Marketing Strategy: How to Innovate.

CHANGING THE NAME OF THE GAME.

Ok, lots of famous people talk about the need to innovate. Gary Hamel did it, so did Tom Peters, and Seth Godin, and many others far more famous than me. It’s true too. You must innovate – but none of these people tell you how to do it. I can see why. It’s difficult to define where a breakthrough idea comes from. But I am going to attempt it. Right now. Right here. Today. Get yourself comfortable, it’s gonna be a long read.

From a marketing strategy point of view, the truly exciting, but potentially high risk strategy is one that changes the way the game is played. The outcome of this is usually a product, service or way of doing something that is disruptive to an industry. In other words, they are disruptive technologies since they shift the balance of power, often from a large cumbersome dinosaur-like incumbent to an agile upstart that has the audacity to challenge Goliath.

In an overcrowded market with too many me-too products all claiming the same thing, the surest way to get yourself noticed is to upend entire industries through the deployment of a disruptive technology. And the businesses that are absolutely best at this are smaller-sized businesses. They think they have far less to lose.

Same is Lame. So Innovation starts with being different.

The subject of innovation is enormous. In fact, it’s so big I almost don’t know where to begin. But innovation is, in my opinion, the single most powerful marketing strategy a company can deploy in today’s market.

If we turn back to look at the marketplace, with its clutter and noise, its no surprise that the average consumer has long-since tuned out. They turn their noses away from yet another brand of dishwashing liquid. They mute your TV ads. They don’t care what you have to say about how good you are. They’ve heard it all before. And plenty of times over, too.

The stuff that gets noticed now is genuinely different to whatever else is out there.

• Tom Peters describes it as “innovate not imitate”.
• Seth Godin says that “boring always fails”.
• Gary Hamel, in his awesome paper Leading the Revolution, says that “being a maverick has always been important, but today it is more crucial than ever”. (I love his paper so much, you can read Leading the Revolution for yourself right here.)

My opinion? I think the world needs more real visionaries; people who don’t settle for what is already there. They apply their mind to think about how the world could be better. There is, I think, a formula for doing that.

Being different requires a quantum leap in thinking for most companies. Most companies copy what every other company in their industry does. They somehow think that the other company must be onto something, or know something that they don’t, so to negate any competitive advantage, they copy the idea too. So everyone is back to being the same.

But here is the conundrum. The customer doesn’t want all the same. They are bored with the sameness of everything. They tuned out long ago just because everything was the same. The only products that are getting noticed now are those that are really different. To get noticed, you too will have to think about how you can be different.

Take Heart From The Trailblazers.

Apple’s iPod was not the first portable hard drive music player on the market. Nor was it the first MP3 player either. Apple was, though, the first to use a USB/firewire interface that enabled rapid and easy file transfer. And while competitive models were black, Apple was white. And while competitive models were ugly, the design aesthetics of Apple’s i-Pod set it apart.

Apple grabbed its market share in part because it was different. Really different. It had a product that stood out (let’s face it, it was white) and it was able to capture the imagination of a buying public who are prepared to pay a premium for it.

There is much more to the Apple story than iPod of course. Apple started life as a maker of computer equipment, both hardware and software. There are hundreds of those types of companies, but a relative few that ever get talked about. Apple is one brand that people notice. From the start, it stood apart for its unique approach to design and usability.

The second part of Apple’s product strategy is to closely align products to its most fervent target market, the cool people. Now cool people might be young or might be creative – what defines the Apple audience is that they are people that admire design and enjoy the brand association that comes with being part of Apple’s community. And word is spreading. More people want the association that brand offers them. So people that weren’t traditionally part of the Apple core target market are now buying its products in droves.

The third part about Apple is that it read the future landscape well.  In an era where the global public is motivated to express themselves because they can share their creativity through a myriad of websites, such as Youtube, the software you need to be creative and share your ideas globally is all standard on an Apple. It has been for a long time – before the rise in popularity of sites like Youtube.

Now here’s the final rub for all those large companies investing huge marketing budgets into advertising to launch their latest product. Apple didn’t do this with the initial launch of the iPod, one of its best-recognized products.

The first of the silhouette ads that appeared were released two years after the product was first launched and had already accumulated massive market share. Apple took its iPod to key influencers and early adopters. They spread the word and the mass market responded.

It’s not just Apple of course. Apple is but one high profile example to illustrate the point. Here are some more:

• The microwave created convenience for busy customers who didn’t want to spend their evenings tied up cooking with hot, slow conventional ovens.
• The mobile cell phone enabled phones to be affixed to people instead of premises. This offered mobility. With this device, people were no longer shackled to desks for fear of missing an important call.
• The humble Post-It Note (which isn’t that humble in terms of sales revenue) was an accidental invention. Spencer Silver, a 3M scientist, originally invented the adhesive in 1970. Ten years later, another 3M scientist Art Fry needed markers for his Hymn Book. He applied Silver’s glue to notepaper because it enabled him to easily remove the marker without damaging the book. From here, the Post-It Note was born.
• The facsimile enabled scans of documents to be electronically distributed in real time instead of relying in the local postman to reliably deliver them. It offered greater flexibility than the Telex that preceded it, and has already been largely surpassed by email. The world has come a long way from the Pony Express (which is where it all started in the 1860s).

The Attributes of Innovation.

So what do you need to innovate? Surprisingly enough, innovation starts with a couple of personal – not professional – attributes.

Being innovative takes courage.

In his book Purple Cow, Seth Godin argued that products will only survive if brands stop advertising and start innovating. He asserts that brands invest too heavily in tinkering with old, legacy cash cow products and should instead look to invest in new innovative products.

“The lesson is simple – boring always fails. Boring is the most risky strategy. Smart businesses realize this, and they work to minimize (but not eliminate) the risk from the process. They know that sometimes it’s not going to work, but they accept the fact that that’s okay.”

Of course, courage is in desperately short supply, particularly in publicly listed companies that depend on legacy revenues to meet shareholder revenue expectations. When you are dependant upon legacy revenues, why would you cannibalize them?

More than a decade ago, Gary Hamel put it in his Killer Strategies article, that unless today’s established corporations learn to reinvent themselves and their industries, much of the new wealth will be created by newcomers. And he was absolutely right.

Want proof? Here is some.

• Skype changes the way that people talk over the telephone. It is a disruptive technology. It targets and threatens the fixed line revenue derived by the world’s largest telecommunications corporations. The challenge facing Skype is how to monetize its enormous customer base but this hasn’t stopped it from upending traditional telcos. The damage is irreversible.
• Google changes the way consumers use Yellow Pages. In fact, people with Internet access don’t need phone books anymore. They can look up your business in Google. Furthermore, your business doesn’t have to pay for the privilege of being found on Google either.
• Digital cameras change the way people take and process images. This technology has disrupted global giants such as Kodak which has been required to change its entire business model to find new ways to generate revenue now that people aren’t buying photographic film anymore.

The Internet changes the way that consumers access product information thus challenging traditional media and advertising. It has enabled conversations to take place between strangers who are able to openly and publicly review your product and tell others how good or otherwise your product really is. It makes brands accountable in ways they have never been accountable. And marketers cannot stop it from happening.

The Internet connects your customers quickly and easily to competitive alternatives. Wanna charge a premium for that widget? Heck, there is someone in Europe who supplies an equivalent widget that can be downloaded – for free.

Jack Trout, in his book Trout on Strategy, sums it up this way:

“When a company is big and successful, it doesn’t want to change. IBM didn’t want to see its mainframe world shift to small computers. General Motors didn’t want to see its big-car world shift to small cars. As a result, inventions that undercut the company’s main business are frowned on. Rare is the big successful company that says “Hey that’s a better idea. Let’s dump our original idea.”

Instead, the managers quickly point out the flaws in this new idea. What they never take into account is that this new thing can be improved to a point where it can become what is called a disruptive technology or one that shifts the balance of power. Market leaders have to be willing to attack themselves with a better idea. If they don’t, someone else will.”

Being innovative is only limited by imagination.

The most successful innovation is disruptive. The good news is that innovation is only limited by your imagination so learn to think, unshackle your thought process from left-brain analytics and you are on the road to thinking creatively about your product strategy.

Here is what company’s do. Executives gather together for a three-day soiree to a fancy retreat to nut out innovation strategy. To loosen them up, a motivational speaker pops in and they engage in a bit of team-building fun. Their minds are full of facts, figures, legal implications and what it means for the company if the share price takes a nosedive on Wall Street. Real creativity is turned off. Think I’m wrong? Take the test to see how you think.

Little Tommy Smith works in the back office in headquarters. He’s been there a long time, he does low-paid menial work, he isn’t shackled by Wall Street, he isn’t invited to participate in anything as important as strategy, in fact, he’s never even met an executive. He isn’t important enough. He has good ideas – but there is noone to tell. He’s tried before and been told to shut up. He drifts along and his ideas go nowhere.

Who is going to have the breakthrough idea? My money is on Tommy Smith.

Until executives stop their soirees, unlock their imaginations, engage right across the organisation and make room in those organisations for entrepreneurial types like Tommy Smith, opportunities to innovate will be lost. Ideas don’t pop in on tap. Just because you’ve scheduled your annual conference doesn’t mean your creativity is available to respond to the same deadlines that your calendar desires.

Eventually Tommy Smith leaves the organisation. He finds himself at a dinner party, talks to another guy who is a bit of an entrepreneur, explains his idea and the rest will become history – along with the company he used to work for.

How to Tweak Your Products.

Some companies limit innovation to their existing competitive environment. I call this tweaking – not innovation. Tweaking, of course, assumes you already know who your competitors are. The reality is that the guy who is likely to upend your industry is someone you don’t know, who blindsides you when he makes his move. Nevertheless, if you want to dip a toe in tweaking, you can start in these places:

Product variations that haven’t been done.

Challenger brands may upset market leaders by changing an aspect of how the existing product is used, priced or delivered or by changing a product attribute.

Here are some examples.

• The introduction of disposal versions of products (such as disposal razors that challenge non-disposable manufacturers, disposable diapers that challenge cotton varieties).
• Electronic products such as mobile cell phone recharge and tickets to events (now delivered through an EFTPOS machine located at point-of-sale).
• Wireless access to communications instead of copper hard-wired to the user’s premises.
• Stock-trading online replacing offline brokerage.

Value-Added Enhancements.

Value-added enhancements are extras. So for example you sell widgets, you can add a widget holder, to form the basis of a package offer. If you are a small business, the key is to create something that is difficult for a larger competitor to replicate.

This is not necessarily because it is technically difficult to build and deploy, it may be that it is not financially-viable for a large business to do it. Customisation of a product tends to fall into this category. It might be rolled out using a go-to-market niche marketing strategy. The opportunity to dive deeper into a niche, offering a customised solution, provides a smaller business with better defense against a would-be challenger.

Price-driven tweaking.

There are tons of price-driven tweaking activities you can do. You can bundle products together, you can go for a low-cost strategy (although this is usually the domain of big business), you can even slash and burn and drive yourself out of business. Plenty of businesses have done it. Price-driven tweaking is a precarious strategy. You must maintain the cheapest price to hold your market position – and that is very difficult to do especially if you are not a big business with deep pockets and significant market power.

How to Innovate (and really upset the Apple-cart).

So you’ve got the courage. And the imagination. Here is the framework.

Some debate the importance of first mover advantage. I don’t. The first player to engage its market is the market leader of that market and leadership is important because it facilitates sales. If you are first, and you have the financial backing, you can:

• Remove scarce resources from the market (for example, prime retail locations).
• Protect your innovation from copying through patents, trademarks and legal instruments.
• Build brand profile so that anyone who plays me-too following is naturally positioned as copycats, not leaders.
• Reinvest early profits into the innovation. An aggressive product development strategy can leave copycats playing catch-up – another classic Apple product strategy.

But there is also a downside.

• The risk that it doesn’t work. It’s going to cost a lot to do it and you face substantial risk. (Good thing you have that courage we talked about early on.)
• You have no opportunity to learn from other’s mistakes – but they have opportunities to learn from yours.

To innovate, there are three steps:

1. Know the principles of innovation.

2. Set the framework for innovation.

3. Give your mind permission to innovate.

Step 1: Understand the Principles of Innovation.

• First of all, there are no guarantees of success. That’s the bad news. But if what you do is successful, the rewards can be immense, far greater than if you follow someone else into second position.
• Innovation is not simply tweaking something. Innovation is not copying someone else. Nor is it tweaking the edges to make minor product enhancements. Innovating is doing something that no-one else in your industry is doing. It must have the objective of changing the world, at least, on a small scale.
• Innovation does not emerge from strategy meetings and 2-day conferences. Innovation is a light-bulb moment that comes at any time, night or day, when you least expect it. It comes because someone thinks “Hey, wouldn’t it be great if we could do this?” Whatever this happens to be.
• Innovation requires a new way of seeing things. If you scan through the job ads for decision-makers, even staff that touch customers (such as sales), most businesses ask for industry experience. But the freshest perspectives almost always come from outside an industry where the new employee isn’t locked into preconceived industry bias. In looking for industry experience in its staff, a business is inadvertently shackling itself to established industry norms. Against such a mindset, it is very difficult for them to really innovate.
• Be prepared to experiment. Innovation is about trial and error. It may mean doing many things before you find out what works. Focus groups and market research will not help you. The things people say about their purchasing preferences in a focus group don’t necessarily play out in practice. Furthermore, it is almost impossible for people to imagine what’s possible conceptually, most need a prototype to make an idea tangible to them. Build and share the prototype, and you may have also shared your strategy with your competitors. That’s because people talk.
• If you launch an innovative product, you must throw all your marketing resources into its launch. This is to secure your position as the first mover. If you fail, someone may copy your idea, grow their profile faster, leaving you perceived as a copycat not an innovator.
• Expect to be copied. The time it will take to be copied depends on your product development cycle and the levels of success your innovation realizes. Be prepared for legacy competitors to try to discredit your innovation if it has the potential to overturn their business models or strategies. Some innovation can be protected through legal instruments and you can use this to delay competitors. Whatever you have at your disposal, make sure it includes plans to negate competitive attack.

Step 2: Set your framework for innovation.

• Start by focusing on the three C’s: convenience, cost and customisation. If you look at the disruptive technologies, most fall into one of these categories. Disruptive ideas may be uncovered by calibrating existing products against this thinking. How can something be done or delivered cheaper? Can technology be used to replace traditional ways of doing something? Can it facilitate products to be more convenient? How can your product be made more personal?
• Innovation can also be found by looking at your industry landscape. What direction are all your competitors headed? What would it mean if you headed off in the opposite direction? It might feel a little uncomfortable, but it also might be very lucrative.
• Think about your customer’s real problems. Is there a problem that’s bigger than what your product currently solves? How can you help solve it and, in the process, make your product so indispensable to their lives that they would never dream of going elsewhere?
• Deploy an aggressive product roadmap. This means plan to keep innovating so that you stay 6-12 months ahead of competitors. You can also change tack to become hard to predict. Most of all, be the first to cannibalize your own products before someone else does it to you.
• The final calibration: Does your innovation meet the most important criteria of all? Is it completely different to what is currently being done in your industry?

Step 3: Give your mind permission to innovate.

If you want to innovate, it is as simple as popping the idea in the back of your head. Ask yourself what you can do to really innovate – or solve a problem – then forget you ever put the idea there. One day, straight out of the blue, without any warning whatsoever, you will get the answer you need to your question. You will have, as they call it, a light bulb moment.

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Tagged as: innovation, Marketing Strategy, Product Strategy