Product innovation chapter 8

Historical Impact of Innovation

Innovation transformed societal life spans (rising from ~30 years in 1800 to ~80 years in 2020) and created fundamental tools like language, agriculture, water power, money, radio, TV, smartphones, and the internet.

Switching Costs

The negative costs (time, money, effort) consumers incur when changing brands or products. Innovators must solve specific consumer needs to overcome these barriers; once captured, high switching costs aid in customer retention.

Three Pillars of Value Creation

Economic Value, Health Value, Product Characteristics

Wealth Creation (economic value)

Accumulation of wealth via lower costs (economies of scale), efficient processes (Just-in-Time inventory/supply chain), strong brand reputation, high quality, and customer loyalty (Customer Lifetime Value).

Economic Growth (GDP)

Driven by new market expansion, technology adoption, and entrepreneurship.

Entrepreneurship & The Gig Economy

~40% of the U.S. workforce could consist of 1099 independent contractors. Entrepreneurs create jobs, lower prices, utilize commercial goods/services, rent space, and drive market efficiency (addressing inefficiencies that waste up to 35% of firm revenues).

Democratizing the Firm

Giving customers greater control over when and how they interact or conduct business with a firm.

Health Value

Innovations in medical research, pharmaceuticals, and gene therapy extend life expectancy, reduce infant mortality, treat chronic conditions, and support aging populations.

Intrinsic Quality (product characteristics)

The internal feelings, values, or emotional alignment a consumer holds toward a product (e.g., buying a hybrid car to minimize environmental harm).

Extrinsic Quality (product characteristics)

External product attributes that communicate prestige, status, or power (e.g., buying a luxury sports car as a wealth symbol)

Sustainability & Reverse Logistics

Reverse logistics is the backward flow of used/unwanted products to manufacturers for recycling or disposal (e.g., bottle deposits, core returns). Consumers often pay a "Green Premium" (up to 9% more) for sustainable goods.

Mass Marketing

Broad messaging reaching the whole population; typically yields low target efficiency (3–5% reach)

Targeted Marketing

Direct messaging focused explicitly on defined target segments

Location Tech

Geotracking/Geofencing uses mobile GPS to engage consumers based on real-time movements and analyze shopping behaviors.

Social Media Data Points

Used for co-creating products, demand forecasting, distributed business processes, market research, lead generation, social commerce (peer influence), customer care, cross-functional collaboration, and HR talent matching

Philanthropy

Direct donation of funds/time. Participative Philanthropy engages customers (e.g., rounding up at register) and employees (boosts morale/reputation).

Corporate Social Responsibility (CSR)

Initiatives balancing profit with environmental and social wellbeing (Triple Bottom Line: Profit, People, Planet). Driven by reduced government regulation, demands for transparency, investor pressures, and talent attraction.

Channel Captain

The dominant distribution channel member that commands product flow due to its size or market power. Responsible leaders operate with honesty, thought leadership, clear employee expertise, and industry recognition.

7 Rules to Stay in Touch with Customers

Make communication a daily habit, leverage social media, network/build connections ("get a life"), maintain personal relationships (remember birthdays), set up monitoring alerts, be helpful, and maintain a high-level strategic focus.