Abstracts / The Journal of Product Innovation Management 18 (2001) 121–126
For suppliers:
4. Recognize that competition is getting tougher. Offer technical
solutions by getting more skillful at R&D, discovery, and team
integration.
5. Explore new business sourcing arrangements. Joint ventures or
alliances in markets such as China, India, Brazil, and Europe may
be attractive.
6. Use speed to overcome the need to maintain propriety in product
development. Ensure you can deliver the new product quickly
enough to head off potential competitors.
For both parties:
7. Don’t let distance hamper performance. Locate support teams near
markets or manufacturing facilities.
8. Keep score. Routine communication is critical.
9. Be creative in using the capabilities of global partners. By shifting
to modular product design, and shifting final assembly and pack-
aging to local supply or distribution partners, the varied needs of
customers around the world may be met.
10. Develop and encourage trust. Recognize that this takes time.
Knowing a winning business idea when you see one
Kim WC, Mauborgne R. Harvard Business Review, September–October
2000, pp. 129 –138.
Firms know the challenges of innovation: offering the customer a product
with desirable levels of utility at an attractive price, while making a profit.
Yet it is difficult to assess the commercial readiness and potential of a new
business idea. This article proposes a systematic way, developed through
empirical data, to reduce innovation uncertainty and to better assess the
commercial viability of a new idea.
The method begins with a buyer utility map, which considers six utility
levers as well as six stages of the buyer’s experience cycle (for a total of
6 ⫻ 6 ⫽ 36 spaces). The success of a new product hinges on its utility to
customers: where and how it will change the lives of consumers. The
authors claim that Motorola forgot this in the development of the Iridium
phone, since they focused more on the excitement of the satellite-based
technology and neglected to check the utility of the phone from the
customer’s point of view. Many of the utility levers are obvious: simplicity,
fun and image, environmental friendliness, risk reduction, and convenience
in acquisition or use. The sixth, customer productivity, requires a word of
explanation. This refers to an innovation that helps customers do something
faster, better, or in a different way (such as Bloomberg’s on-line analytics
that analyze market information and allow traders to become more effi-
cient). The six stages of the buyer’s experience cycle are: purchase,
delivery, use, supplements, maintenance, and disposal.
One should be able to locate a new product in one of the 36 spaces in
the buyer utility map to determine how the product creates a different
utility proposition from other products. The authors claim that too many
firms keep delivering the same utility at the same buyer’s experience stage
with their new products. Here are some examples of firms that successfully
staked out new spaces on the map.
Y A new utility lever, at the same stage. Fast-food chains offer fast,
cheap coffee, focusing on customer productivity in the purchase
stage. With its stylish coffee bars and exotic blends, Starbucks
added fun and image to the coffee purchase experience, and
spawned many competitors.
Y The same utility lever, at a new stage. Computer makers offered the
utility of customer productivity in machine use. Dell Computers
extended this utility to delivery, bypassing dealers and delivering
PCs tailored to customer needs.
Y A new utility lever, at a new stage. Fluorescent light bulb manufac-
turers compete by offering customer productivity in use, and are not
concerned about after-use disposal. Philips developed the Alto dis-
posable fluorescent bulb, designed to offer the utility of environ-
123
mental friendliness at the disposal stage (a virtually unoccupied
space), and captured 25% of fluorescent lamp sales in the U.S.
Having a product with exceptional utility is not enough for success: a
strategic price needs to be set. It is increasingly important to reach a high
sales volume quickly, that is, to seize the mass market early. The price
should allow the firm to attract many new customers and also to retain
them. Successful ideas such as those of Starbucks and Home Depot, cannot
be patented, so these firms need to convince their customers that they
provide better value if they expect to retain them. A two-step procedure is
recommended to set a price that customers “just can’t refuse.”
First, identify the price corridor of the mass. That is, understand the
price sensitivities of people who will compare the new product to other
products and services, including those outside the traditional competitors.
For example, in pricing its short-haul flights, Southwest Airlines has to
look at other airlines’ customers and also to users of buses, trains, and cars.
In other cases, the competitors are not so obvious. The authors suggest
considering products of different forms that perform the same function, and
products of different form and function that accomplish the same objective.
For example, Quicken financial software competes against hiring a CPA, or
using pencil and paper. All three options (software, CPA, pencil) perform
the same function. A movie chain competes against bars and restaurants
(different form and function, but same objective: having a night out). To
return to Southwest Airlines, the price corridor was between $60 (the cost
of driving about 400 miles by car) and $400 (purchase of one economy
airline ticket for the same distance).
Second, specify a price level within the price corridor. Consider
whether the product is protected (i.e., through patents or copyright), and
whether the company owns some exclusive asset (such as a production
plant, or an established brand name). Lacking these, a firm may need to
choose a price in the lower end of the price corridor. Southwest Airlines set
ticket prices near the lower end of its corridor, since its service was not
patented nor did it require any exclusive assets. Dyson Vacuum Cleaners,
that have strong patents as well as an outstanding service capability
reputation, set their prices high in the corridor.
Once utility and price are understood, the firm needs to look at prof-
itability. Here, the authors advocate a Business Model Guide, or a series of
questions that help managers avoid pitfalls. There are three categories of
questions:
Y What is the cost target? Swatch, for example, began with a retail
price target of $40, which necessitated design and materials changes
to reduce costs. The watch’s workings were greatly simplified and
the number of parts was reduced by about two-thirds. Plastic was
used in place of metal or leather. And cheaper assembly techniques
were used, such as ultrasonic welding in place of screws.
Y Whom can we partner with? Rather than trying to do all the pro-
duction and distribution activities, a firm may be better off to find a
partner with complementary capabilities. EMI developed the CAT
scanner, but tried to build its own distribution capability in the U.S.
Though a medical breakthrough, the CAT scanner was still subject
to imitation, and within three years, several competitors (notably
GE) were claiming significant U.S. market share.
Y Which price model should we use? Don’t assume too much about
the way a product should be priced. When videotapes first came out,
they were priced at $80, too expensive for most people. Blockbuster
Video changed the pricing model from selling to renting and the
home rental market exploded. To reach corporate clients that oth-
erwise could not afford a jet, Executive Jet sells the right to use a jet
for a certain amount of time rather than selling the jet outright.
Hewlett-Packard trades servers to Silicon Valley startups in return
for a revenue share.
Excelling in R&D
Gupta AK, Wilemon D, Atuahene-Gima K. Research-Technology
Management, May–June 2000, pp. 52–58.