exist without consumers and consumers’ ideas would not come to fruition without the brand.
• Threadless empowers consumers to upload and vote for their favorite t-shirt designs. Winning designs are mass produced and sold.
This spectrum bucketed communities based on three criteria:
- Communication Flow
- The Brand's Relationship with the Consumer
- Consumer Activities
This criteria is fluid and works together to increase Community Involvement in the Innovation process.
Communities Can Be Strategically Incorporated Into the Entire Innovation Process: When developed and managed correctly, communities can be leveraged for Ideation, Product Development, Positioning, Packaging, Advertising, In-store Execution, and Feedback.
Not For Everyone: Some industries will struggle to implement Uninhibited Innovation, while still managing consumer expectations. For example, the food industry requires different manufacturing lines to develop different product offerings. Because capital investment is high, a company may not be willing to invest in new machinery for potentially small batch sizes. In order to manage consumer expectations, food manufactures would need to limit the scope of Uninhibited Innovation to things that would require little additional investment.
This can ultimately lead the manufacture to invite consumers to develop the next line of energy drink, but put so many constraints on it, that they essentially only allow the consumer to come up with the next flavor.
Thoughts? This is still pretty new. Most of the research suggests that consumer online communities can only be leveraged in the digital industry. While it is much easier for these companies, it is possible for other industries to successfully implement and leverage these communities. Kraft leveraged their online community with the introduction of the the South Beach Diet product line. As a result, sales reached $100 Million in just the first 6 months of launch.
With the world focused on the the Dow index as the US economy is in turmoil, the S&P/BusinessWeek Global Innovation Index provides an interesting look at how 25 of the most innovative public companies around the globe are performing. The Global Innovation Index is a new measure (created Feb 2008) of how innovation is proving to be an important factor for successful companies.
The Companies
The companies included in the index are based on BusinessWeek's Most Innovative Companies rankings. The list is created with a number of sources. "Each company's weight in the index is derived from a combination of two rankings. The first is a qualitative ranking based on the company's position in the annual BusinessWeek/BCG survey. The second is a quantitative ranking based on three factors used to estimate a company's innovation—three-year earnings growth; three-year sales growth, and R&D as a percentage of sales. A composite score is calculated for each company by adding the qualitative and quantitative scores. For details, go to www.indices.standardandpoors.com. "1
37 percent of the companies are in the tech industry and the 25 companies represent five countries.2
The index will be rebalanced each May after the Most Innovative Companies ranking is published in BusinessWeek.
Performance
"Historical data show that the S&P/BusinessWeek Global Innovation Index companies outperformed S&P Global 100 Index companies by more than 7% in 2007 and have done 5% better since the middle of 2005." 3 In 2007 the Innovation index outperformed the S&P Global 100 Index by 7%.
I tried to look up how the idex was currently performing, but I was not able to locate the ticker on Bloomberg or the S&P Website.
Pitfalls
One potential problem of this scale is that the companies included are only evaluated every year. A company's strategy and innovation pipeline can change dramatically in a year. What was once an innovative company, can grow stale or have a couple of dud launches.
Another potential challenge is with defining what qualifies companies and "innovative." The index is somewhat subjective as there is a qualitative aspect in determining which companies are included. In addition, a new innovative start up will not have three years worth of history outlined in the index definition.
1 "A New Innovation Index - The S&P/BusinessWeek Global Innovation Index"; BusinessWeek; Feb 2008; http://www.businessweek.com/innovate/NussbaumOnDesign/archives/2008/02/a_new_innovatio.html
2 "S&P/BusinessWeek Global Innovation Index"; Standard Poor.com; 2007
http://www2.standardandpoors.com/spf/pdf/index/Tickers_ETF_chart.pdf
3"S&P/BusinessWeek Global Innovation Index"; BusinessWeek; May 1, 2008; http://www.businessweek.com/innovate/content/feb2008/id2008027_367300.htm
I was doing research on the state of mobile marketing -- exploring recent developments in the medium, especially from a mobile-Internet perspective -- when I ran across some startling data.
We're currently in the era of the iPhone -- a device many consider to be cutting-edge innovation. It certainly has bells and whistles. And the ability of the device to view and interact with rich media -- upside-down/inside-out/etc. -- is amazing.
Yet SMS and voice reign king in the mobile world:
> 80% of mobile operator revenues comes from voice services, according to industry analyst group Yankee Group in an article in Telephony magazine.
> Mobile text campaigns regularly get 10X better return than those using rich media, according to the CEO of Limbo in a BrandWeek article.
> An iPhone user is 70% more likely to use SMS, according to Nielsen Mobile in the same BrandWeek article.
How to reconcile this insight? Apple has innovated the iPhone interface in ways that are pretty impressive when you see them demonstrated. But good old-fashioned text-based messaging and phone conversations still dominate. Really.
What are thoughts on this? And what insights does this provide in the emerging iPhone vs. BlackBerry contest?
Earlier this week John Rotheray posted an entry about stealth development and the increasing importance of keeping technology secrets from the competition. This increased focus on secretive innovation extends beyond keeping rivals in the dark. In some instances, companies even want their innovations to remain invisible to the consumer.
In a NY Times article Miguel Helft weaves a cautionary tale concerning website improvements. In 2006, AOL made significant changes to Netscape; a year later half of base users had abandoned the site. To modify a page slightly and confuse even a small percentage of users puts valuable web traffic numbers at risk. On the other extreme is eBay, which spent a month transforming the homepage’s background from grey to white. Currently Yahoo has undertaken a website overhaul to improve functionality for the user; it plans to roll out the changes gradually over time; the final version will bear little resemblance to the current version.
What does all of this mean for innovation? How innovative is a product if we have to secretly train users how it works? We are creatures of habit. We must perceive a clear benefit before we will invest time in modifying our behaviors to adapt to a new website or product offering. Perhaps then the role of consumer research is even more vital to product development; a better understanding of consumer needs can lead to better innovation. Ultimately as corporations we should make it our job to ensure that our innovations are intuitive and easily accepted by the end user. In most instances, a focus on good innovation will alleviate the need to sneak our changes past the consumer.
It’s an unwritten rule that new product development gets more secretive as the stakes go up. Some of the most discontinuous innovations are driven by an invitation-only society representing some of the world's most famous, brilliant and powerful people. Currently the players in this game are partnering with the world’s most respected venture capitalists(VC) to tackle a six trillion dollar industry…energy.
The premise of the game is clear. The roar of an energy revolution will make the 90’s period of economic expansion sound like a kitty’s meow. In the end, new energy sources and storage technology will result in an unprecedented global transfer of wealth and power. Jon Gertner's recent NY Times Magazine article describes the emerging trend.
“Last summer, the growing number of stealth companies involved with clean energy formed a kind of dark matter in the Silicon Valley universe, businesses that could not be seen yet nevertheless exerted a discernible gravitational pull. Executives would suddenly leave jobs at established companies to join ventures with no official name. Manufacturing facilities would set up shop in cheap, anonymous buildings in towns like Santa Clara, Calif., then begin round-the-clock operations.”EESTOR is a company based in Cedar Pak, TX that fits the mold of keeping a low profile. EESTOR has no web site, yet is funded by the VC Kleiner Perkins Caufield & Byers (KBCP), renowned for their early investments in Google, Intel, Amazon, AOL, Sun, Genentech and Intuit to name a few. EESTOR is developing a new generation of supercapacitor energy storage units designed to replace gas and chemical batteries as the world’s most prevalent storage medium.
All signals, such as publicly announced contracts with Lockheed Martin point towards a world changing discovery to be announced soon. However you may never hear about EESTOR again if it suffers the fate of the majority of KBCP's investments. That's just how the whales play the game. Dream big or go home.
Follow breaking news at The EESTORY blog here.
I will be the first to admit, home cleaning is not sexy. However, I spent my summer working in home cleaning, specifically working on Pledge Furniture Polish. While maybe not the sexiest product category to work in, home cleaning is at a pivotal stage in new product innovation.
While still growing, the green market has proven to be more pricey, more costly to manufacture and less profitable than firms and consumers are willing to pay for. Proof lies with Clorox Green Works, which has been in the market for over a year and has yet to see a significant gain in share.
The firm that will emerge the winner of the home cleaning category will have to shift their innovation from chemical formulations, from greener chemicals, better packaging or even better value. The winner will develop a product that will make the consumer’s life easier.
What are these new products? How is it possible to make cleaning your bathroom easier? Well, there are already three highly successful products in market that have changed the consumer’s life and made cleaning easier without the guilt of being a bad parent.
he Automatic Shower Cleaner by SC Johnson is a device used in the bathroom that will automatically spray a preventive chemical to reduce the amount of mildew and grime built up in the shower.
Thus, the winner in home cleaning will not come up with a more effective chemical to fight bacteria, or the best packaging, or being the most green. The winner will innovate products that can do all of the above while reducing the amount of time and effort the consumer has to invest. In short, this innovation must make the consumer’s life easier.
