5. Innovation & Marketing Strategy. Link is Username mds_students Password insidemds

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1 Market Driving Strategies P4 March-April 2009 Professor David Midgley 5. Innovation & Marketing Strategy Link is Username mds_students Password insidemds Agenda Clocky Break Callaway Golf Club Break Lecture on innovation & marketing strategy 1

2 Clocky Prelaunch Target Need? Strategy? Positioning? Channel? Price? Clocky from ThinkGeek Callaway Golf Club Maturing Market Changing Customers? More blockbusters? Reposition? Is now the time to change? Channel strategy? Big Bertha Diablo from Volition Studios 2

3 Innovation & Marketing Strategy Stages in market evolution 3. Crossing the Chasm 2. Tipping Point* 4. Mass Market 5. Replacement by the Next Big Thing 1. Gaining Acceptance by the Innovators Clocky * Positive common knowledge forms Callaway 3

4 Gaining market acceptance for a breakthrough innovation Adoption: buying the innovation for the first time Diffusion: spread of adoption throughout market to a ceiling level (saturation), a market limit Sales = diffusion, followed by repeat purchases, replacements (upgrades and downgrades) and multiples = product life cycle Diffusion (market penetration) Kick start diffusion Information Cascades or Social Contagion 4

5 MARKSTRAT: market segments for Vodites Adoptions Typical segment size evolution over time Followers Early Adopters Innovators time Rule 6: Use marketing to frame the innovation in a positive light When introducing breakthrough innovation use the marketing mix to: Increase perceptions of advantage, compatibility, observability & divisibility Decrease perceptions of complexity & risk Corollary: based on real, relevant advance that can overcome the status quo bias The impact of poor framing at the start is substantial: no clear connection to the innovators, no convincing argument to win over the mainstream, confused customers, etc. TiVo is a classic example of this. 5

6 What is the frame of reference for a breakthrough innovation? Sony Aibo (deceased) LG SolarDom Palm irobot Roomba And against what do you differentiate? Reference dependence & Loss Aversion (Tversky & Kahneman 1991) Reference dependence Things are valued not in absolute but against a salient reference point In mature markets the comparison is with other products in the same frame of reference For breakthrough innovations the comparison is with the existing solution to the problem Loss Aversion In this comparison losses loom larger than gains for the typical customer 6

7 After the Newton, the Zoomer and the Envoy comes Rule 7: Achieving lift-off Getting the market to tip requires careful attention to: Social connectivity Subtle narrow-cast messages Emotional and rational appeals Starting many small movements That is: social intelligence 7

8 Crossing the chasm Innovators will go the extra mile to adopt, often adopting incomplete or generic solutions But early adopters are more pragmatic and wait for a complete or customized solution Creating a chasm between The early market that did adopt & The mainstream market which has yet to do so Crossing this chasm requires adaption of the basic innovation to the needs of mainstream customer segments, Source: Moore Who made more money? Ampex CP/M MITS Emery Chux Sony, Matshushita DOS, Windows Apple, IBM, Compaq, Dell Federal Express Pampers, Huggies 60+% of pioneers fail Median duration of market leadership 5 years 8

9 Rule 8: First-Mover Advantage There is no automatic first-mover advantage Rule 9: Innovation Driving markets requires continual innovation and all that supports this: Entrepreneurial organizations Road map for innovation Systems for identifying new value 9

10 Enduring market leadership Eventual leaders are often not the pioneer What distinguishes these enduring leaders? Vision of the mass market Ampex: The Relentless innovation Cinderella who missed the ball Takeaways Existing markets are continually reshaped by incremental innovation (2 nd, 3 rd, etc. generation) New markets are periodically created by radical innovation (1 st generation) For your firm to ride the waves of innovation or better yet drive them requires: Vision Capabilities/systems/resources Accepting risk Experimenting outside your experience Gaining market acceptance for breakthrough products requires real marketing intelligence, deep customer empathy and a medium-to-long-term strategy 10

11 Prof. David F. Midgley INSEAD Boulevard de Constance F Fontainebleau Tel. +33-(0)