Marketing and Innovation
Innovation in general and new products and services in particular are important for the long-
term performance and survival of organizations. New product development (NPD) and new
service development (NSD) are crucial organizational processes that receive a lot of
managerial and academic attention. Marketing has an important role to play in these
processes. Marketing & Innovation focuses on how to create customer value through new
products and services and argues that doing so requires customer intimacy.
Lecture 1 (05/11/2019) → “Information about Marketing & Innovation”
“Any business enterprise has two, and only these two, basic functions: marketing and
innovation” – Peter Drucker, 1954.
Market orientation → Innovation → Performance.
Innovations facilitate the conversion of market-oriented business philosophy into
superior corporate performance – Innovation is one way of implementing market
orientation.
Market orientation = way of how you look at the market, what you learn about it, and how you
distribute the information across the corporation. One of the most important things is
innovation. Use information from market to develop new products/services, and that in turn
will generate performance. Innovation is an important way of implementing the market
orientation of the firm, one way of making it concrete.
Competing on (1) Differentiation: product itself / additional services / brand or image, and (2)
Price. First on product because that is relatively difficult to imitate. Difficult to build up a good
image, but rather easy to lose it. At some point over time, product will be less competitive
and then you need to compete on something else: how realistic is that? In FMCG, most
products are basically the same, except from the image and the price. You need to keep
innovating to make the distinction with competition. Innovation for survival of the firm! On the
long run, it is the innovations that drive the performance indicators. Having good products
and services is a better option than trying to give products away for free.
“Promotions may win quarters, innovation wins decades” – Bob McDonald, CEO P&G.
Importance of new products:
• Facilitates implementation market orientation
• Needed for differentiating from competitors
• Needed for long term performance/survival
Keep on doing the same thing, absence of change = Inertia. What you have to overcome.
Innovation is change for the customer, firm, and firm’s context. Successful new
product/services is mainly about overcoming this inertia.
Aim of the course: Obtain insight in the role of marketing in NPD/NSD. Learn theories and
tools that may help you in the various aspects of NPD/NSD. Obtain insight in practice.
Further research skills.
➢ Course on innovation with …
➢ Marketing perspective, i.e. focused on creating customer value through new
products/services
“True customer intimacy requires a deep understanding of the context in which our products
and services are used in the course of our customers day-to-day lives” – Fournier et al, 1998.
,Readings for session 2:
Tripsas, M. (1997) Unraveling the process of creative destruction: complementary assets and
incumbent survival in the typesetter industry.
When radical technological change transforms an industry established firms sometimes fail drastically
and are displaced by new entrants, yet other times survive and prosper. Paper tries to unravel process
of creative destruction. Argues that the ultimate commercial performance of incumbents vs new
entrants is driven by the balance and interaction of 3 factors: investment, technical capabilities, and
appropriability through specialized complementary assets. In this industry, specialized complementary
assets played a crucial role in buffering incumbents from the effects of competence destruction, and
an analysis that examined investment or technical capabilities in isolation would have led to
misleading results. Work highlights the importance of considering multiple perspectives when
examining the competitive implications of technological change.
Why do incumbent firms sometimes fail drastically in the face of radical technological
change, yet other times survive and prosper? Paper helps to unravel process of creative
destruction.
Two contrasting perspectives on process of creative destruction: 1. Paints picture of
relatively fluid industries where new entrants innovate with technologically superior products
and displace incumbent firms, only to have this cycle repeated. Continual failure of
established firms in face of radical innovation. 2. Advantages that established firms have
over new entrants. Three crucial factors that, together, influence the ultimate commercial
performance of incumbents and new entrants: (1) investment in developing the new
technology, (2) technical capabilities, and (3) ability to appropriate the benefits of
technological innovation through specialized complementary assets. Balance and interaction
among these factors determine whether incumbents or new entrants are more successful.
Paper finds that lack of investment was not responsible for incumbent failure. However, while
incumbents invested in developing new, competence-destroying technology, the technical
performance of the products they developed in each new generation of technology proved to
be significantly inferior to the performance of new entrant products. Importance of
considering multiple perspectives when analysing the competitive implications of
technological change.
1 – What factors drive the investment behaviour of incumbents and new entrants?
When an innovation is radical, when it replaces rather than competes with old technology,
then incumbent monopolists have less incentive to invest in new technology than new
entrants. When innovation is incremental then incumbents have greater incentives than new
entrants to invest. Other explanation is that established firms fail to invest in developing
radically new technology as result of firms’ resource allocation mechanisms.
2 – Given competence-destroying technological change, how does the technical
performance of incumbents compare to that of new entrants?
Technological progress in industry is generally characterized as passing through long
periods of incremental innovation punctuated by periods of radical change. Technology
develops incrementally along a given ‘technological trajectory’ within given ‘technological
paradigm’ until it is replaced with a new paradigm – radical innovation. Different stages have
major implications for technical capabilities. During incremental period, established firms
have an advantage over new entrants. When faces with radical, competence-destroying
technological shift, established firms are often at a disadvantage. Core competencies during
incremental innovation can become ‘core rigidities’, making it difficult to adapt. Architectural
,innovation (changes in way components interface) can destroy value of existing beliefs and
patterns. Years of incremental innovation may result in selection-induced inertia.
Conflicting theory from disk drive industry; established firms did not have difficulty developing
new technology, even when innovation was architectural in nature. Even radical innovation,
incumbents had the resources and ability to develop new capabilities. No clear prediction!
3 – What factors drive the ability of incumbents and new entrants to appropriate the benefits
of innovation in the product market?
When incumbents experience technological disadvantage in face of competence-destroying
technological change, the extent to which that disadvantage translates into commercial
disadvantage may depend upon the other assets possessed by established firms. Generic
(multiple applications and can be easily contracted for), specialized, and cospecialized
(useful only in context of given innovation) complementary assets. Under a regime of weak
intellectual property protection when an innovation can easily spill over to competing firms,
complementary assets become particularly important if firm is to appropriate the benefits of
its innovation. By explicitly considering importance of complementary assets, one gains
insights into the performance of incumbents and new entrants. When competence-destroying
innovations have low transilience in that they do not substantially change the
market/customer linkages, then incumbents perform well in the market. While the ongoing
value of specialized complementary assets can provide incumbents a buffer, technological
innovation can destroy the value of these assets. Also possible that new entrants to an
industry can possess relevant complementary assets. Expect that new entrants with relevant
specialized complementary assets are more likely to be successful than those without them.
Three effects of technological change are key in understanding how it will drive competition:
effect on (1) investment incentives, (2) technological competence, and (3) specialized
complementary assets. (more explanation in article)
Industry has undergone 3 waves of creative destruction, where competence-destroying
technological change has shaken the industry. In only 1/3 cases incumbents displaced by
new entrants. While a lack of investment is sometimes responsible for incumbent failure,
other times incumbents invest substantial amounts in new technology. Established firms
were handicapped by their prior experience in that their approach to new product
development was shaped by that experience. Initial products were consistently inferior to
those of new entrants. Need for both new technical skills and new architectural knowledge
proved difficult for incumbents to manage. Incumbents did not necessarily suffer commercial
consequences as a result of their inferior technological positions. Only suffered when both
competence was destroyed and value of specialized complementary assets was diminished.
In the typesetter industry, importance of specialized complementary assets was paramount,
and analysis of effect of competence-destroying technological change that focused only on
investment or technical performance and ignored the role of complementary assets would
have led to misleading results. Importance of integrating multiple perspectives when
analysing competition.
, Hillebrand, B., R.G.M. Kemp, and E.J. Nijssen (2011) Customer orientation and future
market focus in NSD.
Aim of the paper is to investigate the differential effect of customer orientation and future market focus
on organization inertia and firm innovativeness of small and medium-sized enterprises (SMEs) in the
B2B service industry. Motivate by observation that small and medium-sized service firms’ proxy to
customers may lead to incremental service improvement in response to customer requests for
customization and improvement, but may derail programs for more innovative services. Results show
that customer orientation breeds inertia, whereas future market focus increases willingness to
cannibalize existing technology, service portfolio and routines, which in turn stimulates firm
innovativeness. Managers should complement customer orientation with activities and management
attention geared towards developing future market vision.
Literature suggests that being close to customer can benefit firm’s innovation and
competitive advantage. They are in an excellent position to receive feedback and learn from
customers, thus react more quickly and efficiently. These firms may engage in close
cooperation or co-creation for new product or service development with key customers.
Recent studies draw attention to limitations of close customer ties. Customer orientation
benefits incremental innovation but negatively influences firms’ radical innovation. Firms that
are very close to and dependent on current customers may focus too much on fulfilling these
particular customers’ needs and may miss catching new ones. “Dark side” of close customer
relations, embedded customer relationships can help incremental but hinder radical
innovation. Some suggest that firms should focus on current customers, but also keep eye
on future customer and market developments, on emerging needs and wants in marketplace.
Customer orientation is important for firm survival. Has been repeatedly argues that firms
should sufficiently understand their target customers to be able to create superior value for
them. Customer orientation is at the heart of successful programs that enable firms to
constantly improve their offerings to customers. Benefits a firm’s new product/service
development, helps increase perceived quality, and ultimately raises customer loyalty. Some
authors have warned about potential negative effects of strong customer orientation. Firms
may become subject to tyranny of served market. Shifts towards improved solutions rather
than real, more radical innovation that may create new markets. Results in “unbalanced
focus on keeping the status quo as compared to proactively shaping customer and/or
markets”. Firms also need to have attention for emerging needs and future market
developments – future market focus. Customer orientation and future market focus are
different but related constructs! Customer orientation= degree to which firm believes it should
try to understand and satisfy current customers’ needs and wants. Future market focus=
firm’s predisposition of openness to new market trends and business models – more
elaborate search mode for new business opportunities beyond scope of current products,
technologies and customers. Inertia may be pivotal construct to understand the differential
effects of customer orientation and future market focus on firm innovativeness. CO should
increase inertia, and FMF will decrease it.
H1a: Customer orientation negatively influences willingness to cannibalize current sales.S
H1b: Customer orientation negatively influences willingness to cannibalize existing routines.X
H1c: Customer orientation negatively influences willingness to cannibalize prior
investments.S
H2a: Future market focus positively influences willingness to cannibalize current sales.S
H2b: Future market focus positively influences willingness to cannibalize existing routines.S
