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While we struggle to emerge from a full-blown recession, marketers know all too well that advertising and (unfortunately) innovation are the first budgets that are most likely to get cut.

So how can marketers continue to innovate?

Before we answer that question, we need to define innovation, since it has become a very popular and often misinterpreted topic.

There are four distinct types of innovations—product optimization, brand extension, target ownership, category leadership:

  1. Product optimization—which seeks to optimize a product's or service's usage
  2. Brand extension—which stretches a brand's equity into adjacent spaces
  3. Target ownership—to own a greater share of a specific target's wallet across multiple segments, whether the segment is attitudinal, psychographic, or demographic
  4. Category leadership—to sustain or achieve leadership by reshaping consumer attitudes and behaviors in a given segment or industry

Product optimization and brand extension, referred to as "sustained innovations," usually build off an extant frame of reference. Therefore, although safer, they are likely to generate only limited incremental value.

Target ownership and category leadership, referred to as "disruptive innovations," can yield much larger growth, but they are also more capital-intensive and more unpredictable. Indeed, because they have the power to shift the paradigm, they can set new standards and change consumer behaviors, but they require significant amounts of time and money.

The easy conclusion could be to argue that during a recession marketers should focus on sustained innovation, because senior management is more likely to sign off on an inexpensive innovation initiative that can repay for itself in the short term.

Unfortunately, what could sound like a really good idea may turn out to be a really dangerous one.

Recessions usually act in a two-step process as filters or regulators that purge weaker players from the marketplace:

  1. The structurally weak players are typically the first to go. Those are the companies with a fundamentally flawed business model or cost structure that cannot suffer tighter margins. (Think about how many airlines go bankrupt in any kind of recession.)
  2. Next to go are the players whose relevance keeps eroding over time. They tend to suffer more toward the end of a recession cycle and generally get hit when they think they have reached the end of the tunnel.

Why do those companies lose relevance? Because of their inability to shape, grasp, or influence societal shifts, and a lack of vision or willingness to take risks.

Organizations that are not willing to constantly invest in disruptive innovations quickly become irrelevant and vulnerable in a recession.

So what does that mean in terms of innovation? It means that marketers need to find smarter ways to invest in disruptive innovation, rather than simply pulling the plug.

Recessions should be viewed as an opportunity to reassess the effectiveness of innovation processes. To do that, you must...

  • Have a clear strategic goal for your innovation. Make sure it fits into your marketing strategy and your business strategy.
  • Create a focused ideation process that accelerates the pace of the consumer's validation of ideas and prototypes at a lower cost.

According to A.G. Lafley, former CEO of Procter & Gamble (P&G), P&G financed 20-40 innovation projects at an average price tag of $5 to $10 million eight years ago. Today, with the same total innovation budget of $150–$200 million, P&G manages to finance 10-20 more innovation initiatives because it has brought the average project cost down.

With a larger sample of innovation prototypes to choose from, P&G can sustain a continual flow, which will thus sustain its competitive edge without having to invest more.

The bottom line: If you want to leave a recession cycle unscathed, you need to preserve a sound balance between sustained innovation and disruptive innovation.

But, more important, take this opportunity to clean up your innovation closet: Focus on the most strategic innovations, and invest smarter.

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Eric Zeitoun is president of Dragon Rouge USA (www.dragonrouge-usa.com), a leading independent brand and design consultancy. Contact him at eric@dragonrouge-usa.com or call 212-367-8800.