Innovation: The Need to be Different
In the late ’90s, Harvard professor/author Clayton Christensen wrote “The Innovator’s Dilemma” in which he described “sustaining” and “disruptive” innovation. The first typically comes from “incumbent,” established companies that offer incremental improvements to products and services already known to most consumers. The second more often from new market “invaders,” which recognize potential not seen by existing competition.
So which are you? You need to be one and could possibly be both, but if you are not innovating anything, why do you exist?
If that sounds harsh, I mean it to be. Business is harsh, even more so today than at any point in CE history and there is simply no room for companies who do not do all they can to evolve their business. The consumers they attempt to appeal to will demand nothing less and staying “as is” is not an option.
Saying this in a publication addressing the consumer electronics industry, the bastion of new technology, may seem unnecessary. After all who comes to market and sells more new technology than CE manufacturers and retailers? However, while true to a point, it also misses the point that much of what is offered does not sell, or more often, under sells relative to potential, resulting in household penetration rates well below 50%. Case in point, home theater.
According to the CEA 11th Annual Household CE Ownership and Market Potential Study, effectively all (90 percent+) of US households own some type of TV and/or DVD player. Not bad, but when you look further you find that ownership of what most would consider to be home-theater components — including things like A/V receivers; front, center and rear speakers; subwoofers; HTiB; and DVRs, Blu-ray and DVD — is much lower. In many cases, fewer than 40 percent of US households own those products.
So with all this product innovation, we can’t get half of the country to buy? We don’t because innovation is much bigger than just product.
I know there is a natural purchase barrier beyond which it is difficult to go; a point where X numbers of consumers say, “I know what you want to sell me and I don’t want it.” But based on Coyote Insight’s work, I can tell you without hesitation that we are nowhere near that point for the vast number of products now stuck at household penetration rates of 50% or less. Many non or under buying CE consumers are so because the industry’s approach to them is not right.
Christensen tells us that many who have not bought, don’t because the product message “overshoots” what they feel they need/want in product capability, features, after sale service, etc. In other words, they don’t want to pay for what they believe they don’t need.
Many others have been “undershot” by manufacturers and retailers who did not offer information and service the consumer thought important. In either case, the opportunity is there for disruptive innovation and there is no reason that many of you cannot be the companies and individuals to satisfy that demand.
Mr. Christensen makes it clear that the two conditions that must be met for a company to be innovative, are the motivation and ability to do so. Clearly “ability” implies a number of very important things not the least of which is money, but since I’ve never met a management team who felt they had all they needed, for the moment let’s call that a wash and set it aside. That leaves motivation and while you should be quick to say you are motivated to innovate, take your time to really think about what that means. It may be more complex than you know.
Dean Karmen, inventor of Segway scooters and holder of well than 400 patents, had this to say about innovation.
“Technology is easy to develop. Developing a new attitude, moving the culture from one mental model to another, that’s the difficult part.”
We have more than enough technology and it is well past time to begin concentrating on the consumer’s “mental model”.
William Matthies is the CEO of Coyote Insight (www.coyoteinsight.com) and can be reached at wmatthies@coyoteinsight.com or at 714 726-2901. Visit Business Wisdom at http://businesswisdom101.blogspot.com/
Bill Matthies commented:
I do understand that Stephen.
Very early in my career I was responsible for Pioneer's sales to the military exchange system. Few of the then electronics buyers for the military understood the market realities for the products they bought, but I will say this. The ones I dealt with were very open to learning. I was fortunate to be representing a great product and brand and once I showed them objective third party evidence supporting the power of my products, the sale was way more than half made.
So, it not only takes a buyer who is willing to listen but a vendor who comes in with more just a product and low price as reasons to buy.
Stephen Campbell commented:
But you have to understand that for all big box retailers, the buyers level of competency in new products is well, 0. So they rely on current vendors to tell them what is new and innovative, when in fact it’s small if any improvements over existing products. To get new and innovative products on the market you have to look to new vendors who must develop new and better tech products to get some attention. Even then its a tough sell to established big box retailers.
Bill Matthies commented:
My suggestion to retailers and manufacturers who are not satisfied with their current level of sales is to do the following. Ask yourself, ruling out price reduction, what must you do to sell more? If you cannot adequately answer that question you're not focused on changing the "mental model".
home theater commented:
the last post is correct, manufacturers push volume down retailers throats if you don’t do x in volume we pull the line, case it point my company was one the original sellers of epson home theater projectors we are a small niche home theater dealer online called HTmarket.com. http://www.htmarket.com We took time to explain the product on the phone coaching customers we never just drop the price to improve the volume recently they said we did not do enough volume and pulled their best ht projector from our line up. We did not sell enough they said, they then dumped the product into discounters hands online and it’s now being moved at lower price with less profit with no explanation to consumers on a part of the companies that sell it. They want to move boxes not educate the consumer on how to install it and use it.
Alan Hutchinson
President
HTmarket.com
Keith Lehmann commented:
Bill, your article is very timely. Innovation extends far beyond the product; it truly supports the notion that we should âsell the experience.â A long time ago, product sales were made through the art of the demonstration. There, the customer could absorb not only technology and features but an emotional connection to the things we built. We have many specialty dealers that have perfected this art, others that are more hit-or-miss, and too many that donât apply much value to demonstrating the product they sell.
Frankly, the best engineered and innovative products will never deliver this emotional connection to the customer if they are not demonstrated by an educated, enthused staff. So the idea of innovation MUST include the entire discovery experience for the consumer.
Ray Windsor commented:
Bill,
You may know that I am fan and general supporter of the speacialty retailer. I agree about 1,000 percent that many consumers are underwhelmed by the “experience” available in a lot of retaileres brick & mortar or otherwise. If they could find a way to truely learn the technology being offered and present same in a way that educates and thereby creates demand on the part of the consumer, penetration would increase, time to saturate would be shorter, top line sales would increase (presumably profits would increase) manufacturers would be more likely to invest in the development of new technology in shorter cycles, their top line sales would increase, (presumably profits would increase) retailers would have more new stuff to buy and excitedly sell. Seems simple enough to me… I perceive there are several obstacles in that path. However I perceive that we manufacturers create the most significant and most frustrating bottleneck.
We provide the retailers with VERY LITTLE technology coaching. We select retailers who are not likely to be very coachable. Then we lower the price (diluting the business potential) and hope consumers figure it out and drive by the shelf and pull the product of at the lowest price point or push the low price “buy now” button.
I think Christensen has it right. Retailers don’t often “sell”, rather they allow consumers to buy in similar fashion as with a Coke machine. Manufacturers don’t create an environment where “selling” is the path to success, rather we foster an environment where only the volume of transactions matters.
I perceive that unless we find methods to improve the “quality” of those transactions household penetration will remain well under 50% for all but the most basic of products.
Retailers must be motivated to provide the consumer with a compelling “experience”. Manufacturers have to create the business environment where retailers will earn return on their investment in creating such a consumer experience.
Ray Windsor
German Maestro
President
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