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Published: 1/12/05
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How Companies Turn Customers' Big Ideas into Innovations

Although close observation of customer behavior can lead to incremental gains, Kandybin says, understanding people’s deeper motivations — not just what they need, but why they need it — is where the biggest opportunities for innovation are generally found. “The difference in deep understanding of what and why is the difference between understanding existing needs versus not-yet-realized needs,” he explains. “And meeting not-realized needs is a lot more powerful than meeting existing needs.”

“The essential ingredients to improve product innovation are simple human assets: humility and curiosity.”
Again, this is not an insight that’s new for companies. Yet, it is still the exceptional company that capitalizes on this particular opportunity to innovate. Kandybin cites Starbucks as one company that has a superb record for anticipating customers’ unarticulated desires to create new and better experiences. “Coffee was a commodity and consumption was declining until Starbucks came up with a different concept, meeting a previously unrealized need,” he says.

As a result of its close attention to all the aspects of the customer’s coffee experience, the Seattle-based company has almost single-handedly invented specialty coffees as a major category in the U.S. market, encouraged consumers to trade up to a more upscale (and therefore more expensive) product, and made the coffeehouse not just a fixture on college campuses or in urban neighborhoods, but a vital new public gathering place that’s evident throughout mainstream American life.

How does a company get to that level of understanding of its customers and its market opportunities? Kandybin cites several important resources — multiple sources of market data, heavy users of the product on staff, and extremely close relationships with customers. He says combining these management practices is one reason McDonald’s has been able to stay at the top of the fast-food business for so long, he says. “If you look at the trends, very often they are the trendsetters in the fast-food industry.… They understand not just what one particular customer of McDonald’s wants, but why they want it,” he says.

Gaining that level of insight can be difficult, but it isn’t impossible. Day says there are at least 30 techniques market researchers use to find out more about their customers. From metaphor elicitation exercises that seek to discover customers’ underlying psychological associations with the product, to conjoint analysis — a technique whereby customers are asked to select between baskets of product attributes and that helps the company determine which are the most important to customers — today’s market researchers have a powerful set of tools at their disposal.

Opening the Aperture
Ultimately, Wharton professors and Booz Allen consultants agree that the world is too complex, and markets change too rapidly, to attempt to introduce a new offering without a great deal of understanding about the customer’s needs and preferences — those that can be discerned today, and those they imagine will develop tomorrow. Companies need “to really open up the aperture and think about understanding customers’ requirements, with the broadest and most expansive view of what’s possible,” Dehoff says.

From modifying the structure of the development teams, to refining lines of communication within the company, to increasing the volume and thoughtfulness of the market research, tactics for improving closeness with customers are not in short supply. What is needed is commitment and more innovative approaches to the process of innovation.

In the final analysis, the essential ingredients to improve product innovation may be simple human assets: humility and curiosity — humility in thinking that the company may not understand everything about the value of their product in the marketplace, and the curiosity to always want to learn more about customer needs. As Booz Allen’s Les Moeller observes, “The value of consumer insight and empathy … consciously and unconsciously informs the decisions that get made.”

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