Marketing and Innovation: Coping with the Challenges · Google’s 9 Rules of Innovation: Hiring is at the heart of all we do Ideas come from everywhere Share all information Morph

Marketing and Innovation:Coping with the Challenges

Jakki J. Mohr, Ph.D. Regents Professor of Marketing and

Hamilton Distinguished Faculty Fellow University of Montana-Missoula

Presentation to ORT University students & alumniMontevideo, Uruguay November 23, 2010

Peter Drucker (1954)

―There is only one valid definition of business purpose: to create a customer.

…. Therefore, any business enterprise has two—and only two—basic functions:

marketing and innovation.‖

The Practice of Management, pp. 39-40

The role of innovation in business

MP3 Players:

Sony vs. Apple

Digital Cameras:

Kodak vs. Nikon

Printers:

HP vs. Memjet

TVs, cars, retailers,

History is littered with the skeletons

of companies who failed to remain innovative.

Forces that Compel Change

New sources of competition Customers’ changing needs Internationalization Regulation Changing norms in society And on and on and on and on…

Stagnant Businesses Die

The Two Sides of Marketing & Innovation

Companies must

Remain creative internally Avoid complacency, the status quo

Know factors that affect innovation in the marketplace Where innovations arise

How customers make decisions to adopt new innovations

Obstacles to Innovativeness Within Companies

Core competencies Core rigidities

What a company does best becomes a ―sacred cow‖

A strait-jacket that makes it hard to change

Pressure to protect existing business model

Think: Sony in MP3 players;

Kodak in cameras/film

―Innovator’s Dilemma‖

Pressure to protect existing revenue sources (best customers/best products)

Means companies are not open to new customers/new products

Requires willingness to cannibalize their existing business success.

Not innovating means that the company may miss out on new opportunities to new competitors.

“You’ve been Amazoned!”

Per

form

an

ce

Time

Limit of Particular Technology

Models of Disruptive Innovation

Think: Netbooks: ASUS eePC; MSI; etc.

Fear of Change Results in Shocking Business Decisions

Music industry: sue its customers

Retailers: tell vendors ―You are either our supplier or our customer, but not both.‖ (if vendors use their own .com website, the

retailer will discontinue carrying its products)

Textbook publishers: don’t make all texts available on Kindle so as not to cannibalize their business model

Barnes & Noble unwilling to open the first .com book ―e-tailer‖ (lost to Amazon)

Causes of Lack of Innovativeness

Organizational size (?)

Sunk costs in existing facilities

Preference for the familiar/Discomfort with the unfamiliar

Thinking of markets in terms of products

rather than in terms of the customer need being met.

EX: phones (vs. communication)

Ex: Interface carpets

Success= Culture of Innovativeness

Break-through thinking

Risk taking

Enlightened experimentation

Creative destruction (willing to cannibalize)

Assess by percent of revenue derived from recently-released products and new innovations

Start at the Top!

Top managers:

Willingness to cannibalize

Use fear of obsolescence as motivation

―Only the paranoid survive!‖

Reward mavericks (―champions‖)

Process of developing/commercializing breakthrough product, service, or model that obsolete or cannibalize existing products

Current technology made obsolete by proactively developing next-generation technology

May be the antidote to the Innovator’s Dilemma if it overcomes internal rigidity

Abandon conventional wisdom

―Unlearn‖ traditional but detrimental practices

―Blue Ocean‖ Create a vision of the future based on ―markets that do not

yet exist‖ and unconfined by existing industry boundaries

Challenge the status quo Overturn price/performance assumptions

―Extreme design‖ – Nokia

Escape the ―tyranny of the served market‖– Nokia

Use new sources of ideas for innovation – Nokia

Get out in front of customers

Bifocal vision Engage in creativity exercises

Risk Tolerance

Tolerate ―mistakes‖

Learn from mistakes Nokia

―Mistake‖ may prove to be next success

Reward risk taking C. Barrett: You’re not qualified to run a start-up until

you’ve failed—at least twice!

Master of Culture of Innovation: Google

Google Innovation Strategy

9 rules of innovation http://www.youtube.com/watch?v=b59Jc3n0xHQ

Innovation at Googlehttp://www.youtube.com/watch?v=2GtgSkmDnbQ&feature=related

An Inside Look at Googlehttp://www.youtube.com/watch?v=aOZhbOhEunY&feature=channel

Life at the googleplex: http://www.youtube.com/watch?v=eFeLKXbnxxg&feature=channel

Google’s 9 Rules of Innovation:

Hiring is at the heart of all we do

Ideas come from everywhere

Share all information

Morph ideas, don’t just kill them

Users come first, not money

Data drives all decisions

Speed matters – iterate products

Vision must be shared with the team

20% time is at our core

Initially, ignore:

• CPU power

• Storage

• Bandwidth

• Money

Philosophy:

No Constraints

Open to New Sources of Innovation

―Open Innovation‖

Networks of Innovation

NIH vs. PFE

Not invented here versus proudly found elsewhere

Examples:

Management Innovation Exchange

OpenIdeo

Sources of Innovative Ideas

Biomimicry:

Nature-inspired design

Examples:

IBM

IDEO

HOK

SAP http://www.sapdesignguild.org/community/book_people/review_biomimicry.asp

Innovation in Business Models

A Better Place:

http://www.youtube.com/user/btrplc#p/u/5/kcjNd5Dn2ns

Metrics for Innovation Performance

Innovation’s usefulness, quality, speed to market, sales/sales takeoff

Compare attained innovation performance to the possibilities

What is the record of innovation in the industry?

How does company compare?

Did it miss important opportunities? Why?

Does it successfully convert R&D spending into commercial product?

A Brief Digression

National innovativeness

Finland & Japan vs. Uruguay?

Factors That Affect Innovation in the Marketplace-

The Demand/Customer Side

Innovation should be designed to solve problems people (customers) have

Problems they can articulate (express)

Problems they have but they can’t (don’t) articulate

Adoption & Diffusion of Innovation: Categories of Adopters

Innovators

Technology

Enthusiasts

Early

Adopters

Visionaries

Late

Majority

Conservatives

Early

Majority

Pragmatists

Laggards

Skeptics

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The

Chasm

Mohr, Sengupta, Slater © 2009

Factors Affecting Customer Purchase Decision

Relative advantage

The benefits of adopting the new technology

compared to the costs and in relation to other

alternatives

Compatibility

The extent to which adopting and using the

innovation is based on existing ways of doing

things and standard cultural norms

Complexity* The difficulty involved in using the new product

TrialabilityThe extent to which a new product can be tried on

a limited basis

Ability to Communicate

Product Benefits

The ease and clarity with which the benefits of

owning and using the new product can be

communicated to prospective customers

ObservabilityThe extent that benefits of the new product are

visible to everyone

Product Benefits Functional: new features/benefits

Operational: product’s reliability, durability, ability to increase efficiency/total cost of ownership

Financial: credit terms, leasing options

Personal: psychological satisfaction; emotional

CostsMonetary: price, transportation, installation

Nonmonetary: risks of product failure, obsolescence, factory downtime

Why do customers buy new innovations?

New features/benefits

Novelty

Compelling value

Different customer segments value

different aspects of the innovation.

What prevents customers from buying new innovations?

New = scary, unfamiliar

Inertia

Price too high

Or price too low (too good to be true)

Lack of awareness

Retailers not well trained

New benefits not compelling

Happy with the existing solution (no perceived need)

A Word about Competition

Strongest competition is old pattern of behavior-

Existing solutions

Versus: Our innovation is so new,

we have NO competition!

A Word About Price

Value = Benefits / (Price+Nonmonetary costs)

Lowering price to stimulate adoption makes sense ONLY when: Product is positioned as ―less expensive‖

alternative to ―typical‖ solution

Customers have some price elasticity

(an empirical question)

Company cost/margin situation makes it viable

Alternatives to lowering price

Re-segment the market

Re-think the offering

Offer bundled products

Offer services

Offer subscriptions

(Changes needed capabilities and cost structure as well)

It’s all about positioning

Which customers

Which value from the innovation

Which delivery model

These issues should be considered proactively: Prior to launch and during development!

Conclusions: Innovate or Die! Evaluate your company’s internal (organizational)

culture & values regarding innovation

Encourage culture of innovativeness

Be open to new sources of ideas

Understand your market:

Customers

Competitors

Craft a value proposition around innovation that is compelling.

Thank you! [email protected]