Marketing innovation

Why read this? : Marketing innovation is how brands create new products and services. Meeting customer needs in new ways drives growth. Read this guide to learn the opportunities and challenges that come with marketing innovation. Where to look for innovation ideas. Different ways to manage the innovation process. And learn key tools to help plan ahead for what happens after you launch.

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Identify growth opportunities

To find growth opportunities, you first need to know where to look for them. Where do these new ideas “live”? What do they look like? And how do you know they’re the right for you?

It’s tricky because “new” has many meanings in marketing innovation. For example, it could be as simple as a packaging colour change. Or as complex as inventing a completely new category and changing existing behaviour. (e.g. touchscreen mobile phones). Both are “new”. But obviously, they need very different skills and resources to deliver.

To help narrow down your choices, you can use one or more of these approaches :-

identify sources of growth using the Ansoff matrix.
use market research to ask customers what they want / need.
generate ideas and test them out with customers.

Ansoff matrix

The Ansoff matrix is a simple strategic planning model, first proposed by Igor Ansoff in 1957.

It states business growth comes either from products – what you sell, or markets – who you sell to. With each of these sources of growth, you can either grow your existing business or grow from new areas.

Combining products and markets with existing and new gives you a 2 x 2 grid with 4 different ways to grow :-

market penetration.
market development.
product development.
diversification.

Our Ansoff matrix article covers each of these in more detail, but we’ll summarise the key points of each here.

Market penetration

This is a growth strategy where you aim to sell more of your existing products to existing customers. That might mean minor upgrades to the product. Or you pull on marketing mix levers like price discounts, increasing distribution or going harder on your communications.

This strategy focusses on growing market share. Of the 4 Ansoff growth options, it’s the lowest risk. It’s what you’re already doing, and it’s in areas you know well. Your existing products and your existing markets. Risk comes when you go into areas you don’t know.

Market development

With this strategy, you take your existing products and aim to sell them to new customer segments.

The most obvious route is geographic expansion, where you sell to new cities, states or countries.

But it could also include finding new uses or occasions for your products.

For example, look at how Uber expanded from being a lift-sharing business to being a food (and other products) delivery business.

The product is essentially the same – they transport something conveniently from A to B. But they’ve found a new occasion for people to use those services – takeaway deliveries.

Product development

With product development, you create new products to appeal to your existing customers. This is also sometimes known as range extension. It’s more than a cosmetic or design change. It brings something completely different and meets a different customer need.

You see it in the alcohol market, for example. Brands add new flavour variants and more premium versions of their core products.

It usually requires an investment in Research and Development. There’s always a risk your existing customers won’t buy into the new product concept. They may prefer what they already have.

Diversification

The final Ansoff matrix option is diversification.

This strategy is where you start with a blank page, as if you were a new business. You develop new products and go after new markets.

This is often a high-risk, high-reward approach. You don’t have a strong base of experience or knowledge when both products and markets are new.

There’s a higher chance of mistakes happening and you often need to invest heavily to drive the new business.

Most diversification initiatives don’t work. But the ones which do can be game-changers.

For example, many tech market successes came from diversification. These companies took a risk and become first-movers in a new category. Twitter was originally a podcasting platform, for example. Flickr was originally a role playing game. Instagram was originally a check-in app. In each case, the companies diversified and came up with new products which went after new markets.

Market research for innovation

Once you’ve an idea where that growth might come from, you have to work out what the actual opportunity is.

The simplest way to do that is to ask customers what they need using market research.

You’d normally do this with qualitative research. One-to-one and focus group interviews with customers to ask them how they currently use products in the relevant category. What do they like about them? And more importantly what don’t they like about them?

There’s usually more opportunity to grow where existing products underperform.

This type of research gives you ideas about features and benefits your R&D team could work on. It also helps identify segments with poorly served needs. You develop something which meets their needs in a better way.

Once you develop and refine your idea, you’d normally validate the opportunity with quantitative research. This puts the concept in front of a representative sample of customers to see how many will buy if you launch.

Generate ideas and test them

Your ideas should be customer-focussed. But new ideas don’t always have to come from customers. Customers don’t always know what they need.

Ideas can also come from the people inside your business. They spend more time than customers thinking about the product. So it’s more likely they can imagine a completely new way of using the product or identify a new need.

For example, Post-its started as just a lightly sticky adhesive. But they took off when a 3M researcher found they worked brilliantly for marking pages in books.

You can run idea generation sessions with your team and your agencies to explore potential ideas. You can take these from existing market research, or brainstorm completely new ideas.

You’d then put these ideas into the qualitative and quantitative market research process we just outlined.

Innovation processes

Once you’ve identified growth opportunities and innovation ideas, you need a marketing innovation process to efficiently manage those ideas.

There’s 2 main approaches :-

the formal (waterfall) innovation process.
the informal (agile) innovation process.

The innovation process - Formal

The formal marketing innovation process starts with the idea that marketing innovation needs a high level of resources – money, people and time. You need a formal, structured approach to innovation to manage this high level of investment.

Control is important. You need safeguards to avoid unnecessary risks. Innovation shouldn’t threaten the business or waste resources. Tried and tested procedures should be in place to ensure marketing innovation projects meets internal targets. For example, quality standards or returns on investment.

This formal process is enforced across the business. This means more time on projects, and less time on process. Formal innovation projects run with a waterfall approach. The project team follow a series of logical sequential steps to deliver a specific end goal. This is the traditional way to run marketing innovation projects.

While this approach brings a lot of control and consistency to marketing innovation, it’s not without challenges.

Challenges with formal innovation process

Two particular challenges stand out.

The first is the length of time it takes to bring an idea to market. The process normally involves a number of approval sessions. Senior managers review the idea and plan, and approve or reject it.

The more approval stages, the longer the innovation takes to hit the market. Marketing innovation is slow in the formal model. Plus, it increases the chances someone will delay or kill a good idea because it doesn’t suit their agenda.

This can mean you miss out on opportunities if a competitor launches faster. Or something else changes in the market while you wait for approval.

The other challenge of formal approach is it’s better for updating existing products rather than launching new disruptive ones. The formal process looks for certainty in what an innovation will deliver. For example, how much the product will sell in a year, or how customers will react to it.

But this is much easier to do with sustaining innovation – where you know the products and markets. It’s harder for disrupting innovation, where the business has to make marketing decisions with some unknown factors.

These unknowns in product and market development and in diversification make it hard for disruptive ideas to pass through a formal innovation process. Often, there will be scepticism about the opportunity. That can kill an idea before it even gets started. Disruptive marketing innovation usually requires a more agile approach. More on that shortly.

The formal innovation process

The process varies from company to company. But typically you’d expect something like the 6 stages you can see in our innovation process diagram.

Ideas move through the process sequentially. You need approval to move to the next stage. After each stage, the business commits more resource (budget, time or people).

The level of detail behind the idea grows as it moves towards launch. You have a pipeline of ideas, loose at the start and fully formed by the time they launch.

At any stage, a marketing innovation idea can be rejected. Only the very highest potential ideas or plans reach the launch stage.

Idea generation

At the idea generation (often shortened to ideation) stage, you come up with as many ideas as possible. At this stage the “idea” is relatively simple. It should be concise enough to write on a post-it.

Often you run ideation workshops with outside facilitators. They’ll use creative thinking techniques like brainstorming or Six Hats to generate many ideas.

At the idea generation stage, EVERYTHING is possible. There’s no judgement of ideas this early in the process. One person’s crazy idea can spark someone else’s brilliant idea.

It’s all about quantity, not quality of ideas here. But quality is what you start to look at next.

Idea screening

From these high level ideas, the next stage is fleshing out the detail of the idea. You ask the idea originator to apply more thought to their concept.

The key here is to not go too detailed just yet. You ask the idea originator to complete a one-page template to help flesh out what’s behind the idea.

Idea screening template example

In this example, there’s 9 criteria to help bring the idea to life. These help define the idea in more detail so the business can decide if it’s worth pursuing.

You move from “idea on a post-it” to “idea on a page”.

These criteria include a name, a short summary of the idea (no more than a few sentences) and how the idea fits the brand vision, identity or growth objective.

Then, some preliminary external factors such as the consumer insight and competitive environment. You’d also include internal factors such as the product or service requirements and any enablers or obstacles and barriers.

Finally, you put in the estimated launch timing.

Idea screening example

So let’s go back to our product development example of a new pasta range for our fictional pizza company.

You can see from this example how you’d add a few sentences against each of the criteria. You want to make clear why the business should pursue this idea.

At this stage you don’t need a high level of evidence or proof. But you need to articulate the idea in more detail than before. This also lets the business compare different marketing innovation ideas against each other.

You’ll be able to see the projects with the highest potential. At this stage, obvious gaps or issues with ideas become more obvious. Some ideas will get rejected.

Having a clear definition of what makes a good idea helps the process. It gives idea generators direction on how to communicate their idea. And it stops idea killers delaying or rejecting ideas for non-business related reasons.

You should keep a record of rejected ideas though. They can be useful stimulus for future marketing innovation sessions. Sometimes good ideas come up, but the time isn’t right to do them. But in the future, an old rejected idea might become a better fit if conditions have changed.

Business case

For screened ideas, the next stage is to build a business case.

Most businesses have their own format for these. In our example, we’ve kept it relatively simple by focussing on key questions to answer how the idea will develop.

How will the idea develop?

While the screening template was relatively easy to complete, the process now gets more challenging.

You have to describe in much more detail HOW you’ll develop the idea.

At this stage, you might test the idea with customers with qualitative research, for example. This helps refine the idea and build confidence customers will like it.

The business case defines key decisions like the target audience and the fit to the brand identity.

This business case will also define the planned marketing mix. For example, price, channel and customer trade plans and a high level view of marketing communication plans.

The business case aims to show the validity and likely success of the idea. It sets expectations on how the idea will perform against competitors. It explains the insight and the appeal to the target audience.

The business case also includes details on the finances. It should include the forecast and the profit and loss for the first 2 to 5 years. You should include additional costs like new machinery, extra staff, R&D costs or extra marketing spend.

Compare innovation ideas with a scoring matrix

The business case can also include some sort of scoring matrix to help compare the attractiveness of different ideas.

This includes decision-making criteria defined by the business leadership team. Typically, these focus on financial returns and strategic fit.

In this example, you can see we’ve identified 3 financial factors to evaluate – size, profit and spend.

For each factor, the idea would get a score – 1,3 or 9 – based on how it performs.

Because size of opportunity is such an important part of the opportunity, its score is often given extra weight. In this case, it counts double.

We’ve also identified 3 strategic factors. Fit to the brand vision, level of competition and how fast the marketing innovation can come to market.

The aim of the scoring matrix is to help you compare projects. You prioritise the projects with the highest score.

Develop product to launch

If the business case is approved, then a project team comes together to take the project to launch.

This launch plan usually works at 2 levels. There’s a high level launch plan which summarises the key points of the business case and what else needs to be done.

Then, there’s a plan that’s essentially the marketing plan for the new product. (see also our brand activation guide for more examples).

Usually, there’d also be a final approval by the business leadership team to go launch the product.

The final plan needs to build confidence that everything’s in place and ready to go.

Launch and post launch review

Of course, once a new product hits the market, it needs on-going support to continue to grow.

For this, the launch plan needs to cover who manages the product after it launches. It should show what resources you need (money, time, people), and how you’ll track and measure performance. You need to include how you’ll manage competitor reactions and challenges from retail customers. Include contingency plans for different scenarios in case the launch doesn’t go as planned.

Final thoughts on the formal innovation process

The main benefits of this formal process is it reduces the chances of bad ideas making it to market. All ideas have to go through a series of hurdles before they can launch.

Anyone who has a stake in the innovation launch has a chance to share their views. The assumption is an idea becomes better when many people contribute to it, than when it’s just one person’s idea.

However, as we’ve previously outlined, the downside of these hurdles and stakeholder engagement is that the process can be slow and risk-averse.

It also requires a lot of discipline to maintain the integrity of the process. It’s easier to NOT do things than do new things. Functional politics in the business can derail the process. (see for example our articles on barriers to marketing and barriers to e-Commerce).

Though it’s designed as an innovation process, the focus is on killing rather than creating ideas. It’s frustrating when ideas get rejected close to launch after a lot of work’s gone into them.

The innovation process - agile

In recent years, a faster and lower risk approach called “agile” marketing innovation has become a popular way to get around this slowness and risk-aversion.

In this approach, some process guidelines remain. But it’s much more fluid. More flexible. Agile innovation projects are set up with smaller teams, and a faster and leaner process.

In agile, you don’t focus on finding the one big innovation that’ll be a blockbuster launch. Instead you take much smaller “prototype” innovations to market with small segments only.

These multiple small launches gather direct feedback from customers. You only scale up a project after you get positive feedback on the prototype idea.

How agile works - sprints

In agile innovation, big ideas are broken into much smaller chunks. Dedicated small teams work on these smaller ideas in 2 – 4 week ‘sprints’.

These teams are empowered to deliver against the idea. The agile process defines clear roles such as :-

Product Owner (the ‘decider’ on the idea).
the Scrum Master (the leader of the project team).
the Subject Matter Experts on the team (usually between 6 to 8 technical experts).

The idea for this methodology came from large scale IT projects. (See our marketing technology guide for more on the origins of agile).

In a similar way to the slow progress of formal marketing innovation, large IT projects often got bogged down in internal decision making. They were slow to launch and complex to manage.

The idea of agile methodology is to go faster with shorter bursts of activity on smaller parts of a big idea. Each sprint has to deliver something at the end. The team are empowered to make faster marketing decisions.

The innovation idea progresses in short manageable bursts, where there is always something new to work on.

Prototype testing

Often the sprint team builds prototypes to test with customers. They build a working version of a core feature or function of a product, and customers tell them what they think.

This feedback goes back in to then refine the idea or product.

Your innovation moves faster with an agile approach. But you need a strong innovation culture to make it work. Some ideas will fail. But because the ideas are small, the risk is also small. And everybody learns from these marketing mistakes. So, the chances of getting it right next time go up.

Because the teams are also smaller, and the Product Owner can take decisions without the need for a committee, it does require other parts of the business to buy in to the process. They’ll have less opportunity to input or approve.

Agile versus formal marketing innovation

In reality, agile and formal are ends of a spectrum. You choose where each project goes on the spectrum. If you’re running multiple projects, they can be at different parts of the spectrum i.e. you can have a mix of agile and formal projects.

Which approach you choose depends on business context. For example, factors like how you see risk, the speed of innovation in your category and the size of your business.

Generally, larger business prefer the traditional approach. Smaller businesses (especially if they’re challenger brands) prefer the agile approach.

The Product Life Cycle

As part of the post-launch plan for marketing innovation, businesses often use the Product Life Cycle to shape their plans and priorities.

This model predicts how products evolve over time once they launch in terms of sales and business challenges.

This concept originated back in the 1960s, but is still commonly used today.

You use it to identify the most likely scenario of sales, investment, competition and profit a marketing innovation will see over time, if it’s successful.

It describes the ‘life’ of a typical product and how it might go through different life stages.

Challenges to the Product Life Cycle

One of the obvious challenges to this model is it’s not universal. Not all products follow this S-Curve pattern. Many products never make it beyond the introduction stage.

Some marketers also point out the maturity and decline stages can become a self-fulfilling prophecy. In fact, it’s possible with disruptive innovation to breathe new life into mature products and categories.

Those challenges aside, the Product Lifecycle model remains a useful guide to forecast, plan and manage a new product after launch. Let’s look at each stage :-

Introduction

The Product Life Cycle shows new products rarely take off quickly. They might make a lot of noise at the Introduction stage. But it takes time to grow sales.

This makes sense.

When a product launches, the market doesn’t know what it is. It takes time for them to become aware and consider it. You need to invest in advertising and public relations. You need to build presence in all your sales channels.

These take time to have an impact.

How much time depends on the nature of the new product, and the size and scale of the brand behind it.

Bigger brands will have bigger launch budgets and expect faster results. But for smaller brands, it may take 6 – 12 months for new product launches to win over new customers.

Commercial mix post launch is key

It’s important to keep a close eye on the commercial mix at the introduction stage. .

Sales will be low. But you need to spend on advertising and media to create awareness, consideration and trial.

So profits will be low, or even negative at this stage. You need to communicate the need for patience and a longer-term view on profitability.

It’s helpful to track non-financial KPIs in this introduction phase. Look at factors such as awareness and trial rates as these can help predict future sales and profit levels.

Growth

In this phase, growth accelerates as the popularity of the product grows. More customers become more aware, consider and try the product. Your aim is to maximise the growth and share. You drive growth through more customer adoption.

Marketing spend stays high to support the growth and bring in more customers. Profitability levels start to rise as growing sales help to spread fixed costs over more volume.

At this point though, competitors take more notice. Competition becomes tougher as they either launch their own innovation, push harder on communications, or do more price discounting.

Maturity

At some point growth rates start to slow down as the category / product reaches maturity. This maturity phase accounts for the most people in the market. The product becomes mainstream.

This stage can be very profitable. The investment to maintain sales can be lower as a percentage of total sales than that needed to drive growth in earlier phases.

The key challenge here though is that because of the size of the market, competition will likely be high.

Bigger players in the market will look to defend their size. This can often lead to aggressive price activity.

Bigger players will also look to sustaining innovations to keep this profitable maturity position going as long as possible. They can become fixed on the short-term. This maintenance of sustaining innovations can quickly become threatened by new entrants to the market with disruptive innovations.

Decline

At some point, the model argues all products will enter a decline phase. A new product or invention might fill the need better. The market might become so saturated that there are just fewer new customers. Or it can just be that fashion, culture or lifestyle trends have changed.

At this stage, investment reduces. The business effectively milks as much as it can get from what’s left of the category.

Overall, the Product Life Cycle gives a useful guide to predict what might happen with your marketing innovation. It’s helpful to understand what the business model and commercial mix might look like.

But bear in mind that marketing isn’t just about the product, it’s also about the customers who buy the product. The Innovation Adoption Curve takes a similar view of how marketing innovations roll out to market, but from the customer’s point of view.

Innovation Adoption Curve

In this model, the S-Curve of the Product Life Cycle is mapped towards customers rather than products. The assumption is that certain types of customers are more open and willing to take risks on new products than others.

Innovators

It argues there’s always a small group of customers who love to be the first in the market to try new products. They’re curious and passionate about the category, and willing to pay for new experiences.

The number of innovators is usually small, but they can be useful as influencers as others see them as experimenters, experts and pioneers.

These will be the customers most likely to buy or try a product during its introduction phase. Typically, this group might only make up 2.5% of total sales, but they’re important because they’re the FIRST 2.5% of sales.

Early adopters

Early adopters are a larger group who often make or break products. These customers are closely linked to the growth part of the Product Life Cycle.

They may not always be the first to try new products, but they closely follow the behaviour of innovators. Early adopters are open to try new ideas once they see innovators go first..

They’re an important group because they typically account for around 13.5% of sales.

And when a product has reached >15% of the market (the innovators and early adopters combined), it often has enough visibility and usage to get noticed by the majority.

There’s a theory from the book Crossing the Chasm by Geoffrey Moore that the leap from early adopters to the early majority is the toughest part of innovation. There’ll always be people willing to try new products. But the leap from ‘new’ to ‘mainstream’ can be particularly challenging.

Early and late majority

This group is the biggest and most profitable group.

However, it takes time to reach this group as they’re usually settled into established routines. They don’t buy into new innovations until they have some sort of social proof (see our behavioural science article for more on this) that it’s accepted in the market.

They’re more cautious about innovation. But once a product has become ‘accepted’ and it becomes part of their routine, that’s when you see the value in the majority. They’ll typically be very loyal customers once they choose a brand.

Laggards

Laggards are the last group to ‘get’ new innovations. They are typically conservative. This group only enter the market when often there’s no choice not to, or that prices have dropped so it’s a low investment.

Conclusion - marketing innovation

Marketing innovation is hard. There’s a lack of certainty about which products will work. no business gets it right every time, everyone has innovation failures at some point.

Apple’s iPhone has been phenomenally successful, but remember the Newton? No, because it flopped.

Google’s innovative at search, but for all it invested in Google Glasses, no-one’s wearing them today.

Amazon is a hugely successful online retailer, but heavily promoted innovations like its Amazon Dash buttons or its Amazon Spark shopping program didn’t work and are no longer around. .

Have a pipeline of marketing innovations because some will fail

Those examples show the key thing to remember with marketing innovation.

There’s never a 100% change of success.

Sure, you can take the lessons of formal innovation or agile innovation and use them to increase your chances. But sometimes, even those won’t work, if something in the market is outside your control.

Make sure you have contingency plans. Have a pipeline of innovation projects in development. if you need to walk away from a marketing innovation, make sure it doesn’t kill your business.

There’s a lot involved in the process of marketing innovation. If you’re hungry for more innovation content, check out our article on the toughness of innovation delivery.

Three-Brains and marketing innovation

Need expert help to drive your marketing innovation? We have many years of experience as marketers creating and launching successful marketing innovation.

We offer coaching and consulting services to listen to your marketing challenges, and help you find answers quickly. Contact us to see how we can raise your marketing innovation game.