A Review of the Relationship Between Market Knowledge, Innovation and Firm Performance

Do People’s Basic Needs Really Change?

Food

Secu

rity Belonging

Mobility

Recreation

Love

Self-Fulfillment

Do People’s Basic Needs Really Change Or……Does Our Ability to Meet Them Simply Evolve?

Ask yourself one question when innovating a product or service?

Am I offering a better solution?

Better benefit delivery Better customer service Greater convenience Greater ease of use Same benefits at a lower price

Sometime it is better to ‘Lead the Customer’ than to be ‘Customer

Led’

If you can find more efficient, more effective or less costly ways to deliver the benefits that consumers seek, then do it, regardless of the experts.

Do not let the past be a prison for new ideas.

Do not limit your potential by employing a rigid brand identity tied to Attributes rather than Benefits

Reactive View Limits Change We are in the encyclopedia business We are in the station wagon business

Proactive View Enhances Change We are in the knowledge Business We are in the family transportation business

Attribute-based Narrow View

Benefit-Based Broad View

A Firm’s Marketing Culture Will Determine Its Ability to Evolve

A firm’s market orientation refers to its commitment to make customer satisfaction an organizing principle of the firm.

Firms with strong market orientations prioritize and utilize learning about customers and the market environment to evolve the brand.

(1) Customers (e.g., likes and dislikes, satisfaction, perceptions, etc.)

(2) The environmental factors that influence customers (e.g., technology, competition, the economy, socio-cultural trends, etc.)

Market Information

Responsiveness

Market Information

Dissemination

Market Information Generation

Market Orientation

Market Information Generation

The ability to understand the market and changes to the market in a timely manner

“We are slow to detect changes in our customers’ product preferences.”

“We are slow to detect fundamental shifts in our industry (e.g., competition, technology, regulation).”

Market Information Dissemination

The ability to rapidly disseminate knowledge to decision-makers

“When something important happens to a major customer or market, the whole business unit is informed about it within a short period.”

“When one department finds out something important about customers, it is slow to alert other departments.”

Market Information Responsiveness

The capability to rapidly adapt the marketing mix to change

“Even if we came up with a great marketing plan, we would probably not implement it in a timely fashion.”

“For one reason or another, we tend to react slowly to changes in our customers’ product or service needs.”

Houston, We Have a Problem:

Empirical Relationships Between Market Orientation and Performance weaken as one move “downstream”:

Market Orientation New Product Success: Strong

Market Orientation Profitability: Moderate

Market Orientation Market Share: Weak

The Limits of Market Orientation

A narrow focus on customers, channels and competitors without the ability to surface, discard and replace obsolete marketplace beliefs may hinder meaningful innovation .

Biggest Problems with Successful Organizations:

Management Arrogance

Rigid “Mental Models”

Biased Information Search Often Rules the

Managers will seek information only about aspects of the market they ‘think’ they do not understand.

They will presume other facts to be true and incorporate those in their situation analysis.

Often they are not correct.

Mental Models

Mental models, deeply held beliefs about how the marketplace works, create the paradigms in which strategic planning occurs.

Mental Models of the organization can constrain action:

1. We have only one key competitor.

1. Our customer values benefit “x” much more than benefit “y.”

1. Sales promotion is more important than advertising.

Theory-in-Use

Operational procedures, systems and practices will be limited by mental models

1. We rely on salesperson feedback to monitor our largest competitor.

2. To control costs, we optimize benefit “x” at the expense of benefit “y.”

3. 70% of our promotional budget is dedicated to trade and consumer sales promotion.

The Cultural Cure for Rigidity:Learning Orientation

Learning orientation may be defined as the degree to which a firm has the ability to surface, discard and replace obsolete mental models and theory-in-use

A strong learning orientation prevents flawed views of the world from corrupting the decision-making process

The Role of Learning Orientation

Market orientation is reflected by knowledge producing behaviors.

Learning orientation is reflected by a set of knowledge questioning values

Commitment to Learning

Shared Vision

Open-Mindedness

Learning Orientation

Measures:Commitment to Learning

A commitment to continuous learning

“The basic values of this organization include learning as key to improvement.”

“The collective belief in this unit is that once we quit learning, we endanger our future.”

Measures:Open-Mindedness

A commitment to question basic assumptions

“Managers in this business unit do not want their “view of the world” to be questioned.”

“Our business unit places a high value on open-mindedness.”

Measures:Shared Vision

A Cultural Understanding of Brand Identity and the Path to Brand Integrity

“There is a total agreement of our organizational vision across all levels, functions and divisions.”

“There is a clear philosophy of who we are and where we are going as a business unit.”

Market Orientation

Learning Orientation

▲ Market Share

▲ New Product Success

Adapt to Market

Lead Market

Interaction with Relative Market Share

▲ MS

Low MO High MO

High LO

Low LO

Three Levels of Innovation Associated with MO and LO

IMITATION (Weak MO-Weak LO )

A firm seeks to copy or closely approximate the most successful sport utility style developed by their competitors.

INCREMENTAL INNOVATION (High MO-Low LO):

A firm is constantly searching for unique ways to improve its sport utility vehicle, but does not want to stray far from the prototypical sport utility design utilized by most manufacturers.

RADICAL INNOVATION (High MO – High LO):

A firm is not only willing to introduce a radically new design to the sport utility vehicle category, it searches for ways to create a totally unique category that has the potential to replace the SUV market like the minivan replaced the station wagon.

Learning, Innovation and Firm Performance

Market Culture

(MO and LO)

Incremental Innovation

-Expressed Needs

-Customer Led

-Current Paradigm

Imitation

-Competitor Led

Radical Innovation

-Latent Needs

-Lead the Customer

-New Paradigm

New Produc

t Success

Generative Learning

Inquiry that leads to new mental models

Adaptive Learning

Inquiry within the context of existing mental models

Gleaning

No systematic inquiry

Market Learning Innovation Priority

Innovation Priority – New Product Success Correlations

Relationship with New Product Success

Imitation

Priority Negative

Incremental Priority Neutral

Radical Priority Positive

Balanced Incremental and Radical Innovation Priorities is Key

Weak

Culture

Strong

Culture

Imitation

Priority

33.5 18.1

Incremental

Priority

42.2 38.3

Radical Priority

26.3 44.2

Even the firms with the strongest market

cultures can’t radically innovate across all functions

Radical Innovation: Renders Current Practices/Technology Obsolete

Lower Cost: Innovation leads to basic benefit delivery at substantially lower cost than ever. Digital Photography, Web browsing software, Skype, online gaming

Superior Performance: Better Quality/New Benefits deliver substantially higher value. DVDs, SUVs, Smartphones, Lasik, Plasma TV

Category Destruction: At that point when both quality/benefits increase and cost decreases, the old

technology generally has no place to go and disappears.

No Firm Can Radically Innovate Every Function It Performs

At each level of the marketing mix (product, price, distribution, promotion)

Strategically (communication strategy) and tactically (media purchasing, message design, etc).

Technically (product design, production processes, R&D) and Logistically (inventory management, CRM, supply chain management)

Focus Your Radical Innovation Efforts Around Developing and Delivering your Core

Competency

Core Competency

Brand Identity

Focused Radical Innovation