Ten ways that anyone can innovate – Part two
If you haven’t already read our piece introducing the ten types of innovation, we’d suggest you go and read that first before you jump into this article. You’ll get the background you need to get the most out of this one. You can read it here.??
In the first article we covered profit model, network, structure and process – these sit underneath the first of three broader categories of innovation: configuration, offering and experience. We’ll cover the next two here.?
Still with me? OK. The six innovation possibilities we’ll go into now are:?
OFFERING?
EXPERIENCE?
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OFFERING?
Product performance?
This might often be called ‘features and benefits’, specifically how you can improve the various aspects of your product to get an advantage over your competitors. For a lot of people, this is where innovation begins and ends, but it’s probably the easiest one for competitors to copy. More powerful cars, electric toothbrushes, polarised sunglasses, vacuum cups for commuters, mobile phone cameras… you get the idea.??
For consumers, this can be great news. Quite often product improvements come with better choice in the market and a longer tail of price reductions, as new technology becomes cheaper to produce and harder to differentiate. But for long-term value gains for a business, it can be very difficult to sustain.?
Dyson is a great example of this. For good reason, Dyson is considered to beis a hugely innovative business. But those pesky competitors just keeping copying their designs. When the Airblade hand dryer first appeared in public bathrooms (and once everyone had worked out how to use it) it was a revelation – way more effective than the feeble waft of tepid air we were used to, but not as violent and skin-rippling as the same-but-angrier competitors that had emerged. Fast forward a few years, and there are a number of other companies producing hand dryers based on the same concept – presumably at a lower cost than Dyson.??
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Product system?
Successful product system innovation makes your customers ‘stickier’ by bringing together multiple aspects of your offering, which also defends against competitors.?
Let’s go back to the Gillette example in our first article. If you buy a Gillette handle – the Fusion5 handle with three shaving head cartridges currently retails at around ￡20 – then for the foreseeable future you’re going to keep buying the replacement cartridges which go with it. That’ll be ￡28 for 11 cartridges, thank you.???
Apple is another perfect example. Many people really buy into the Apple brand (we’ll come to that shortly) so they don’t just buy an iPhone. They buy a Macbook, an Apple watch, Airpods, iPad… then subscribe to Apple Music, and pay for additional storage space on their Apple account each year.??
Product system innovation can also cover bundling of products and services. This can make it easier to buy from you, or nudge customers’ buying behaviour towards your most profitable offerings.??
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EXPERIENCE?
Service?
I think Mmost people understand what bad service looks like. No matter how good the product, bad service is a huge no-no for the majority ofmost of us.??
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Amazon is probably the most high-profile example of service innovation. Founder Jeff Bezos – he of the ridiculous cowboy hat – famously talked about ‘customer obsession’. From this kernel came, among other things, one-click ordering, next-day and even same-day delivery. This has raised our expectations so much that a delivery time of 3-4 days feels glacial. Any longer is either an absolute non-starter or slightly charming for being so quaint. How lovely. They must be delivering on horseback.?
FreeAgent, a financial software company for small businesses, has made a name for outstanding customer support. With a UK-based customer support service, small business owners can quickly speak to a knowledgeable agent with enough agency to be able to make decisions and provide fast, effective help.?
Service innovation can take many forms, but they have a common theme of making customers’ lives easier or more convenient in some way. With its unheard-of seven-year warranty Kia, the Korean car manufacturer, went a long way towards dispelling perceptions of lower quality manufacturing from the Far East. In 2006, when the seven-year warranty was launched, Kia sold 214,300 new cars in Europe. In 2022, it sold 512,700. Obviously there’s more to that than a brilliant warranty, but from a service perspective, it was a clear statement of intent from the Seoul-based firm.??
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Channel?
How do your customers and potential customers find out about what you offer? The opportunities this presents is the essence of channel innovation. One easy way to think about this is physical stores and ecommerce – two ways of reaching customers, and probably a wider spectrum of customers than via one channel alone.?
The gymwear brand Gymshark is a good example of this in recent years. After building a loyal following as an online retailer, it opened the doors to its first bricks and mortar retail store – an experiential brand tour-de-force in Regent Street, London.??
Covid also forced many consumer-facing brands to shift from physical retail to ecommerce, a channel switch that not only saved them from going under but which unlocked new customer growth and, in some cases, reduced cost.?
Some engineering firms also offer their customers all over the world the chance to place orders for new parts and materials over online portal, providing live updates on delivery times or servicing of machinery.??
Another aspect of channel innovation is distribution partnerships – similar to, but distinct from, network innovation mentioned in the previous article. Nespresso, which pioneered single-use coffee capsules (environmental impact notwithstanding), developed B2B partnerships with hospitality and travel brands like Ritz-Carlton and Qantas. This offers additional volume beside its direct-to-consumer and retail offerings It also exposes the brand to a new customer base, actively growing revenue from those channels too.??
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Brand?
The true power of brand in innovation lies in its ability to generate excess profits – even if the product itself isn’t significantly superior, or even slightly inferior. The mobile phone market provides a clear illustration of this. Apple and Samsung have long duked it out for handset superiority, and on first look you could be forgiven for thinking that Samsung is the stronger competitor. At Q3 of 2023, Samsung’s share of the global smartphone market was 20%, with Apple at 16%. In a market worth hundreds of billions, that four per cent isn’t chump change.??
But Apple’s revenue share of that market is 43% to Samsung’s 17%. And it’s seven times more profitable. While Samsung does have some top-endy handsets at a comparable price to the latest iPhones, it also offers some lower-cost options. Apple doesn’t. Pay top dollar, make the analysts happy.??
And when did you last see people queuing overnight for a Samsung Galaxy??
Just walk through the supermarket and you’ll also see brand in action. We happily pay more for Heinz vs other brands of tomato ketchup; Stella Artois once made an entire ad campaign which made a virtue of its premium price.??
But brand isn’t an ad campaign. It has to be built from the ground up; the promise you make to your customers has to be true. Patagonia is often cited in marketing circles as a prime example of how intrinsic values and a morale compass aligned to create a hugely valuable outdoors brand – because it’s how the business operates from the inside out.?
One thing is clear. Investment in brand – skilfully done – creates long-term value for businesses over competitors who don’t put the same effort into it. It takes commitment, time and expertise, but it can be a very smart way of innovating for robust value creation.??
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Customer engagement?
Customer engagement relies on creating a deep understanding of your customers, what they want and even how they like to interact with you.??
There are some clear overlaps with brand and service, but it’s important to delineate where customer engagement in particular adds value.??
Uber has become a verb in its own right after completely upending the taxi market. Instead of waiting at a rank, or calling and fretfully watching for your cab to arrive, Uber made it possible to click a few buttons on an app and track your taxi in real time. Customers can rate and tip their drivers from the app, and drivers can even rate their passengers. Uber also introduced surge pricing, where fares increase at busy times, which essentially equates to free margin. But customers are willing to accept it because they are so engaged with the brand.??
Social media is a fascinating place to witness customer engagement in action. Monzo Bank, Dominos, Innocent Drinks and others regularly engage directly in funny, natural-feeling conversations with their customers. Consumers seem to particularly enjoy it when brands interact with each other, although it can get out of hand quite quickly – check out the recent ‘#WeDoGym’ campaign from Gymshark and see what I mean.?
These innovations, when seen from the outside, can look simple, organic and even easy. But they can be the result of countless hours of consistent effort, getting to know customers inside out, taking some big, calculated bets and sticking with them, and bringing together talented people who can see where products, service, customers and markets can be brought together to outperform competitors.??
I’d love to hear which of these feels easiest to apply to your business. You don’t need to do them all but one often leads to another – the important thing is to work out where you need to start, create enough resource to make a proper go of it, then apply your innovation process repeatedly over time.??
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