Marginal Innovations Are More Disruptive Than You Think
China, of all places, proves that glitz and glamour aside, maybe there’s something to be said for marginal innovation.
I’m a fan of Harvard Business School professor and best-selling author Clayton Christensen. Christensen’s research focuses on what he terms “disruptive innovation,” or those innovations that target non-consumption with products that are inferior but “good enough” for consumers who previously had nothing at all.
Christensen’s model shows how these inferior products are improved to take market share away from competitors whose products are much more expensive (and profitable), until a line is crossed where suddenly the product that was merely good enough for those who were previously non-consumers is good enough for everyone.
The larger competitor goes out of business, after having made what appeared to be all the right decisions based on the information available.
Christensen contrasts disruptive innovation against sustaining innovation, or the process of making marginal improvements to existing products or services. Whereas the case could be made that smartphones have disrupted the PC market, the innovations we see rolled out at each year’s new smartphone launch events are sustaining or marginal improvements.
The phones get a little faster, the screens get a little brighter, the cameras get a few more megapixels, but these innovations don’t cause tectonic shifts in the market landscape.
Examples of disruptive innovation tend to get more press attention than marginal innovations. Disruptive innovations are rare--less than 1% of innovations can qualify as the disruptive sort--and they are more exciting because of their impact and the often charismatic business leaders who bring them to life.
But glitz and glamour aside, maybe there’s something to be said for marginal innovation. Ray Crook is APAC Managing Director of Innovation and Product Development at TNS, the global research consultancy. He is an expert on innovation in Asia, a region that is more often associated with copycat products and copyright infringement than any sort of innovation.
Crook showed me how this perception of Asia is incorrect, and how innovations coming from Asia, while mostly of the marginal sort, are having a disruptive influence in the region and beyond.
His remarks are supported by TNS whitepaper To Innovate or Not to Innovate. Here are some of the key takeaways from Crook.
Joshua Steimle: Asia is regarded by many as merely making low quality knockoffs. Is this view accurate?
Ray Crook: It’s a misunderstanding that Asia only copies and doesn’t innovate. 210,000 new products came out of Asia in 2013 and has likely risen two-fold since.
Steimle: How successful were these products?
Crook: Most new products fail, no matter where they come from. Less than 20% of new products in Asia succeed, while the vast majority fail. In China less than a quarter of launches gain any significant revenue.
Steimle: With that track record, some might say innovation isn’t worth it. What are the risks of not innovating?
Crook: Losing market share. Markets will change, and you want to control the market. This is obvious on the face of it for technology. In our surveys Asia companies predict 15% of their growth will come from innovation. 84% per cent of senior executives say that launching new products is “very important” to their growth strategy.
Steimle: A lot of innovations fail. What makes an innovation successful or unsuccessful?
Crook: What we’ve seen is that it’s primarily a matter of doing your homework up front. You’ve got to pursue the right opportunities, accurately analyze the dollar value if successful, and manage cannibalization of your own products.
We see companies fail because they get too much product momentum, that is, they have a product that shouldn’t go to market, but they’re committed to seeing it through. Then it fails, and there’s nothing to do but learn from the experience and move on.
Many tech or online companies are different and have an advantage in that they can go to market fast with an idea, then modify based on customer feedback.
Steimle: We hear a lot of buzz around disruptive innovation, but what kind of value is there in marginal or sustaining innovations?
Crook: There is a lot of value in small innovations. A lot of innovation is in the form of diversification. L’Oreal has launched a range of new hair products in Asia, diversifying from its focus on skincare. Over half of purchases were new buyers to the L’Oreal portfolio, extending their penetration within haircare from 8.1% to 12.2%. 50% growth in a market like that is pretty exciting.
Steimle: In his 2005 book Focus, Al Ries says diversification can be a risky game in that it can divert attention from the core business. How can companies protect themselves from the risks of innovation through diversification while reaping the benefits?
Crook: Too many ideas will suck up resources and slow everything down. To avoid this, take a quantitative, data driven view of all opportunities. Look at all products, analyze them. This goes back to doing your homework.
Steimle: What other opportunities are there for finding marginal innovations within a business?
Crook: Not all innovations are within the product--it might be in the supply chain, export/import opportunities, etc. In some cases innovation might involve taking something out, rather than putting something in. Simplification can be innovative.
Steimle: With so much innovation happening so fast, how does a product stand out?
Crook: There has to be a friction that’s being answered, people need to be looking for the solution. In Asia word of mouth and friends and family recommendations hold a lot of weight, particularly in lower tier cities where a product might not be on the shelf. A company needs to have a marketing strategy that matches the reality of their market.
Steimle: What are some of the biggest mistakes that companies make when launching a new product?
Crook: Not giving it the support it requires. Not leveraging existing brand equity, or leveraging too much. Having a cultural bias, or thinking a product that works well in one market will work well in another. And we have a lot of famous mistakes in language and packaging.
Steimle: What are some of the best successful products launches you have seen in Asia?
Crook: Just a few examples...Snickers 20g bars. Americans like big candy bars, Asians don’t, and the larger size made the product more expensive. The smaller size appealed to the more cost-conscious consumer by offering the same product at a more affordable price. Over half of purchases came from new customers.
+C from Schweppes is a new citrus soft drink that attracted more health-conscious consumers who were looking for an alternative to fizzy drinks. 99% of buyers were new to the product portfolio. This is virtually unheard of, showing the success of bringing in new buyers who had not bought Schweppes products before.
Last example, Tiger Beer launched Tiger Radler, a new variant of the light lager which includes the addition of natural lemon juice. This tapped into the growing appetite for fruit-infused beers and ciders. It has raised the profile of the brand and also attracted new customers who prefer a sweeter, fruitier flavour over the more traditional lager.
Steimle: What is Asia doing well, perhaps better than the rest of the world?
Crook: Asia innovates quickly. They aren’t bound by a Stage-Gate process. Their business models aren’t so much about getting it 100% right, but getting to market quicker. They’re highly motivated and they don’t care where a good idea comes from. They’ll take whatever works, and then make it better.
Disruption Through Sustaining Innovation
Asia is an example of how nations and regions can disrupt other areas of the world, much as one product category can disrupt another.
We saw this play out decades ago in the electronics and auto industries. This disruption of the world economy has happened not through an accumulation of individual disruptive innovations, but through consistent marginal innovation.
When Asia jumped on the manufacturing bandwagon, its products were considered low quality, and much of what they targeted was non consumption--it was inferior, but good enough for consumers who had no other options.
However, those same products rapidly moved upstream through a process of sustaining innovation. Perhaps marginal innovation is more disruptive than we’ve given it credit for.
Josh Steimle is the CEO of MWI, a digital marketing agency with offices in the U.S. and Hong Kong.