Innovation
Global Investor Focus, 02/2007 Credit Suisse
Global Investor Focus, 02/2007
Credit Suisse
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GLOBAL INVESTOR FOCUS <strong>Innovation</strong> — 29<br />
<strong>Innovation</strong> is not just about producing better widgets. Companies need to understand how much value they could capture by<br />
providing products how the customer wants them, explains Niraj Dawar, Barford Professor of Marketing at the<br />
University of Western Ontario, Canada. Interview Steven Soranno, Credit Suisse Research Team<br />
“We must look at the<br />
entire value that<br />
the customer is buying.”<br />
Steven Soranno: Could you define<br />
the meaning of the concept “innovation”?<br />
How has it changed?<br />
Niraj Dawar: <strong>Innovation</strong> is a much<br />
broader concept than we commonly think,<br />
and goes beyond creating better products.<br />
We need to focus on customer value,<br />
which is a function of “what” the customer<br />
buys plus “how” the customer buys.<br />
To take a simple example, when the<br />
customer buys a can of coke in a supermarket<br />
as part of six-pack – they buy<br />
it, take it home, refrigerate the product,<br />
carry it with them to the point of thirst and<br />
then they drink it. For that can they are<br />
paying USD 0.30–0.50 and they are<br />
getting value for that money, otherwise the<br />
transaction wouldn’t take place. But on<br />
other occasions at the point of thirst they<br />
Niraj Dawar is Barford Professor of Marketing<br />
at the Richard Ivey School of Business, University<br />
of Western Ontario, Canada. Prior to this, he<br />
was Associate Professor of Marketing at INSEAD,<br />
France. His current research focuses on the<br />
impact of corporate and managerial actions on<br />
brand equity and marketing strategies in international<br />
contexts.<br />
will find a vending machine and be willing<br />
to pay four times as much for a singleserve<br />
chilled can of coke. That 300% premium<br />
is a reflection of the value that<br />
they see in the product when they see it<br />
delivered to them, when they want it, how<br />
they want it and in the context that they<br />
want it – the benefit is entirely different.<br />
So taking that as a starting point, companies<br />
need to ask themselves how much<br />
value they are leaving on the table by not<br />
providing products in the way the customer<br />
wants them. If they can then start to<br />
systematically examine ways in which they<br />
can create value for the customer in the<br />
“how,” we can then begin to innovate in the<br />
“how” and develop new ways of delivering<br />
products and benefits to the customer.<br />
Are you alluding to customer focus with the<br />
“how”? Hasn’t this always played a<br />
significant role?<br />
Niraj Dawar: Customer focus applied to<br />
the notion of innovation has often been<br />
about understanding customer needs and<br />
then developing better products to serve<br />
those needs. What we’re saying is that you<br />
need to go beyond the notion of products<br />
and look at the entire value that the customer<br />
is buying. Then we need to systemically<br />
break that down into the “what” and<br />
the “how” and once we’ve decomposed<br />
the value that the customer is buying, let’s<br />
then systemically examine ways of innovating<br />
in the “how.” So we’re saying we can<br />
actually understand the entire value that<br />
the customer is buying and that goes well<br />
beyond the product. There are opportunities<br />
to create value in how the customer<br />
purchases what we’re selling.<br />
There’s another reason why this is<br />
different from previous notions of customer<br />
focus. Companies often say, “We have a<br />
product and we’ll slap some service on to<br />
the product – whether it be after sales<br />
or product education.” That’s not what we’re<br />
talking about. What we’re saying is, look<br />
at the transactions, look at the value<br />
that the customer is buying. That value is<br />
not just the product plus the service,<br />
it is the context, it is when the product is<br />
delivered, and that’s much more than<br />
just a service.<br />
What are the first steps companies should<br />
take to understand the “how”?