The Homa Files

Excerpted from Strategy & Business, “The Unique Advantage”, by Alexander Kandybin and Surbhee Grover, Aug. 26, 2008

In mature, slow-growth industries such as food and consumer products … Companies often spend relatively little on R&D, and … their innovation results are marginal.

Much of the problem can be traced to conventional wisdom (that) the secret to growth … is to develop new products based on consumer needs, which are discovered through consumer research and focus groups. And  if a new idea is not great … marketing and advertising can always … turn a so-so concept into a hit.  And the first to market … will capture most of the profits.

This kind of thinking leads to … a long list of line extensions — new flavors of an established soda brand, say — rather than the kind of game-changing innovations that can make a real difference to the bottom line.

New products that stand alone longest in the marketplace, without serious competition, bring in the highest returns.

Meeting consumer needs is a necessary but no longer sufficient condition of sustainable innovation.  Rather than thinking about new products as a way to get customers excited for a little while, companies need to think about their innovation strategy as a way to build a high, hard wall between those customers and their strongest competitors … hifting some investment away from marketing and advertising toward the development of … game-changing new products … that are difficult to copy.  

Higher R&D spending does not guarantee success … (but) a minimum innovation investment is required for breakthrough thinking. Without it, companies tend to fill the pipeline with the “base hits” of line extension … falling into a self-created loop of low investment, low returns, and steady but slow growth … that provides the illusion that the company is succeeding

So, the tendency is for companies to focus on relatively small, often superficial line extensions that can be churned out quickly … but require inflated advertising budgets that reflect a defensive mind-set .. (and divert resources from)  breakthrough innovation … locking companies into a pattern of high marketing spending and a need for endless small launches.

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Mature companies also need a strategy for when difficult to copy ideas are in short supply. Here, we suggest defying conventional wisdom about being first to market. If a product can be copied, it’s often more profitable to be the copier.

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There will always be a place for line extensions backed with big campaigns and for being first to market. It is possible to gain additional benefits by building scale, amplifying the effects of hard-to-copy innovations by spreading them across multiple products.

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It’s even possible to gain scale of a kind with a highly nimble, prolific innovation organization. Launching a steady stream of good ideas, as P&G has done in home products in recent years, can give a brand a reputation for fresh thinking that transcends the individual ideas and translates into market share gains. 

Edit by DAF

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Full article:
http://www.strategy-business.com/press/article/08306?pg=all&tid=230

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This entry was posted on September 8, 2008 at 7:22 am and is filed under Mktg - Product & Innovation, Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.