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Which Innovations Will Succeed?
(Marketing Memo,
June, 2002)

Innovative companies succeed by creating a special "momentum" based on three "criteria": "buyer utility," "strategic prices," and "strategic cost structures" reflected in sound business models, observes Renée Mauborgne. To be a successful innovator you must know your buyers and your markets, and your prices should reflect both your costs and the perceived value of your offering, according to Mauborgne, Distinguished Fellow and Affiliate Professor at INSEAD (See Note).

Less successful companies fail to meet one or two of the above criteria, the INSEAD study found. For example, dot-coms and other innovative companies often "do well on utility and price," but have weak business models. The companies may have inadequate Web sites or poor delivery. Brick and mortar businesses have less compelling products; therefore, they "do less exciting things in utility." They also have higher prices, but sound business models.

Ultimately, offering "value innovations" is more lucrative than offering "me too" products or products that merely offer minor enhancements. "Value innovations" account for 14% of new product launches, but 38% of marginal revenue and 61% of profit increases, the researchers say.

VALUE INNOVATION -- GOALS AND HURDLES

The goals of innovative companies are to make money and to lower costs through high volume manufacturing. Innovative companies then add high value pricing to discourage competition. However, buyer utility, price, and cost strategies must be in alignment. Swatch, the Swiss watch company, coupled high fashion with a streamlined design that used cheaper materials, fewer manufacturing steps, and less labor, creating an attractive, but affordable, plastic watch.

Innovative companies can fail, nonetheless, if they don't understand how employees, consumers, and society will respond to their novel offerings:

--- Employees thought that Burmah Castrol's computerized process for selecting the right liquid coolant for individual metalworking scenarios might result in a restructuring and job loss.
  Employees thought that Burmah Castrol's computerized process for selecting the right liquid coolant for individual metalworking scenarios might result in a restructuring and job loss.
  Consumers failed to perceive the benefits of Philips' CD-I multimedia product for enjoying TV, music, the Internet, and computer games.
  Society (the market) was not yet ready for Monsanto's genetically modified seeds and, in fact, misunderstood genetic engineering.

Companies with innovations can surmount these hurdles by "engaging" customers, "explaining" potential benefits (and perceived weaknesses), and discussing customers' "expectations."

"Value innovation" requires that you have a superior understanding of both consumer value and pricing and cost issues. In B2B sales, you must also know your customers' employees and the marketplace. To obtain all this background information requires skill and persistence. Winett Associates can help you gain a better understanding of your buyers and your markets and help you identify features or issues that you will need to explain when you launch your innovative product or service.

Note: Interviewed by Sarah Powell in Emerald Now, April, 2002

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