This is a guest post by Eric Zeitoun, president of Dragon Rouge USA, a leading independent brand and design consultancy.
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 this question we need to go back to the definition of innovation since it has become a very popular and often misinterpreted topic. There are four distinct types of innovations:
- Product optimization (which seeks to optimize a product or service's usage)
- Brand extension (stretches a brand's equity into adjacent spaces)
- Target ownership (to own a greater share of a specific target's wallet across multiple segments, whether the segment is attitudinal, psychographic or demographic)
- Category leadership (to sustain or achieve leadership by re-shaping consumer attitudes and behaviors in a given segment or industry).
Innovation types 1. and 2. (referred to as "sustained innovations") usually tend to build off of an existing frame of reference. Therefore, although safer, they are likely to only generate limited incremental value.
Innovation types 3. and 4. (referred to as "disruptive innovations") on the other hand 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 time and dollar investments.
The easy conclusion could be to argue that in a period of recession, marketers should focus on "sustained innovation" because senior management is more likely to sign off on an inexpensive innovation initiative, which 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. The structurally weak players are typically the first to go. These are the companies whose business model is fundamentally flawed or those whose cost structure cannot suffer tighter margins (think about how many airlines go bankrupt in any kind of recession).
Then follows the players whose relevance keeps eroding over time. These players tend to suffer more towards the end of a recession cycle, and generally get hit when they think they have reached the end of the tunnel.
Why do these companies lose relevance? They do so 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 innovation' quickly become irrelevant and vulnerable in a recession. So what does this mean in terms of innovation? It means that marketers need to find smarter ways to invest in 'disruptive innovation,' rather than simply pull the plug. Recessions should be viewed as an opportunity to re-assess the effectiveness of innovation processes. To do this, 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 ideas at a lower cost.
According to A.G. Lafley, 8 years ago P&G financed between 20 and 40 innovation projects at an average price tag of 5 to 10 million dollars. Today, with the same total innovation budget of $150-200million, P&G manages to finance 10 to 20 more innovation initiatives because they have brought the average project cost down. With a larger sample of prototyped innovation to choose from, they can sustain a continuous flow, which will thus sustain their competitive edge without having to invest more.
The bottom line: if you want to leave a recession cycle unscathed, remember that you need to preserve a sound balance between 'sustained innovation' and 'disruptive innovation.' But, more importantly, take this opportunity to clean up your innovation closet: focus on the most strategic innovations and invest smarter.