Lecture 5: Innovation and Product Management

What market does sustaining innovation target, How big are improvements and in what fields

• Targets existing markets with known customer needs

  • Uses Established Business Models in predictable markets

• Improvements are incremental

  • In Quality, Performance and Cost

How does Sustaining Innovation affect customer relationship + Example of Uber

• Helps strengthen company position amongst customers

• Example: UBER → Entering established taxi market and improving on it

What does disruptive Innovation do and in What environments does it blossom + How do customers interact with it

• Create new Markets or Reshape existing ones in unexpected ways → By Introducing Radical/Game Changing Solutions

• Emerges in Unpredictable Environments (Traditional Methods Fail)

Disruptive Innovation: How do Customers interact with it + Netflix Example

• Mainstream Customers overlook it at first → Before it later disrupts current incumbents (Established Players)

• Netflix: Online DVD Rental → Niche Tech Savvy Users → Later Shift to Online Streaming → Huge Disruption

  • Key Lesson: Start at the fringe (Overlooked) → move to the mainstream

What are the 4 Dimensions of Innovation

• Product

• Process

• Service

• Business Model

What is Product Innovation and what is it’s goal

• Develop new Products or make major upgrades to existing ones

• Goal: Fix customer problems → Design, Pain Points, Ease of Use

Product Innovation: High Risk/High Reward

• Very Costly (High Investment/Time Costs) → And Can Fail

• High Reward: Differentiation and Competitive Edge

Product Innovation Dyson:

• New Technology: Bagless Vacuum + Sleek Transparent Design (Modern Design)

  • Reduces Pain Points: Buying/Replacing Dust Bags

What is Process Innovation → What does it to and what are the benefits

• Improving Production and Delivery

  • Leads to more effieciency and quality

• Benefits: Competitive Advantage (Speed/Cost) → Difficult to replicate

Process Innovation: Toyota Example: JIT and Kaizen

• Lean Manufacturing:

  • JIT: Just In Time Production → Production Synchronized with demand

    • Reduced Inventory Time and Usage

  • Kaizen: Continuous Incremental Improvements → All Employees Identify Inefficiencies + Propose Solutions

    • Compounding Performance Improvements

What is Business Model Innovation and what does it lead to

• Complete Redefining of how a company creates, delivers and captures value

  • Complete Transformation of Business Approach

• Leads to: Industry Transformation and New Revenue Streams

• Requires a clear vision and challenging established practices

Hilti Example:

• Transition from selling tools → Renting Model

  • They take control of all the servicing (Reduces customer hassle)

What is Service Innovation

• Find New/Improved ways to serve customers -> Improve CX, Convenience and engagement

  • Relies on digital enablement (Apps and AI) -> Provide value beyond the product

Flaschenpost Example

• Flaschenpost Example: 120 min delivery on Groceries and Beverages -> Enabled by App Ordering and Smart Logistics

How Innovation Creates Customer value: Differentiation

• Innovation allows for companies to stand out by creating unique value for customers

  • By Solving unmet needs, companies gain a paying, loyal and satisfied customer base

  • Price wars avoided -> Distinctive Offerings

• Many Different ways to innovate: All 4 types combined are best

Key Takeaway:

• Strong Innovation leads to higher perceived value -> Bigger Market Share + Customer Retention

What is Conjoint Analysis

• Quantifies how much customers value different features

  • And their relative importance in purchasing decisions (e.g.: Price > Design)

4 simple steps for performing conjoint analysis:

• Customers compare bundles with different attributes

• Software uncovers true preference structures

• Generates Utility scores for each feature

• Enables forecasting of purchase behavior and market share

3 Things we get out of conjoint analysis: Relative Importance, Feature Value and Part-Worth Function

• Relative Importance: Numerical Assessment of the relative importance that customers attach to attributes

• Value each customer gives to product features

• Part-Worth Function: Relationship between perceived value and increases in objective levels (Increase speed 180-200mph)

Conjoint Analysis Step 1: Attribute Selection

Select attributes that are relevant to product category (Find -> Focus Groups, Dev Team)

1.  (Brand, Speed, Fuel Consumption)

Step 2: Attribute Levels

Select levels for attributes -> Same number of levels for each attribute

1. (Ford, VW, Renault)

2. (10k, 12k, 14k)

Step 3: Choice Sets

Create Choice Sets (Bundles) -> Respondent picks choice set they prefer

1. (VW, 14k)

Step 4: Part worth Utility

Tells us how much utility/value a customer gets from level changes

• Sum all utilities of a bundle to get product utility

Benefits of Conjoint Analysis (Most of this already covered earlier)

• Attribute Importance

• Willingness to pay for added benefits

• Trade off analysis

• Market share forecast (vs. Competitors)

Best Practices for Innovation

• No Blind Guesswork -> Use Data

• Use Conjoint Analysis evidence for design

• Focus on features customers value

• Optimize Value and Profit (Sweet Spot)

What is a Lean Startup Approach

Eric Ries: Minimize Waste, Maximize Learning under uncertainty

Step 1: Develop a Vision

• Identify a Problem and Propose a solution

Step 2: Translate Vision to Hypotheses

• Example: Start x will be > 0,5 in 1 year

  • Allows for testing

Step 3: Create the MVP (Minimum Viable Product)

• Bare Bones with only the necessary set of features to test hypotheses

  • Key: Constrain Features → Don’t distract the customer and only answer one question at a time

• MVP: Allows us to learn quickly from real customer experiences

Steps 4 and 5: Prioritize Important Tests and Learn from Feedback

• Prioritize: High-Risk tests → Results can make or break the business (If they fail you know = no bueno)

Step 6: Perceive, Pivot, Perish

• Depending on the answer to the hypotheses → Pick the right available path

Step 7: Scaling and Optimization

• Achieve Product/Market fit (Explained Later)

• Invest in Growth

3 Limitations of learn startups

• Cost of Mistakes too high (Aerospace, Medicinal -> Too Risky)

• Not needed when demand is certain

• Difficult for long development cycles

What is Design Thinking

• Human Centered-> We try to solve their real problems and frustrations

• Iterative approach, Not Linear Approach (Constant Improvement)

• Integrated Innovation: Combine Product, Service and Experience into one solution

Pros of Design Thinking

• Deeper Innovation -> By focusing on human aspect our offerings are more emotionally resonant with them

Cons of Design Thinking

• Doesn’t work for environments with limited iteration (Pharmaceuticals)

• Requires strong buy in from Organization (Functions collaborating together)

Stage Gate Process

• Dr Robert Cooper: -> Divide Projects into Stages (Work Phases) and Gates (Go/Kill Decision Points)

  • Benefit: Early Go/Kill decisions reduce late stage failures (Costly!)

  • Gates between each stage

First 3 Stages of the Stage Gate Process

1. Preliminarily investigate new opportunities

2. Quick market potential and technical feasibility assessments

3. Detailed Product Analysis and Project/Business Plan

4-6

4. Full-scale product design/development

5. Testing Product, Market and Production process (Pilot Launches and Trials)

6. Commercialization and Market Rollout

Pros and Cons of the Stage Gate Process and the fix

• Very Focused and reduces waste

• Limited Agility and can be too Bureaucratic → Fix: Combine with lean methods

Red Ocean Strategy

• Companies are in existing (Well Defined) and crowded markets -> Companies must focus on outperforming rivals

  • Key Trade-off: Offer higher Value or Maintain lower costs

Blue Ocean Strategy

• Create a totally new Market (Uncontested) called Blue Ocean 

  • Unlocks completely new demand (New Customers)

• Breaks Value/Cost trade off -> Both Differentiation and Low Costs achieved

  • Entire System Reconfigured -> New Way of creating value

Cirque du Soleil Case

• Traditional Circuses locked in red ocean (Huge Competition, Declining Market)

  • Instead: Reinvent entire experience -> Removed Animals (Controversial) and Star Performers (Costly)

    • New Value Sources: Storylines, Theatrics, Humor -> Closer to theatre

Blue Ocean Statistic

14% of launches are in blue oceans -> 61% of all profits

3 Strategies to find a blue ocean

• Explore Untapped Customer Segments (Groups with unmet needs)

• Break Industry Tradeoffs: Reduce features that do not add value

• Use Strategy Canvas -> Compare Value proposition with competitors -> What are Over and Under-served factors

4 Stages of Product Lifecycle Management

• Introduction

• Growth

• Maturity

• Decline

Introduction

• Slow Market Entry (Sales grow with awareness and adoption)

• High Investments with No/Negative Profits

• Targeting: Innovators and Early Adopters (More willing to experiment)

Growth

• Rising Sales -> Product goes into mainstream, attracts new customer segments

• Profits Occur -> Fixed costs spread over large volume (More Scale)

• New Competition enters the market

Maturity

• Growth slows (Most customers adopted product)

• Crowded Market -> More competition -> More price pressure (Thin Margins)

  • Focus Shifts: Being more efficient 

  • (Revamping features on product) -> Extend Product Life

Decline

• Falling Sales and Cutting back on product updates and distribution

  • Question: Maintain, Harvest or Discontinue

What is a Go to Market Strategy

• It’s a strategic plan → How a company will deliver their product to the end customer

  • And how to gain a competitive advantage

Benefit of the Go to Market Strategy

• Alignment: No Function Silos:

  • Products, Marketing and Sales efforts are combined

  • Leads to: Coordinated and Low Risk Market Entry

Step 1: Positioning and Messaging + Apple Example

• Clarify: Why us? Why are we the best choice

• Be Customer Centric: Technical Features -> Clear language that states benefits

• Apple: iPhone is a simple device that works

Step 2: Launch Planning (Prepping a Unified Launch)

• Set clear goals: Timelines and Objectives

• Ensure Cross Functional Alignment: All the key functions need to be working in lockstep (Marketing, Sales, R&D)

• Early Momentum: Use Beta Tests and Influencer Previews

Step 3: Algin Sales and Marketing (Operate as a single team)

• Speak with one voice and target the same customer segments

  • Communicate same value proposition in Marketing and in Sales Conversations

• Use Shared KPIs (Measurement goals) and give each other feedback

Step 4: Channel and Distribution Strategy + Balancing

• Chose right channels to reach customers

• Balance Direct vs Indirect Sales (E-Commerce vs. Retailers)

  • Offline vs. Online Needs (Consumer Goods vs. Software)

Step 5: Customer Involvement + Lego Example

• Leverage “Voice of Customer” -> Get their feedback and insights -> Refine Products off of that

• Co-Creation -> Let customer shape solutions via beta testing and workshops (Reduces risk of bad product)

  • If Customer feels they are part owner of something → They are more connected

• Example: Fan Submitted Lego Set

Step 6: Measure GTM (Strategy)

• Focus on core metrics: CAC (Acquisition Cost), Adoption Rate, NPS (Net Promoter Score: Satisfaction measurement)

  • Use metrics to learn and iterate 

  • Ideally Metrics are sustained strong

Best Practices

• Align Functions -> Work together on same strategy

• Engage Customers Early -> Co-Creation, betas

• Measure Key Metrics