Unit 5: Product innovation

Why is innovation needed?

Innovation is needed because: consumers need change; new technologies become available; to find a new market space; to improve ones’ reputation (showing that we are more attentive to new consumer needs than our competitors); to differentiate our company’s product range (both horizontally - which means that we offer a larger choice of products with the same quality level – and vertically – which means that we offer products of different quality levels); to diversify our market and client portfolio (thus reducing the risk of being linked to a few clients and markets).

Innovation and consumer needs

As we have seen in other Units, consumers’ needs change, and innovation is often the means we have to get closer to consumer needs. In this respect, we can either be first movers, which means that we are the first to say: “Look here! I am thinking of you! Now I offer a new service that is exactly what you need!”, or a follower, which means that we have to say “Me too, me too! I am offering this service, too!”. It’s ok, but first movers often get a bigger effect on their reputation.

Examples of innovation satisfying emerging consumer needs: pre-cooked food (service); low fat sausages (health); potatoes with selenium (health); smaller portions (for singles); products with increased shelf-life (for people who do not always eat at home or who can benefit from easier stocking of food).

According to the matrix you see here on the left, which is called “Ansoff’s matrix”, innovations can be divided into 4 typologies.

  • You can pursue a deeper penetration in the market you are already operating in. You offer the same kind of product in the same market, but, by offering a wider range, you try to strengthen your position, reaching a larger number of consumers and/or a higher share in your usual consumer budget.

    The “pros” are that you already know this market well, and you have probably built a good reputation in it, so consumers may be ready to listen to you and to choose your stuff.

    The “cons” are that the market – speaking of food – may be a mature market, and consumers have lots of options to choose amongst, so this is just another product among many.

    An example can be that, if you are used to selling golden delicious and granny smith apples, you now sell also stayman, to reach consumers who like a different kind of taste.

  • You can always remain in the same market, but this time, capitalising on your current position, you try to launch something new. This can be a new vegetable variety, a new packaging, easy to carry (for example at school, for a snack), a new process (for example, dried fruits). New product development requires:
    • I. The identification of a concept (e.g. a fruit that can be eaten as a snack without waste or juice), the testing of this concept (for example, asking a few mothers whether they would prefer that children brought to school dried apples instead of fresh apples: no juice on their hands, no apple cores among copybooks, etc.;
    • II. The identification of a reliable production process (both from the point of view of effectiveness – which means that the process is successful, perhaps also in preserving a few key nutritional benefits of the fresh product – and of efficacy – which means that results are reached quickly and with acceptable costs);
    • III. The test of the finished product (asking mothers to try the product themselves – perhaps it is useful also at work, and with their children);
    • IV. The choice of packaging;
    • V. The identification of a Unique Selling Point;
    • VI. The launch.
  • You can be more bold, and decide to launch the product you are presently selling in a new market (a different region in your country, a different country, a different distribution channel ...). Here you explore new boundaries, you can reach new clients, but your attention must be focused on building a reputation where you have little or none. Communication is really important, and also the ability to establish new alliances (with importers, with local shopkeepers, with local restaurants, institutions, etc.). Of course, in this case there is a lot to learn, because you can’t be sure that the know-how you have developed until now is sufficient. You and your team have to develop new abilities.
  • You can also have a really good idea about a new product in a new market. For example, you may think of using a technology you know well for a totally different product in a totally different area. An example is when a milk preserving technology (pasteurisation) has been extended to fruit juice preserving, but you can also open an advertising company, or be a milk producer who starts making and selling wine in the Middle East ... In this case, you may have a few assets to rely on, but such a diversification means that your company does not depend on a single kind of product / market any more, thus benefitting from different trends.

Innovation process

Some marketers use a nine-box grid for a more sophisticated analysis. This adds "modified" products between existing and new ones (for example, a different flavor of your existing pasta sauce rather than launching a soup), and "expanded" markets between existing and new ones (for example, opening another store in a nearby town, rather than going into online sales).

This is useful as it shows the difference between product extension and true product development, and also between market expansion and venturing into genuinely new markets (see Figure 3). However, be careful of the three "options" in grey, as they involve trying to do two things at once without the one benefit of a true diversification strategy (escaping a downturn in one product market).

No ideas? Here is a very interesting link, to “Farm Business Innovation 2014” (inspiring rural entrepreneurs), where you can find videos of UK innovative farmers telling their case history.

Key questions

  1. Are you innovation-oriented? Have you introduced innovative products recently? Which ones? Why?
  2. If you have introduced an innovation in the past, take a look and the innovation process scheme: was your process similar to this? Or somehow different? Please describe your innovation process according to the scheme, changing what needs to be changed.
  3. Invent a case study concerning a new product, and describe it using both the 4 box chart and the innovation process scheme.
  4. In this unit, we have spoken of product innovation, but there are at least 2 more kinds of innovation you may have been involved with: a) process innovation, which means innovation in the way you do things when you produce; b) service innovation, which has mostly to do with the services you offer to your clients.

    For example, you may have chosen to use different, less polluting plant treatments (and this is process innovation, but also affects your product), or you may have automatised some production phases, such as picking (and this has to do with process only, but, if it brings cost reduction, it can increase your ability to compete with lower prices). As regards service, you may, for example, call your large clients every 2 days to see if they need to re-order your products (think of a fresh product like eggs), so that they do not need to think about re-ordering any more.

    So, what kind of process and service innovation have you introduced or may you introduce in the future?
  5. For each kind of innovation, either in the 4 box or in the 9 box chart, select an example concerning your business.

This project has been funded with support from the European Commission.
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