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Innovation is the process by which an idea or invention is translated into a good or service for which customers are willing to pay, or the result from this processInnovation = invention + commercializationA different time to call something a new product has to do with the life cycleDifference in th...

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Innovation is the process by which an idea or invention is translated into a good or service for which customers are willing to pay, or the result from this process Innovation = invention + commercialization A different time to call something a new product has to do with the life cycle Difference in the position on the innovation lists -> Because they use different definitions and methods Innovation improves a firm’s competitive position - Respond to market opportunities, which results in new products and/or new markets - New products help to differentiate from the competition - Innovation contributes to growth: many companies get 30% of their current sales from new products - Product lifecycles get shorter; innovation is needed to remain attractive to customers - Without constant renewal you will be overtaken by the competition; innovation results in competitive advantage Innovation improves society - Radical innovations improve health, safety and comfort of customers - Cloud computing, artificial intelligence, internet of things, online shopping Changing technologies, customer needs and global economies create many opportunities for innovation. Successful innovation is not about having good ideas, but about successfully developing them into new products/services. Studies show that there is no direct relationship between money spent on R&D and firm innovation performance. Spending on R&D does not directly result in firm innovation performance. Characteristics of successful innovators: - Strategic alignment between innovation strategy and business strategy - Corporate culture aligned with innovation strategy - Top management involved in R&D program - Focus on obtaining deep customer insights - Project selection is considered critical to success Companies expect to invest more in digital technologies and products Three types of products - Pure information goods: ruled by digital companies (Google in search and Facebook in social networking) - Once-analog products that have been converted into digital products: ruled by digital companies (Audible.com for books, Spotify for music, Netflix for movies) - Analog products with digital being integrated (Internet of Things): dominated by manufacturers such as Caterpillar, Tesla, Ford

“Innovation is the multi-stage process whereby organizations transform ideas into new/improved products, service or processes, in order to advance, compete and differentiate themselves successfully in their marketplace.” (Baragheg, et al. 2009) Product innovation: new product or service Process innovation: new production or delivery process Marketing innovation: new marketing method Organizational innovation: new organizational processes or procedures Incremental innovation: - Minor product change - High success rate - Low returns Radical innovation: - Large product change - Low success rate - High potential returns Old approach to innovation: Marketing -> research -> Design -> Manufacturing -> Sales 1. Each department works on the project until they have completed their task 2. Then, the project is handed over to the next department This results in a very suboptimal process - Many communication problems, even when there are feedback loops - Many delays, resulting in a slow process - Less successful output (the new product) There are many sources of ideas for innovations: Customers, R&D department, the salesforce, suppliers, competitors, patents, research institutes, complementors, other industries, technological developments, existing products… Successful innovators use a wide range of sources to generate ideas - Beware of ingrained patterns of behavior (like always talking to the same customers) - Successful firms stimulate serendipity (coincidence) The nature of the idea depends on the source - Customers are more likely to suggest incremental innovations or wild ideas - Employees or experts are more likely to suggest practical/implementable ideas - Universities are more likely to suggest radical innovations Customers are more likely to get ideas quickly developed instead of a research institute Outsiders often look at problems in new ways - They are not trapped by traditional paradigms and assumptions - They do not have investments in traditional methods Traditional method to see into a patient’s intestines: endoscope (flexible rod with a camera) A concept is a more detailed representation of the new product - list of specifications - blueprints, drawings

- concept boards - computer-generated images or videos - Scale models, physical mockups A concept makes the idea more specific - Facilitates communication - Both within the team and with customers Test your concept with customers - Your current customers - Your ex customers - Loyal customers from the competition Popular method to test your concept: crowdfunding - Kickstarter, Indiegogo, RocketHub; cheap way to quickly test customer interest Prototype is a first, preliminary version of the new product Alpha-test - Technical test, performed by the manufacturer - Manufacturers copy user situations in great detail in the laboratory - Test whether the product meets the specifications, design flaws, safety, ease of use, durability etc. Beta-test (how a developed prototype performs in real life situation) - Market test, performed by real, potential customers - Test whether the product functions in real-life situations - Often used for promotion (“this product was tested by X”) Virtual prototyping - Testing of more prototypes, cheaper, faster: more information - Prototype testing and development is a continuous, iterative process - E.g. new medicines are tested on organs-on-a-chip Selling the new product on a limited scale in a controlled environment - In a specific region or city (such as Apeldoorn or Breda) - In a specific channel (such as gas stations) Objective is to test the viability of the new product; i.e. the complete marketing mix - Product - Channels - Communication messages/media - Pricing - Promotional activities To test market or not? - Costs vs profits - Required capital investments - Required marketing investments - Danger of competitors copying Market launch is the last stage of the innovation process Test customers may be used as launch customers: - Used as reference - Demonstrate product to potential customers

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Promote the product on social media

Two types of launch decisions: strategic launch decisions: taken early in the process, concern why/what/when/where questions - Launch objective (expand product range, increase market penetration, create entry barriers) - Newness of product (completely new, modification) - Timing (pioneer or follower, all at once or phased) - Choice of target market (mass market, niche market) Tactical launch decisions: taken later in the process, concern how questions related to - Product (branding, depth of product range, packaging) - Distribution (channel selection, distribution intensity, delivery conditions) - Price (skimming or penetration pricing?, discounts) - Communication (budget, instruments, push or pull?) Objectives of new product announcements - Create excitement - Convince potential buyers to postpone their purchase - Allow buyers to get ready for the purchase (Saving money) - Encourage suppliers to develop new components - Encourage complementors to develop products - Prepare distribution channels - Scare off the competition The innovation process is not always linear - Many feedback loops - Going back to earlier stages, redo the work Innovation projects are not finished, but shelved - Temporarily, until the market or technology changes - Indefinitely Innovation projects are combined with other projects - Two unsuccessful projects may inspire one new successful project Development advantages of the product makes new products innovation successful Design thinking: Diverge – converge – diverge – converge - Understand: Develop background knowledge - Create: Brainstorm ideas - Deliver: Analyze how you can generate ideas faster Creativity: conceiving something original/unusual, generating new ideas Innovation: implementing something new, a new idea You need creativity during your innovation process

- To generate promising ideas for new products or services - To design new ways of presenting your concepts to potential customers - To design new methods to test prototypes - To design new ways to successfully launch your innovation Innovation is the application of creative thinking; applied creativity Three components of creativity: Expertise, creative thinking skills, motivation

A lot of ideas are needed for one successful launch -> Firm need to start with many ideas and during each process it reduces. Cooper (1979) compared successful and unsuccessful new products Respondents scored both on a list of criteria; identified the key success factors 3 key success factors - Product uniqueness and superiority - Market knowledge and marketing proficiency - Technical/production synergy and proficiency 3 barriers to success - Relatively high price - Dynamic market - Competitive market with satisfied customers 3 Facilitators - Marketing and management synergy - Marketing communications and launch - Market need, growth and size No impact on success - First to market Being first to the market: Pros: - Shows technological leadership

- Generate buzz - Fast market penetration - Rules creation - No competition Cons: - High cost of product development/IP protection - High uncertainties - Need to stay ahead of competition - Technological and market uncertainties Criteria to assess new product ideas: - Product: Does it address a relevant market need? Superior value? - Market: Expected market size/growth - Competition: Number of competitors - Organization: Required skills and technologies - Financials: Expected profit, resources needed - Other factors: Regulations, patent, impact Incorporate the ‘voice of the customer’ in your innovation process During the entire innovation process: collect information about and interact with customers - To get insight into their needs and requirements - To get feedback on ideas, product concepts, prototypes Wide range of tools - Interviews, surveys, focus groups, live chats, social media, online customer reviews, call center data, emails Problems with voice of the customer - Several departments have customer information but do not share - Ad hoc activities, no systematic approach These problems are even worse in multinational companies - How to combine insights from customers in different countries? - How to get the right information to the right people in other countries? - How to create a coordinated response across countries? Successful firms generate many ideas, which result in many failures, but increase the chances of success. Innovative leaders encourage a culture of experimentation - Give employees freedom to innovate, to experiment - Do not punish failure, but stimulate learning as a necessary step to success Firms have multiple innovation projects at the same time Need for portfolio management: - Serves to manage risks - Serves to allocate resources Goal is to achieve a balance between three types of projects: - Core projects: small changes to existing products or small entries to new markets (Oreos on-the-go packages) - Adjacent projects: leveraging an existing strength in a new context (Swiffer)

- Transformational projects: new markets and new customer needs (Starbucks) Successful firms allocate resources 70 – 20 – 10% Key success is to balance between renewal and continuity: - Select for experienced inexperience - Leverage a stable core - Keep challenging the formula - Cultivate customer’s curiosity Characteristics of innovative companies: - Intense customer focus - Senior management emphasizes innovation - Open communication, information sharing - Strong, clearly expressed shared values - Reward system reflect innovation Innovative firms are often led by an innovative individual Key skill: associating -> Questioning, observing, networking, experimenting Developing new products may not be enough; firms develop new business models to create competitive advantage. A businessmodel describes how a company 1. Create value for customers  Identify a business opportunity  Define superior value for customers, which is summarized in a compelling value proposition  Implement resources and processes to deliver the value to customers 2. Capture value from customers  Get customers to pay for the value delivered to them: price based on value  Several options for revenue streams  Revenue streams + cost structure = profit model

Organization creates value, customer captures value and pays the organization (revenue stream). Customer focusses on product benefits don’t care about features and specifications

Customer value is the benefits minus costs that a customer receives in exchange for the purchase price - Benefits include all benefits: functional, emotional, social… - Costs include all costs: time, effort and money to select, purchase, acquire, pay, install, learn the product (but not the purchase price itself!) Customer value is perceived by the customer - Customer value is subjective - Customer value differs across customers (market segmentation!) - Customer value is dynamic: changes over time 1. Value has to be higher than the price 2. Companies must offer superior value, better than alternative

A value proposition is a brief, but specific description of the superior value offered to a specific group of customers Three types of value propositions: - List benefits - Superior value - Favorable differences Value proposition 4 essentials elements - Customer perspective: What problem to solve/how increase sales - What’s in it for them: benefits that add value/solving problems - Why choose to buy from you: Demonstrate points of difference/action plans - Prove it: Create trust/quantify benefits Selling firm: Investigates customer job - Develops new product

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Develops value proposition

Customer: Wants to do a customer job -> hires product - Compares value with price to be paid - Selects company that offers the highest value Customers always have an alternative: - Previous product from the same company - Similar product from a competitor Good value proposition: - Focuses on benefits that matter to the customer - Explains what is unique about the value offered - Focuses on jobs, pains, gains that customers are willing to pay for -> Is supported by research findings or experiences from customers - Is short and easy to communicate - Difficult to copy Characteristics of a good value proposition: - Focuses on what matters most to customers - Targets a few jobs, pains, gains extremely well - Focus on jobs, pains, gains that customers are willing to pay for - Explains what is unique about the value offered - Difficult to copy 4 essential elements: - Customer needs and insights - Promise of value that resonates - Competitive differentiation - Proof and quantification Prices can be based on: costs, value, competition - Costs represent the lowest price option - Value represents the highest price option - Competition serves as a reference point for the customer When firms are unable to differentiate themselves meaningfully from the competition, customers will always select the firm with the lowest price. Four strategies to capture more value from customers - Change the price-setting mechanism - Change who pays (newspapers paid for by advertising, services subsidized by government) - Change what the customer pays for (Subscription) - Change the timing of paying BMI (Business model innovation) is simultaneously changing - The organization’s value proposition (which value do we promise customers?)

- Its underlying operating model (how do we deliver that value?) Life span fallen from 15 to 5 years Profitable firms use multiple revenue streams - Live events and podcasts - Subscription offerings - Videos - E-commerce and product licensing Video games - Expected growth of 28% between 2018 and 2022 - Moved from single stream (one-time sale) to multiple stream Disruptive innovation is a process 1. Existing companies focus on the most profitable customers 2. New company offers innovation to low-end market: inferior performance at low end market -> low price 3. Incumbent companies do not respond because the low segment is not attractive 4. Innovation improves over time, moves to a higher segment 5. Innovation slowly replaces existing technology Disruptive innovation is often ignored at the beginning because of its low performance, but disrupts the industry later Traditional approach to global innovation 1. Western firm develops an innovation 2. then develops a cheaper version 3. and sells the cheaper version to developing countries New approach: Reverse innovation -> Strong and weak difference in the number of key innovation stages taking place in a development party 1. Western firm develops an ultra-cheap innovation based on the needs of customers in a developing country 2. sells this ultra-cheap innovation in the developing country 3. over time the innovation is improved in the developing country 4. becomes interesting for market segments in the Western home market 5. and is then sold in the Western home market Reasons for the collaboration in innovation: - Get access to specific knowledge and skills - Get more/better ideas for innovations - Get feedback during the innovation process - Develop better, more innovative products - Share product development costs - Speed up the innovation process - Develop technological industry standards Different types of customers, depending on the stage of the innovation process 1. Lead users, because they are very innovative and ahead of the market (however, hard to identify) 2. Key customers in the value chain, because they make the key decisions

3. 4. 5. 6.

The largest customers, because they have knowledge and visibility The second largest customers, because they want to become #1 Small customers, because they are more willing and have more time Local customers, because that is more convenient

Old strategy: Manufacturer does market research to identify customer needs and then develops the new product New strategy: Manufacturer lets users innovate and then connects with these innovative users to identify promising ideas and commercialize them Challenges: Identify these innovative users, connect with them, translate their solutions into commercially successful new products, help them develop their ideas into products Lead user method: - Create a team - Analyze trends and needs and lead user profiles - Contact potential lead users (300-400) and select 10 most promising ones - Two-day conference with the 10 potential lead users to generate ideas Key decisions 1. What type of customers should we cooperate with? 2. Which customer at that level is the most appropriate collaboration partner? 3. How do we cooperate with this customer? Managing a portfolio of collaborative relationships: - Each type of collaboration partner offers a unique contribution - All these relationships and contributions must be managed - Many advantages, but also dangers (high costs, delays, turn into competitors Phase 1: Consumers pioneer new products for themselves Phase 2: Consumer-innovator designs are shared freely, signaling a potentially profitable market to manufactures Phase 3: Manufacturers realize the design’s market potential, improve design and make it useful for mass production. Implications for innovating consumers: - Consumer realize that they can also create new products - Increasingly easy to design products - Increasingly easy to build design - Web platforms allow to share designs Implications for manufactures:

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Instead of doing market research to identify customer needs, identify consumerinnovations. Challenge: Find them and connect with them Support consumer innovators Explore what innovating consumers want in return

Even after an enthusiastic user has developed a prototype you still need to: - Identify potential customers - Investigate needs and wants - Assess size of potential market - Analyze competition - Evaluate investments and risks - Evaluate produc...