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(originally published by Booz & Company)


The Promise of In-market Innovation

Step 1: Feasibility
With in-market innovation, this stage, which normally involves multiple market research studies, is driven by simulation and virtualization designed to measure the value of potential concepts and assess sales opportunities in a context akin to actual market environments. For example, in a simulated retail landscape, a consumer may be asked to “buy” products by examining and touching them or researching their pros and cons — in short, as they would choose an item in the real world. This goes a long way toward bridging the gap between predictable consumer purchases and the more nebulous consumer intent.

Step 2: Product Development and Design
Using the in-market innovation model, companies deploy a variety of production techniques to reduce development costs. For example, to produce the high-concept, high-tech toy Mindstorms, the Lego Group tapped into the expertise of external research labs at MIT and active users and consumers (kids) for their preferences on design, software, and hardware. Through this process, Lego has been able to address feasibility, market research, and product development simultaneously.

Some companies can reuse raw materials with in-market innovation, leveraging production expenses among an array of items and allowing them to manufacture more products that may meet customer preferences. A good illustration is Tiffany & Co., which tends to release to the market all items with any chance of success, but over time maintains production only on those items that attract a sufficient customer base. When a particular product has been overproduced and hasn’t caught on, the merchandise is melted down and recycled or sold to recapture costs.

Step 3: Commercialization
Mini-launches are an inexpensive way to gauge customer response to a product without committing an overabundance of resources to it. One approach is beta testing: Unfinished products are placed in the market so they can continue to evolve to match customer expectations. Software and application companies are particularly enamored of this strategy, often asking large groups of consumers to make recommendations to improve imperfect versions of products. Less well known is that beta testing is also gaining in popularity among consumer goods companies. Consumers can sign up to receive potential new products from Procter & Gamble Company on the P&G Everyday Solutions Web site. For example, P&G’s Crest Whitestrips was beta tested through the Internet before becoming a hit in traditional retail outlets.

Setting up temporary stores to handle products yet to be fully launched is another possible offshoot of in-market innovation. Method Products Inc., which makes environmentally friendly cleaning supplies, conducts product testing, validation, and branding through temporary stores that attract customers with strong price points, word of mouth, and Internet advertising.

A similar mini-launch program involves controlled test marketing using, for example, store brands. Target Corporation has adopted this by debuting new product lines and concepts through the private label Archer Farms. Target takes advantage of its extraordinary access to millions of shoppers through its stores to test consumers responses to products in limited release, and then reinvents products based on consumer interest.

Step 4: Branding
Because brand equity is a very real concern any time a company launches a new product, in-market innovation increases the risk that the reputation of a product line will suffer from the surfeit of new items. To best manage this risk, some companies launch new products independently, without any association to the main brand.

For example, Molson Coors Brewing Company created a new subsidiary, AC Golden Brewing Company, to minimize brand risk from new products. As Molson Coors CEO Leo Kiely explained it in the Wall Street Journal, “Historically, national brand launches in the U.S. have cost major brewers millions of dollars, and more than 95 percent of them fail. [Molson Coors Chairman] Pete Coors kept saying there had to be a better way to do this, and so he came up with the concept for AC Golden Brewing. This gives us another way to get innovative ideas to market without redirecting critical resources from our core brands.”

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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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