PATTERNS OF PRODUCT AND SERVICE INNOVATION

by Donald V. Potter

Customers believe many factors go into their decision to purchase one product over another. Our analyses of several thousand customer decisions has shown, however, that more than 80% of the time the ultimate reason is a unique product benefit. For a producer of products or services, then, the key to market share is to become distinctive in a way that is valuable to customers. But how?

We propose a diagnostic scan for opportunities, based on a template of questions. With this template, a product innovator can explore a full range of potential innovations, perhaps surfacing ideas that he or she might not have otherwise discovered.

We developed the template by studying several thousand product innovations, grouping them into categories of benefits these innovations brought to customers. The three basic categories of benefits that emerged were providing information to the customer; reducing the resources the customer uses with the product; and improving the customer’s experience with the product. Within each category we honed three to four critical questions that can help an innovator render a product or service unique.

Providing Information to Your Customer

Ease of access to information, made possible in large part by the internet and powerful search engines such as Google, have encouraged customers to research products much more extensively than ever before. They come to the point of purchase armed with information about a product and its supplier, about the unique benefits of the product, and about how the product can be used. One avenue of innovation, then, is to help potential customers become better informed.

Does your customer recognize your brand name?

Whether your brand already exists or is a new creation, you want to ensure that it conveys meaning to customers.

If your company has a well-known and highly regarded brand name, it can leverage that name by applying it to innovative related products. That is what Procter and Gamble did when it developed a new formula of mouthwash, which it branded with P&G’s Crest name to take advantage of Crest’s longstanding leadership position in the toothpaste segment. For a company without a well-known brand, one option is to “borrow the equity” of another brand. Renfro Corporation is an example of a company that relies on others’ brands. It manufactures socks to be sold by Fruit of the Loom, a leader in the underwear market, and Odor-Eaters, a well-known name for insoles. A third possibility is to develop a brand from scratch, as France Telecom SA did when it created the Orange brand for its mobile phone service, and then created a range of “Orange Signature” devices customized for the Orange brand.

Once you have established a brand, you want to attract customer attention to it. That may involve some marketing directly to the customer, using methods such as direct mail, samples, coupons, clubs or beta versions. Flagship locations also grab attention. Apple has followed others, such as Nike, by opening retail shops to demonstrate their superb products.

More often, you will attract attention by advertising, especially with clever ploys such as non-traditional ads and catchy “themes” to create a customer memory. For example, a Broadway musical producer offered a limited number of $20 front row tickets to attract a younger crowd to his production of “Rent,” a musical about a group of young, hungry artists in New York’s East Village. In turn, these youngsters recruited other patrons. In another effort, this producer marketed “Avenue Q,” a Broadway show inspired by, and in the spirit of Sesame Street, with emails and ads that carried the statement “Warning: Full Puppet Nudity”. In 2004, Target marketed itself at Washington DC’s Cherry Blossom Festival by sending out a fleet of rickshaws emblazoned with the retailer’s iconic bulls-eye. UPS adopted the color “Brown” as a nickname theme. Jack-In-The-Box uses “Jack” as a spokescharacter.

Does your customer know what makes your product especially valuable?

The task of conveying how a product or service is distinctive or beneficial traditionally resides with direct marketing messages, through sales forces or channels of distribution. You can also use other innovations to emphasize the distinctive value of your product and support your sales channels. For example, your product name itself can imply a benefit. In 2004, Cisco Systems unveiled a product that it named HFR. The initials stood for “huge fast router.” Netflix offers movies over the internet. Eclipse named its sun block Sun Cancer Garde.

Another approach is to use product endorsements or product associations with particular values and aspirations to provide compelling differentiation for your product. Cingular Wireless advertised that it had helped well-known business customers, such as Avis, providing Cingular with an implied endorsement. Yuengling, the regional brewer, developed new labels for its products with a nostalgic look and focused its marketing messages on its place in Pennsylvania history to emphasize its ties to the local community. The Keystone ski area attracted Hispanic customers by staging a winter Ski Fiesta and by sponsoring Puerto Rico’s ski team, which trained at the resort.

Does your customer need more information about the life-cycle process of your product?

Customers use a life-cycle process with each product. An end user customer must obtain and install the product, use it, sometimes along with other products, maintain it and then dispose of it at the end of its life. A customer who is a channel of distribution must obtain the product, sell it, guarantee or maintain its performance and, sometimes, return it to the manufacturer for a refund or a credit.

These life-cycle processes create opportunities to innovate by adding valuable information for the customer. Newell Rubbermaid, for example, printed the instruction sheet for product assembly on the product packaging. This innovation showed customers how easy the product was to assemble, and also helped reduce the chances that customers would lose the instructions.

In the 80s, several retailers offered “personal shoppers” to help customers buy coordinated clothes and the accessories that complemented them. Kraft’s Miracle Whip business mailed customers recipes using their product. Several online brokers developed analytical tools to allow traders to back-test their stock-buying strategies.

Reducing Resources Your Customer Uses with the Product

Every product draws on several resources of the customer. Money is the most obvious resource, though it is often not the most important. Time is often a more important resource. Physical effort and health are two more resources the product may require of the customer.

Can you reduce the spending your product requires?

Would a customer prefer to spend less money on your product? Yes, just as any child would like an increase in its allowance. Product price reductions save customer resources, but they are price, not product, innovations.

Product innovations reducing customer spending consider the broader context of the customer’s expenditures. Rather than reduce the price of the product, these product innovations reduce the customer’s spending on people, purchase or capital assets used with the product. When American Healthways takes over diabetic care, for example, patients receive more frequent testing for various ailments related to diabetes. Over time, this cuts the total healthcare cost for those patients, saving the patient’s, as well as the company’s, costs for treatment for the diseases that have been avoided or reduced in severity. In the same vein, manufacturers of over-the-counter teeth whitening products have substituted products costing $10-$50 for visits to dentists costing $300-$600.

Another approach to savings is to reduce your customer’s spending on other products used with your company’s product. Intel took this approach with its Pentium M, the first microprocessor designed specifically for laptops. Because the Pentium M reduced power consumption and heat output, Intel’s customers could produce smaller, lighter laptops with longer battery life.

There may also be money-related opportunities to improve your customer’s profit directly. The Travelers insurance company’s personal lines business used database marketing and professional copywriters to provide high quality communications that Travelers’ agents could send to their customers. The agents paid for this program, but realized benefits far in excess of the cost as the program helped some agents increase their customer retention rate by 4 to 5%.

Can the time your customer must spend acquiring, using or disposing of your product be shortened?

Most customers would like to reduce the time needed to find and purchase a product or service, and to get rid of the product once it is no longer useful, so innovations that make purchase and disposal easier and faster can have market appeal. For example, several insurance carriers have adopted “straight-through processing,” which links steps for applications, renewals, inquiries, and claims to increase speed of service. Cable operators introduced “video on demand” to eliminate customer waiting for a program. Circuit City stores started Trading Circuit, which accepted customers’ old gadgets, musical instruments and other goods for eventual resale on eBay.

Can the time your customer must spend using the product be shortened or made more agreeable?

You may also find places where you can help your customer use your product more efficiently.

Autodesk customers can spend nearly full time with the company’s software. Because of this, the company sped up simple tasks, like opening and closing files and creating shortcuts for many common steps. These innovations in the AutoCAD 2004 product meant that saving a file was 66% faster and opening a file 33% faster than its predecessor product. Retailers and distributors reduce wait times and delays by opening longer hours or by opening sales points closer to underserved customers. Several large retail chains have put employees, armed with handheld scanners, in checkout lines to speed customer checkout. Intuit has developed industry-specific versions of QuickBooks to save customers time in using its product in particular industries. In 2003, Lufthansa signed a deal with Boeing Company to install broadband internet service on its entire long haul fleet. This innovation enabled its end use customers to make their idle flying time more productive.

Can you reduce the physical challenges your product presents a customer?

Products sometimes impose a physical limitation on the customer, resulting from either the dimensions of the product or from the location where it is used.

One way to ease physical limitations for your customer could be to change your product’s weight or dimensions. Pepsi research found that purchases of soda were limited by customers’ ability to handle the product. In response, Pepsi replaced glass with plastic and created lighter-weight multi-packs. For disabled customers, Nissan developed an automobile with swivel seats and a motorized crane to lift a wheelchair into a trunk.

Or, an innovation might adapt a product to accommodate differing physical environments. Kapro Industries, an Israeli maker of measuring tools, developed a special level, called TopGrade. The level had two vials filled with liquid and a bubble of air at one and two degree angles to help builders lay floors requiring gradual slopes, such as bathrooms. For another example, consider cooking pans, which often have uneven heat distribution when used on some ranges. All-Clad solved this problem by fusing layers of different metals on to the bottoms and sides of its pans to provide more even heat distribution.

Can you reduce the actual or potential toll your product demands on the customer’s health?

Some products necessarily impose hazards for the customer and his or her surroundings. In such cases, you may have opportunities to lower these hazards by modifying problem-causing product components. Hi-Tech Pharmaceutical Company produced a sugar-free cough syrup that enables diabetics to control sugar intake while still suppressing a cough. The grocery retailer, Whole Foods, markets healthy and often locally produced products, such as fresh meat without growth hormones or antibiotics. Throughout the store, posters show local farmers and their methods of growing crops. Adidas created Adidas 1, a “smart shoe” with a microprocessor placed under the arch of the foot. This microprocessor measured the compression of the runner’s stride and adjusted heel-cushioning in real time according to changes in the running surface.

Other products may not pose hazards but they may be amenable to the addition of the new product components to make them healthier. Gatorade added a new endurance formula with nearly twice the sodium and three times the potassium of the original formula. The company aimed this product at runners, teenagers competing all day soccer tournaments and construction workers. Boston Scientific developed the Taxus drug coated-stent. These stents were the first of a new generation of devices coated with drugs designed to prevent the arteries from clogging again.

Improving Your Customers’ Experience with the Product

At some level, the customer brings his or her emotions to every product. How does the product make the customer feel? Can you respond to the powerful needs of emotion by improving the appeal your product has to a customer’s senses, by increasing a customer’s sense of well-being with the product, or by entertaining a customer while he or she uses the product?

Can you enhance your product’s sensory appeal?

Efforts to add new appeals to the customer’s senses can make a product more distinctive, especially where multiple senses are involved. Consider what Sony did with its Playstation 2 game “Dance Dance Revolution.” The early version of the game was a dance pad, laid on a floor, that lit up at various points as music played on the game console. The player gained points by stepping on the lit area of the pad while it remained illuminated. A later version, called the Extreme, allowed players to project their image on a computer screen through a digital camera. Then the player could watch, listen and dance at the same time. Barnes and Noble has focused its attention on super stores, offering attractive surroundings, comfortable chairs, fresh coffee and a range of best sellers. Or consider Marriott, which announced in 2005 that it would change all of the 620,000 beds in its system, offering softer sheets, plusher mattresses, stylish duvets and a fresh “white look”.

Can you add to your customer’s sense of pride and well-being?

One approach to enhancing your customers’ sense of pride and well-being is to link your company to values they are likely to admire and share with you. Green Mountain Coffee Roasters has long promoted “fair trade” coffee in which the coffee farmers receive enough payment for their coffee to gain a small profit. This philanthropic policy attracts such customers as Columbia University and natural food stores. Nike uses sponsorships of community programs to link its brands to specific groups of customers. For example, Nike’s Live Strong bracelets generate good will for the company, which targets 3% of its annual pre-tax earnings for philanthropic giving.

Some companies innovate by suggesting the high-style, intelligence or other favorable characteristic of the customer. Coach, the manufacturer of high-end leather goods, is an excellent example. The Coach logo has become a status symbol among the stylish set. Coach stores have never sold their handbags at a discount. The company uses all-leather designs for its handbags in a variety of colors. The Coach Corporation’s best selling line is the Signature collection, which bears the well-known “C” logo. Or consider the approach of another retailer, Talbots, which targets the mass affluent buyer, and uses the term “dividends” to describe the benefits of its frequent shopper program. This approach reinforces the company’s commitment to offering its customers a valuable “investment’ in quality clothing.

Another approach to customer well-being is to ensure that your product will be reliable, which means that it will perform as promised and, should it fail, your company will be there to help. eBay has a feedback system where buyers and sellers rate each other on each transaction. In addition, eBay has formed its own police force to patrol eBay. These product innovations help ensure customers that they can count on an honest transaction with a stranger. The home builder, KB Home, instituted a “Say Yes” program to handle customer complaints quickly. This program made customers feel that, if there were a problem, the company would fix it promptly.

Other companies innovate to reassure customers that their spending or investments with the product are safe. Verizon, for example, offers its customers a “worry-free guarantee,” one feature of which is the ability to return a product in good condition within 15 days for a full refund if the customer is unsatisfied. Swatch introduced a limited-edition set of time pieces, offered exclusively at select individual stores. The production limit protected those stores from low-priced competition and ensured a good return on their sales of Swatch time pieces.

A company may also offer indirect assurance of reliability. For example, a company might demonstrate its commitment to product availability (which is one measure of reliability in a retail store) by offering a broad product line. The grocery retailer, Wegmans, has taken this approach by stocking its stores with 60,000 different items, 40% more than the industry average. Other companies stress their leadership in a product specialty. For example, Tractor Supply offers products that its competitors do not carry, including animal feed, milling machines and carts with pneumatic tires and hydraulic lift systems.

Our observations of successful product innovations suggest that those innovations that assure the customer of product and service reliability are particularly valuable in building and maintaining market share. Why? Because these improvements are very difficult for competition to copy.

Can you entertain your customers while they wait for or use your product?

Entertainment provides a valuable diversion while your customer is waiting for or using your product. Food is one source of entertainment. Wal-Mart’s Super Centers feature a McDonald’s restaurant. Super Target stores feature a Starbucks coffee shop. Joseph-Beth booksellers in Cleveland relies more on food than books to be distinctive. Each of its stores has a full-service restaurant with entrees inspired by cookbooks offered for sale at the store. Some years ago, Disneyland presented a short movie to entertain visitors in long lines for one of its most popular rides. This diversion seemed to make the wait shorter. In a similar innovation, Wells Fargo added televisions to entertain its waiting customers at some locations.

Adding entertainment may simply make the use of the product more enjoyable. Bloomingdales was the first department store to create a theatrical atmosphere by dividing the selling floor into boutiques and showcasing emerging designers. Cinema de Lux encourages customers to stay longer at its movie theaters by creating a broader experience. Its seventeen screen theater in West Los Angeles features a concierge service, cocktail lounge, restaurant and live pre-film shows. To draw more young passengers to cruising, Royal Caribbean Cruise Lines introduced rock climbing, ice skating and billiards on some of its new ships. Luxury health clubs have become more akin to urban country clubs. Their roles have extended beyond fitness to include hubs for networking, entertaining and even tourism.

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Product innovation should increase your company’s market share. Copying the earlier innovations of competitors may help avoid the loss of share, which is, of course, important. But to gain a step on competition in the race for customer sales, you must offer unique benefits, something no one else can, or will, offer. The innovation must remain unique long enough for you to recapture the cost of creating it.

Share-gaining innovations do not necessarily have to improve product functionality. In many cases, very successful innovations increase the reliability of the product or the convenience with which a customer can acquire and install it. Innovations are more likely to be unique and successful if you thoroughly search for opportunities by exploring a broad range of potential improvements to a product – a range encompassed by our ten questions on innovation.

(Note: This Perspective was written in the context of the economy over the last 25 years. While some of the companies may have changed their policies or indeed no longer exist, the patterns they exhibit still hold today.)