Innovation

GLOBAL INVESTOR FOCUS Innovation — 29
Innovation is not just about producing better widgets. Companies need to understand how much value they could capture by
providing products how the customer wants them, explains Niraj Dawar, Barford Professor of Marketing at the
University of Western Ontario, Canada. Interview Steven Soranno, Credit Suisse Research Team
“We must look at the
entire value that
the customer is buying.”
Steven Soranno: Could you define
the meaning of the concept “innovation”?
How has it changed?
Niraj Dawar: Innovation is a much
broader concept than we commonly think,
and goes beyond creating better products.
We need to focus on customer value,
which is a function of “what” the customer
buys plus “how” the customer buys.
To take a simple example, when the
customer buys a can of coke in a supermarket
as part of six-pack – they buy
it, take it home, refrigerate the product,
carry it with them to the point of thirst and
then they drink it. For that can they are
paying USD 0.30–0.50 and they are
getting value for that money, otherwise the
transaction wouldn’t take place. But on
other occasions at the point of thirst they
Niraj Dawar is Barford Professor of Marketing
at the Richard Ivey School of Business, University
of Western Ontario, Canada. Prior to this, he
was Associate Professor of Marketing at INSEAD,
France. His current research focuses on the
impact of corporate and managerial actions on
brand equity and marketing strategies in international
contexts.
will find a vending machine and be willing
to pay four times as much for a singleserve
chilled can of coke. That 300% premium
is a reflection of the value that
they see in the product when they see it
delivered to them, when they want it, how
they want it and in the context that they
want it – the benefit is entirely different.
So taking that as a starting point, companies
need to ask themselves how much
value they are leaving on the table by not
providing products in the way the customer
wants them. If they can then start to
systematically examine ways in which they
can create value for the customer in the
“how,” we can then begin to innovate in the
“how” and develop new ways of delivering
products and benefits to the customer.
Are you alluding to customer focus with the
“how”? Hasn’t this always played a
significant role?
Niraj Dawar: Customer focus applied to
the notion of innovation has often been
about understanding customer needs and
then developing better products to serve
those needs. What we’re saying is that you
need to go beyond the notion of products
and look at the entire value that the customer
is buying. Then we need to systemically
break that down into the “what” and
the “how” and once we’ve decomposed
the value that the customer is buying, let’s
then systemically examine ways of innovating
in the “how.” So we’re saying we can
actually understand the entire value that
the customer is buying and that goes well
beyond the product. There are opportunities
to create value in how the customer
purchases what we’re selling.
There’s another reason why this is
different from previous notions of customer
focus. Companies often say, “We have a
product and we’ll slap some service on to
the product – whether it be after sales
or product education.” That’s not what we’re
talking about. What we’re saying is, look
at the transactions, look at the value
that the customer is buying. That value is
not just the product plus the service,
it is the context, it is when the product is
delivered, and that’s much more than
just a service.
What are the first steps companies should
take to understand the “how”?