week 4: offering-based SCA Flashcards
(21 cards)
Define innovation
The creation of substantial new value for customers and the firm by creatively changing one or more dimensions of the business.
Involves change leading to differentiation and SCA
List the 4 aspects of the offering that can be innovated
1) What
2) Who
3) How
4) Where
Describe the Innovation Radar
1) WHAT
- Offering: new products or services. Eg: iPhone
- Platform: Using components/building blocks that can easily be customised or extended by others
- Solutions: total end-to-end solution
2) WHO
- Value Capture: change how company captures v alue from its offerings; how customers are charged
- Experience: redesign interactions to enhance satisfaction, engagement, and loyalty
- Customer: New target –> identify unmet needs or unobserved segments
3) HOW
- Processes: improve operating processes to enhance efficiency, productivity, and quality
- Supply Chain: chanfe supply chain to optimise efficiency, reduce costs and improve responsiveness
- Organisation: change firm structure or scope
4) WHERE
- Presence: where products are sold. Expand distribution channels or create innovative points of presence to reach customers in new markets or contexts
- Networking: develop network-centric offerings that leverage interconnections as a strength. Eg: AirB&B
- Brand: Extend brand into new domains by leveraging brand trust, reputation and awareness.
Are innovative new offerings enough to build and maintain SCA and barriers to competitive attacks?
No: these offerings must be augmented by Brands and Relationships to protect firm’s SCA because it’s easy for competitors to copy offerings, given enough time and money.
However, establish foundation for the value that can be added by B and R.
Why do 75% of products launched end up failing to meet objectives?
1) Failure to provide a large enough benefit (poor development)
- No differential advantage
- Eg. BenGay Aspirin
2) Price vs. Performance
3) Poor product launch (slow diffusion): need a large enough proportion of people to adopt the same product (network effect)
- Eg. tiktok
4) Poor positioning of new product: idea of product in buyers’ mind
- Eg. Kellogs’ Breakfst Mates
5) Competitive response: 1st mover doesn’t necessarily win
Describe the 2 main ways in which marketing contributes to and defines Offering and Innovation strategies
1) Launch new offerings:
- To generate sales with acceptable profit levels
- Many good products fail to achieve financial objectives due to poor launches
2) Develop innovative offerings by collecting cutomer input and forecasting market trends:
- Test marketing
- Understanding factors that will inluence whether customers adopt new offering and increase likelihood of successful launch
List the 3 drivers of adoption (PPP) that help explain diffusion rates of new offerings
1) People: users with different propensities to adopt new products
2) Psychology: sources of persuasion
3) Products: specific product characteristics that may help or hinder adoption
PEOPLE: describe the 5 groups of potential users in the adoption lifecycle of an innovative offering
1) Innovators:
- First to adopt, often even before launch
- Have very specific needs (groups where supply doesn’t meet demand)
- Eg. Extreme sports, Innovation contest at McDonald’s build your own burger
2) Early Adopters:
- See the benefits of the new tech
- Willing to adopt it after just a few references
- Low risk aversion, high need for new products, high WTP
CHASM
3) Early Majority:
- Pragmatic consumers, need to be convinced that new product really works
4) Late Majority and 5) Laggards:
- Want more evidence, are especially hard to persuade
Describe crossing the chasm
(Visually) Gap between early adopters and early majority.
New product launches fail if firm hasn’t prepared to sell to early majority by the time it runs out of early adopters.
- Usually firms plateau here, after having captured only a small part of the market.
Should communicate value of innovation on time and effectively.
Psychology of Adoption: describe 4 drivers
1) Social proof: looking at others to decide
- More people: larger belief that it’s correct
- More similar people: larger impact on behaviour
2) Authority: respect for authority and status (eg. Cristiano Ronaldo, admirable and high-status)
3) Scarcity: things seem more valuable when limited availability
- Eg: get it now! they are running out!
4) Prospect Theory: perceived value for an objective gain or loss
- Largest groups of customers feel like they ‘lose’ their old product and this tends to be heavier than the perceived value of the gain: biad towards the status quo
Product Characteristics: 5 drivers of adoption
1) Relative advantage: degree to which offering perceived as being better than ideas it supersedes
- Economic: cost, price
- Status, prestige, etc
–> Should be clearly communicated and visible to consumer
2) Compatibility: degree to which offering perceived as consistent with existing values and experiences
- Often must breal habits, perceptions, beliefs
- Eg: plastic wine corks: objectively better in terms of preserving the wine, but not copatible with the status that good wine carries, with what consumers want to experience.
3) Complexity: degree to which offering perceived as relatively difficult to understand/use
- Education is key (online banking) –> maybe accompany it with extensive how-to’s, employee training, customer service, etc
- Speed and ease of ue of Google
4) Trialability: degree to which offering may be experimented with on a limited basis
- Free samples, demo, test drive, free trial
- Especially salient for high-cost, time, risky products
5) Observability: degree to which results of an offering are visible to others
- Especially salient for status products (eg. air pods)
- Can also be negative (eg. parking outside a man’s club)
Red vs. Blue Ocean Strategies
Red: Classic STP
- Within known market space, competitive rules and industry boundaries
- Products mature and become commodities
- Can be managed, tested and analysed
- New offerings: brand and line extensions –> incremental innovations
- Account for the majority of sales but earn lower relative profit levels
- Highly competitive rivarly in existing markets
- Attempts to capture a portion of existing market demand
Blue: Disruptive Positioning
- Market space does not exist (unknown boundaries)
- Demand is created rather than fought over (often no direct competition)
- Hard to test, more of an art, often requires intuition, high risk
- Less numerous but more radical and repositioned offerings, focused on creating new markets
- Success generates higher profit levels
- Often transforms the image of competitor’s brand features such that they become a negative attribute in the new market
- Attempts to create new market demand
Tech-based Innovation Strategies: Sustaining vs. Disruptive Innovation
1) Sustaining Technologies: continuous incremental improvements
- Products often overshoot customer needs
- Lower risk
- Improve performance of established products along dimensions valued by maintream customers
2) Disruptive Technologies: highly different price and performance characteristics or value propoitions. Often quick improvement.
- Underperforms established products in mainstream markets
- Typically cheaper, simpler, smaller, or more convenient to use
- Eventually become good enough
–> Start at lower performance, but then steeper improvement curve
Who usually wins the battles of sustaining innovations?
Incumbents
Who usually wins the battles of disruptive innovations?
New entrants
Why do market leaders fall into the trap of failing to innovate?
1) Fear of cannibalisation
2) Hard to invest in disruptive innovations –> lower margin opportunities that their customers don’t want –> risky if not sure that it will be well received, could hurt reputation
3) Growth targets bias firms towards larger markets
4) Markets for disruptive innovtions have no data yet –> cannot be quantified –> risky
5) Competition leads to oversupplying performance relative to what customers want (eg. AI chatbots)
–> SOLUTION: set up an autonomous organisation tasked with building an independent business around disruptive innovations in parallel.
Describe Stage-Gate Design Review Process for effecrtive product development
1) Concept and Definition:
- Initial screening of all potential ideas
- Concept assesment
- Project definition
- Feasibility assessment
2) Design and Development:
- Product and process design
- Financial feasibility considerations: testing price points and consumer acceptance
3) Validation and Production:
- Market launch planning
- Product manufacturing and process validation
- Test marketing
4) Final Audit:
- Final product and process assessments
- Reflection of previous steps
What is the largest predictor of financial successs?
Product superiority: good designs are 5 times more likely to succeed than poor designs
Product design requires making tradeoff decisions (price, performance, size, location, feaqtures, etc)
Offering and Innovation Strategies: describe Conjoint Analysis and its two main stages
Conjoint Analysis: process for determining the “unit-less” tradeoff among attributes that maximises appeal (sales, share)
1) Conjoint Design: attributes and levels, type of conjoint, selecting profiles
2) Conjoint Analysis: part-worth utilities, identify segments
Products represented as bundles of attributes. The levels of each attribute define the product.
Number of profiles (aka hypothetical versions of the product) = product of the number of levels within each attribute
LINEAR REGRESSION: to recover the part-worth utilities
Conjoint Design: explain use linear regression
Ratingi = B0 + B1Attribute1i + B2Attribute2i + … + BnAttributeni + ei
–> Bij = part-worth utility
WTP:
1) Dollar value of 1 part-worth util:
(price difference) / (part-worth utility difference)
2) Then we can use this “$ per part-worth util” to calculate WTP for a certain attribute (compared to reference)
($ per part-worth util) * (part-worth utility of an attribute)
Conjoint Design: Attribute Importance
Relative importance (%) of each product attribute:
Importance of attribute = (Range of attribute’s part-worth utility across the attribute’s levels) / (Sum of ranges of all attributes’ PW utilities)
