Product Innovation And Marketing

Product Innovation and Marketing Lecturer´s Bio Univ-Prof. Christoph Fuchs, PhD Academic experience o Professor in Marketing at the University of Vienna o Before Professor at the Technical University of Munich and Erasmus University o Industry experience o IBM, advisory bo...

Product Innovation and Marketing Lecturer´s Bio Univ-Prof. Christoph Fuchs, PhD Academic experience o Professor in Marketing at the University of Vienna o Before Professor at the Technical University of Munich and Erasmus University o Industry experience o IBM, advisory board member KTG, consulting Research interests o Artificial Intelligence o Product design and creativity o Public Policy Why are you interested in this course? What do you expect? What you can expect from the course o Learn core New Product Development (NPD) topics concepts o What is an innovation? o Are all innovations the same? o Understand why and when new products fail and others succeed o What can we learn from these examples? o Understand the basic Innovation and NPD process o Which are the main stages of the NPD process? o Who is involved? o Which are the main tools that a company can use to develop a new products? o How to get creative ideas? o Understand how to market new products o How to brand new products? o Does the marketing of new products follow different rules? Why do we study NPD? o Importance of Innovations for the society o New Products can be a big advantage for companies o The New Products process is exceedingly difficult o Marketing for New Products have specific rules What I expect from you o Be on time – don‘t come late o Active participation o Avoid distractions o Be constructive and respectful o Be entrepreneurial o Check constantly Moodle and your e-mails o You can approach me whenever you want – but think before sending me an email! o If you have questions that may interest your colleagues, please write in Moodle Timing and Evaluation o Class: Tuesdays 9:45 to 11:15 → Hörsaal 5 OMP o Exams: Multiple-Choice Midterm and Final Exam → based on the slides and all the readings indicated in the guidelines Material o Slides and readings on Moodle o Videos indicated in the guidelines (not for the exam) Recommended book (not for the exam) Any Question? Class 1 Basics of Innovation and New Product Development What is “Innovation”? Innovation is the entire process by which an organization generates creative new ideas and converts them into novel, useful, and viable commercial products, services, and business practices for potential economic gain What can be an Innovation? Products Services Business Model Process Product vs. Process Innovation Why is Product Innovation so important for companies? Reasons for Innovation o Innovativeness as a competitive advantage o Replace products at the end of their life cycle o Changing customer needs e.g., reaction to competitive actions; market (de)regulations; customer requests; demographic and lifestyle changes… NEW PRODUCT DEVELOPMENT IS IMPORTANT BUT ALSO RISKY! Why some companies decide NOT to innovate? Barriers to Innovation  “Each year 30,000 new consumer products are launched — and 95% of them fail.” — Clayton Christensen (Harvard Business School) Vardhan, 2020  Why? Vardhan, 2020 The Exploration-Exploitation Paradox (how should you best allocate your resources) Types of Product Innovation Types of Product Innovation #1 INCREMENTAL INNOVATIONS RADICAL INNOVATIONS Minor changes to existing practices Major changes to existing practices and behavior → features and behavior → new components improvement and a new system o Based on old technology o Based on new technologies o Dominant design unchanged o Leads to a new dominant design o Driven by market-pull o Driven by technology o Results of rational response or necessity o Results of chance or R&D policy Example of an Incremental Innovation Most of the innovations are incremental innovations Example of a Radical Innovation “Either write something worth “I will now claim -- until dispossessed -- “There is no reason for any reading or do something worth that I was the first person in the world individual to have a computer writing.” to apply the typewriter to literature.” in his home.” -- Benjamin Franklin, 1706 -- Mark Twain, 1875 -- Ken Olson, 1977 The issue of „really“ new products (radical innovations) “If I had asked people what they wanted, they would have said faster horses” (Henry Ford) Why is it important for companies to distinguish between Incremental and Radical innovations? Types of Product Innovation #2 COMPETENCE-ENHANCING COMPETENCE-DESTROYING An innovation that builds on An innovation that renders obsolete existing knowledge and skills existing knowledge and skills The digital camera was a radical innovation Types of Product Innovation #3 ARCHITECTURAL INNOVATIONS COMPONENT INNOVATIONS Changes the overall design of a Changes in one or more components system or the way its components that does not significantly affect the interact with each other overall design of a system How do innovations evolve? The History of Aviation The History of Aviation The History of Aviation The History of Aviation The History of Aviation  Innovations driven by new technological characteristics Technological S-Curve Sailing ships & the power of the wind Physical limit (not always reached) Copper wire & transmission capability Semiconductors & speed of the electron Reliability, speed, altitude Hitting natural limits Propeller aircrafts & speed Diesel engine & emissions Performance Riding up, more firms working on it, becomes standard, focusing on narrower challenges, more organization commitment and incentives, building on prior Early stage; low R&D experience productivity, lot of failures, need to experiment, Dominant design building up knowledge Henderson 2004 Time/Effort Adopters´ Categories S-curves are often explain by different categories of people that adopt the innovation at different times  Technological S-Curve Physical limit (not always reached) Hitting natural limits Reliability, speed, altitude Performance Dominant design A product design that is Riding up, more firms working on it, adopted by the majority of becomes standard, focusing on producers, typically narrower challenges, more creating a stable organization commitment and incentives, building on prior architecture on which the experience industry can focus its Early stage; low R&D efforts productivity, lot of failures, need to experiment, building up knowledge Henderson 2004 Time/Effort Dominant Design The formation of dominant designs might not only have technological reasons (i.e., the best technology wins). It can be influenced by the o strength of the company or brand (e.g., Ford cars → mass production) o acceptance of the market (e.g., convenience, cost of switching, first mover advantages) o by laws and regulations (e.g., diesel engines?) Early Stage – Explosion of Designs The long journey to the dominant design Even though QWERTY is about 15% slower than the optimal keyboard → lock-in!  Dominant Design in the Lifecycle Rate of Major Explosion of Standardization of Contraction of Innovation different designs, design, Emergence competitors, Era Era of radical of process of incremental product innovation innovation innovation Product Innovation Process Innovation Dominant Design Lowest Cost Fluid Phase Transitional Specific Phase Ferment Phase Maturity time Utterback, J. (1996). Mastering the Dynamics of Innovation. Harvard Business School Press.  DISCONTINUOUS S-curve Model INNOVATION Performance Maturity: Technology reaches performance limit, Technology C Growth: Technology B Diffusion process accelerates Technology A Introduction: Time Great uncertainty and risky investment, many companies fail here See also: Christensen, C.M. (1992): Exploring the Limits of the Technology S-Curve, in: Production and Operations Management 1(4), pp. 334-775. S-Curve model Product Performance Maturity: Costs become essential, incremental innovations Third Technology Growth: Second Technology Process Innovations become more important First Technology Time or Emerging Effort ….some may be displaced by new, discontinuous technology → switching S-curves is particularly important for architectural innovations. Limitations and Issues of S-Curves o Hard to predict when a technology reaches the performance peak o Firms have individual S-curves o Timely S-curve switching seems critical when confronting architectural technology change o Shape of s-curve can be influenced by exogenous shocks o market changes (e.g., customers needs change) o regulation changes (e.g,. emissions) Exercise Sketch a S-curve for an industry that you select! e.g., data storage, mobile phones, energy, music, automobiles → bring examples/pictures of the products in the 3 main phases Send it to me via e-mail by next Thursday. I will show some curves (anonymously) during the next class. Learning → Helpful tool to determine when to change technology and what to innovate next → Helpful analysis by plotting competitors, or the whole industry on the curve (where are we now?); identification of performance attributes where improvement is possible Takeaways o Not all innovations are equal o Although innovation has many benefits, companies often fail to innovate o Innovations often follow s-curves when relating the time of innovation and the performance of the innovation o Dominant designs are not necessarily the best ones o Often new technology are displaced by new ones: it´s critical for companies to foresee when this will happen Next Class → 8.10. Success and Failure of Innovations