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(originally published by Booz & Company)


The Promise of In-market Innovation

A new strategy recommends putting out new products in large volume and letting the marketplace — not focus groups — separate winners from losers.

The history of consumer goods is littered with products that were carefully researched and trotted out for numerous focus groups to great enthusiasm — and that flopped when they hit the market. Do you remember, for example, the Konica e-mini digital camera? Probably not, because like many ideas that founder, it was on the market for too short a time for most of us to notice. A strange device, it took pictures, doubled as a Web-cam, played MP3s, and recorded audio. Most of the retailers carrying it and reviewers examining it didn’t know what to make of the e-mini. Neither did consumers; before very long, the product was pulled from the shelves.

The unfortunate lesson from this and other similarly short-lived launches: Traditional market research (chiefly, consumer surveys and interviews as well as sales data for related products) is not a particularly good predictor of success. Worse, it tends to thwart creativity. For one thing, market research is not suitable for assessing novel product ideas. An innovative product, virtually by definition, is not going to have existing real or anecdotal data to support whether or not it will be well received. Consumers cannot respond intelligently to items they’ve never heard of or seen before. To circumvent this shortcoming, companies often focus on products and ideas that are research-friendly — in other words, incremental offerings that seem to fulfill an existing, discernible need. As a result, true innovation loses out to a proliferation of line extensions.

In addition, an overreliance on consumer input often leads to suboptimal decisions as marketers feel compelled to act on every byte of market information. At first, for example, small changes are made to packaging or ingredients. Then, slightly bigger fixes are made to, say, the size of the item. The cumulative effect is that the finished product is a far cry from what was originally envisioned.

A better alternative exists: a product launch strategy that we call in-market innovation. With this approach, companies debut a substantial number of new products with limited up-front testing or filtering, and the marketplace itself doubles as the focus group. Rather than attempting to predict how products will perform through old-fashioned studies and surveys, in-market innovation lets the consumers dictate the portfolio of winners and losers. Although this approach may seem to be more expensive than market research (because of the larger number of items developed and launched), a deftly implemented in-market innovation strategy is potentially more efficient and less costly than traditional efforts and often provides a quicker path to enhanced revenue.

The most obvious savings come from minimizing market research costs, because each iteration of an idea, concept, or product does not need to be tested. But just as important, the number of decision points and possible changes to the product are greatly reduced. That, in turn, trims production and design expenses and eliminates the wasteful steps in product development that tend to kill innovation or slow the speed to market (and access to increased cash flow) and gives a product the chance to prove its viability.

Moreover, because in-market innovation requires true collaboration with consumers through simulations and mini-launches, it enables companies to enjoy an early, quick, and accurate read as to whether customers really want a new product and would be willing to pay for it. This lowers the risk and, thus, the cost of each product debut, and lets companies allocate investments better to support winning brands and sidestep losses associated with failures.

To best understand the value of in-market innovation, consider how the strategy can be implemented in each of the four steps of product innovation.

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  1. Edward Baker, “Survival-of-the-Fittest Innovation,” s+b Leading Ideas Online, 8/05/2008: Why consumer products companies should look to the power of natural selection to break out of the incremental innovation trap.
  2. Alexander Kandybin and Surbhee Grover, “The Unique Advantage,” s+b, Autumn 2008: To succeed in a mature industry like consumer products, the trick isn’t being first — it’s being hard to copy.
  3. Rich Kauffeld, Johan Sauer, and Sara Bergson, “Partners at the Point of Sale,” s+b, Autumn 2007: Discusses the notion of “shelf-centered collaboration,” which lets manufacturers and retailers put the right product on the right shelf at the right time for the right consumer.
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