Misusing Product Innovation?
In the innovation types model we make a big deal of selecting an innovation that is appropriate to the maturity of the market category you are addressing. Product innovation, as opposed to enhancement innovation, is called out as a high-risk, high-reward tactic suitable for growth markets where gains in market share augment gains in revenue and profits, supplementing present returns with an increased probability of future ones. At the same time, its use is discouraged in mature markets, particularly consumables markets where large changes in market share are rare.
With this in mind, we think the companies referenced in Businessweek, October 10, "Wooing the Starbucks Crowd," are making a big mistake.
The article is about three highly engineered home-brew coffee-making systems of the ilk showing up in high-end offices these days, where the coffee comes in prepackaged units of one and is a considerable cut about “office coffee.” Big guns are involved, including Kraft with its Tassimo, Procter & Gamble with its Home Café, and Sara Lee with its Senseo. All three have Starbucks envy and are looking to resurrect falling shares in their coffee brands.
The problem with their approach is twofold. First, mature markets are dominated by conservative late adopters who hate new systems of any kind. This is only marginally related to age, and has everything to do with habit. That’s why when the Bweek editor says “So the big bet now is gadgetry,” investors and managers should shudder. Sure they will make a dent in Christmas gifts at Sharper Image and Bridgestone, but once that has been exhausted it will fall flat with the hyper-young who cannot afford the consumables, and with the rest of us, who cannot be bothered.
The second problem is that the new business model is so radically self-serving that even the dullest consumer must give pause. Here is the text from the article: “In a nod to Gillette’s proven razor-and-blade strategy, the idea is to get people hooked on the branded premeasured coffee “pods” and “disks” (notice the editor’s continued sensitivity to gadgetry). Gillette’s strategy, like Kodak’s with film and HP’s with printer cartridges, works because it had first achieved ubiquity with its product before it sought to achieve lock-in with its consumables. Announcing a complex product that implies committing to expensive consumables is like showing up in front of a walled city with a large wooden horse and a sign that says, “Don't look inside!”
What’s the lesson to learn here? Competitor envy and fear of market share loss are good motivators to start an innovation effort—that is Darwin at work—but they should not be allowed to drive from then on. Instead, one must genuinely engage with the consumer or customer need, genuinely improve upon their condition, and do so in a manner consistent with the maturity of the category.
Of course, if any one of these machines is a runaway success, I am an idiot for writing this blog, you perhaps for reading it, but hey, at least it’s free, and lock-in is zero.