Marketing & Innovation “Because the purpose of business is to create a customer, the business enterprise has two—and only two—basic functions: marketing and innovation. Marketing and innovation produce results; all the rest are costs. ” Peter Drucker (The Father of Management Theory) INTRODUCTION Marketing is the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large. American Marketing Association 2007) An innovation is the implementation of a new or significantly improved product (good or service), or process, a new marketing method, or a new organizational method in business practices, workplace organization or external relations. (OECD 2005) Four types of innovations are distinguished: product innovations, process innovations, marketing innovations and organizational innovations. (OECD 2005) * A product (service) innovation is the introduction of a good or service that is new or significantly improved with respect to its characteristics or intended uses.

This includes significant improvements in technical specifications, components and materials, incorporated software, user friendliness or other functional characteristics. * A process innovation is the implementation of a new or significantly improved production or delivery method. This includes significant changes in techniques, equipment and/or software. * An organizational innovation is the implementation of a new organizational method in the firm’s business practices, workplace organization or external relations. A marketing innovation is the implementation of a new marketing method involving significant changes in product design or packaging, product placement, product promotion or pricing. The OCED’s definition is too narrow : it reduces the scope of marketing by separating between marketing, product innovation and delivery. If we mixed the two definition we can propose that with a marketing lenses an innovation is : “the implementation of a new or significantly improved method, process or practices in creating, communicating, delivering, and xchanging offerings that have value for customers, clients, partners, and society at large” * Innovation in marketing could be related to : * The creation (Iphone), * The communication (Web2. 0), * The delivery (Internet), * Or exchanging (Michelin) * offerings that have value 2 Main objective: Understanding and mastering the process from new ideas generation to new value offering for the stakeholders Degree of differenciation of consumer expectations| Degree of improvement in technology | | Low | High| Low | Continuous innovation(cordless phone)| Market breakthroughts (parabolic skis)| | High| Technology breakthroughts (passage from video players to DVD player)| Radical innovation(cell phone)| Innovation continuum Continuous innovation * Modification to an existing product that does not require a change in learning * Improvement of an existing product without major changes Dynamically Continuous Innovations * Modification to an existing product that requires a modest amount of learning or change in behavior to use it Discontinuous innovation (radical innovation) Major changes in the way we live * Product innovation which break the rules and the norms * New consumption behaviors and use * Technology Example: Sharing documents on Internet, Downloading musics, E-business and virtual stores, Free software, Hybrid cars New product development process 3 Phase 1: Idea Generation Sources of new ideas * Internal idea sources: * Formal research and development * “Intrapreneurial” programmes * External idea sources: * Customers * Pilot customers : Pilot customers methods

The estimated annual sales of new products developed based on ideas generated by pilot customers are eight times higher than estimated sales of innovations developed from more traditional methods. Pilot Customer: users •Brainstorming : Characteristics of brainstorming | 1. | Write a clear, focused objective | 2. | Select participants for the team | 3. | Prepare for the session | 4. | At the session – Rules for brainstorming. | Rules: * A conversation at the same time * Be focused on the subject * Be visual (drawing) * Encourage crazy ideas * The quantity is more important than the quality * Negative comments have to be avoided No interruptions from outside Role of the team leader: * Contribute to, but not inhibit the flow of ideas * Don’t be too controlling * Encourage participation from everyone * Introduce creative games * Call the “time out” to review and evaluate ideas that have been generated Method * Write a list of ideas (uses) * Classify ideas thanks to criteria * Find common points between application : “pseudo segments” 4 Interviews Motivation * Focus group / individual interviews Characteristics of focus group | Group size | 8 to 12 | Group composition | Homogeneous: respondents prescreened | Physical setting | Relaxed, informal atmosphere |

Time duration | 1 to 3 hours | Recording | Record all the discussion with sound an video | Moderator | Observational, interpersonal, communication skills | * Individual interview : Type of interview | Required skills | Structured interview | Neutrality, no prompting, no improvisation | Semi-structured interview | Some probing, rapport with interviewee, understanding the aims of the project | Open-ended interview or depth interview | Flexibility, rapport with interviewee, active listening | Focus group | Facilitation skills, flexibility, ability to stand back from the discussion so that group dynamics can emerge |

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Characteristics of semi-structured individual interviews | Group size | Face to face, one-one-one basis | Interview structure | Semi-structured, direct, personal interview. Use of an interview guide | Physical setting | Relaxed, informal atmosphere | Time duration | One hour | Recording | Use of audiocassettes and videotapes | Moderator | Observational, interpersonal, communication skills | * 5 Focus on semi-structural individual interview Questioning style * Open ended, non-directive * Little or no direction on how to answer * Relate to topic in own way * Use own language Probing – for detail, depth, clarification – Prompting – encouraging respondent to answer * Non-verbal, repeating, rephrasing, summarising * Salespeople * Service providers * Anyone with direct customer contact * Competitors : Companies watch competitors’ ads and other communications (new-product pre-announcements) to get clues about their new products * Distributors, suppliers and others : Companies watch competitors’ ads and other communications (new-product pre-announcements) to get clues about their new products Example of Brainstorming: anti-odor product First step: write a list of uses * Dirty socks, Ashtrays, Changing rooms, Refrigerators, Elevators, Subway tunnels… * Second step: classify ideas * Development of a notation system * A Possible today * B possible soon * C difficult and risky * Criteria * Technicity faisability, cost, market accessibility, competitors, time of solution * Third step: Find common points How customers can use the product| Passage from 80 ideas to 8 « pseudo-market segments »| What is its added value? | Deodorization public places| Types of customers| Chemicalplants| Places| Household odors…. |

Phase 2: Product development * Expand ideas into more complete product concepts * Describe features the product should have and benefits those features will provide * 6 Evaluate chance for success * Develop a marketing strategy that can be used to introduce the product to the market place After more than a decade of development, Daimler begins to commercialize its experimental fuel-cell-powered- electric car Next step: to develop this new product into alternative product concepts – Concept 1: A moderately priced subcompact designed as a second family car to be used around town Concept 2: A medium-cost sporty compact appealing to young people – Concept 3: An inexpensive subcompact green car – Concept 4: A high-end sport –utility vehicle (SUV) appealing those who love the space Phase 3: Marketing strategy development * Develop a marketing strategy that can be used to introduce the product to the market place * Identify the target market * Estimate its size * Determine how the product can be positioned * Plan pricing, distribution and promotion expenditures Phase 4: Technical development * The product moves into product develop RD or engineering develops the product concept into a physical product “Look beyond simply creating products that satisfy consumers needs and wants… Companies work to fashion products that are both satisfying and easy to manufacture. ” Phase 5: Marketing Test * It lets the company test the product and its entire marketing programme – positioning, advertising, distribution, pricing, branding and budget levels Phase 6: Commercialization Launch the product! * Full scale production * Distribution * Advertising * Sales promotion * and more 7 INNOVATING BY SERVICES

Innovation and Marketing Decision: The customers’ values issue An economic opportunity exists for an innovation when a new value proposition to customer is possible Agreeing the PSS statement (Product Service System) « What is important is not our offer but what our customers do with it », there are three kinds of value propositions for an innovation. Innovation and the first customer’s value proposition: * Customer Values are embedded in a three stages consumption scenario. * These stages define three kinds of value. * Stage 1: Decision (potential value) * Stage 2: The exchange (value in exchange) Stage 3: usage (value in use) Innovation in potential value First innovative value proposition: Innovation concerning the facilities The facilities include all company resources: employees, know-how, technology, nominal goods … and other facilities that must be accessible (before offer provision is feasible). Make perceptible the strength of a promise POTENTIAL VALUE from facilities stage in an offer provision scenario, ex IBIS Hotel 8 POTENTIAL VALUE from facilities stage in a service provision scenario: ex vending machine Innovation in value in exchange Second innovative value proposition :

Innovation concerning the transformation process This is the stage in which company resources are combined with other companies’ resources in order to transform them. Companies act as prime resources integrators and the innovation consists of new ways of co-operating, collaborating, co-branding…… In this case, these values in exchange will have to be new values in use for the customers … to be successful VALUE IN EXCHANGE from the exchange stage in an offer provision scenario: ex Senseo, Nike+ iphone app This transformation stage can also exhibit innovation concerning CUSTOMER VALUE in EXCHANGE.

Offer provision can include a transformation of customer resources in terms of persons (surgery, hair cuts…), physical objects (e. g. car repairs…), nominal good (e. g. investment banking, rights (e. g. lawyers.. ) and/or data (tax advisors…)… It contains elements which are either pre-prepared within producers’ facilities, or are co-produced by customer and provider during the integration and the transformation of customer resources. Innovation consists of changing the way of integrating the customers’ resources with those of the producers’ VALUE IN EXCHANGE. Innovation in producers-customers co-production: ex Wikipedia

Innovation and the third Customer’s Value proposition. Innovation in customer’s value in use The usage stage exhibits CUSTOMER VALUE IN USE. Innovation consists of proposing to customer new values in use, perceived as new solutions. Ex: Wii for the seniors Definition of servicization The key idea behind product service systems is that consumers do not specifically demand products, per se, but rather are seeking the utility these products and services provide. By using a service to meet some needs rather than a physical object, more needs can be met with lower material and energy requirements. A product service system is a competitive system of products, services, supporting networks and infrastructure. The system includes product maintenance, parts recycling and eventual product replacement, which satisfy customer needs competitively and with lower environmental impact over the life cycle. “A Product-Service System can be defined as the result of an innovation strategy, shifting the business focus from designing and selling physical products only, to selling a system of products and services which are jointly capable of fulfilling specific client demands. Meeting consumers’ needs with a mix of products and services is not a new concept. House rentals, hotels, taxis and restaurants are good examples based on economic interest. There are other new and innovative applications of product service systems that have developed as a response to make business more sustainable. The main difference between product service systems and the classic examples is that the preference of consumers is influenced by environmental, as well as economic interests.

Source: UNITED NATIONS ENVIRONMENT PROGRAMME DIVISION OF TECHNOLOGY, INDUSTRY AND ECONOMICS 10 Innovation by servicization : an attractive way to Innovate on the markets Three ways to develop innovation by servicization : 1- Product oriented services Provided to increase or optimize the product life cycle, these supplementary services are offered to guarantee functionality and durability of the product (e. g. maintenance and repair, upgrading and substitution services over a specified time period, advise and consultancy for use optimisation, etc. ). 2- Usage oriented services

The product is made available in a different form to the customer, is sometimes shared by number of users, but stays in ownership with the provider. It is the usage of the product rather than the product itself that is invoiced, without transfer of ownership (e. g. car sharing or car pooling, tools location, financial leasing, etc. ). Ex: http://www. lamachineduvoisin. fr/ 3- Result-oriented services (functional economy) Result-oriented services (or functional services): in this most accomplished form of servicization, the seller does not sell a product anymore to the customer, but the desired result rendered by the product.

Rather than selling pesticides to farmers for example, the seller decides to offer a global service contract that guarantee a maximal acceptable loss on crops. A BM based on the sold products quantity A BM based on a service rate Sell a maximum loss rate on crops Firm in functional service is looking for less costly alternating solutions as the reintroduction of parasitics predatories or the earth reoxygenation by earthworms or using R&D in biology, agronomy, entomology.. The competitiveness of the seller depends on its ability to optimise the PSS implemented to reach this goal and to use the least possible resources and energy to reach the targeted acceptable loss. Such functional services are implemented with great success by companies such as Xerox (Xerox Global Services) or Michelin (Michelin Fleet Solutions) for example.

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