Business Innovation: Product Life Cycle and New Product Categories

Reasons for Business Innovation

Reason why for the innovation: if the company does not innovate, the company will age, decline and not survive there are 2 fundamental reasons why companies must innovate >

1. Survive in the marketplace: new product dev. Is driven by several pressures occurring in the env. :
   • Product obsolescence: very few products last forever > they die and must be replaced by new products or reinvigorated by cost reduction, product improvement, product repositioning or line extension.
   • Change in food legislation: or new health programs by government (retire of a material from legislation which is used for pack for example, but unhealth for consumer).
2. Exploit new opportunities for growth: if they want to grow, companies need something new.
   • New markets: new products can cover new consumer needs and market niches (e.g. foods for vegetarians/vegans).
   • New marketplace: new marketplace requires new products more suited to respond to the change (e.g. special formats for e-commerce).
   • New technologies: new technologies could bring new ingredients, new packaging materials and new processes that allow new products that once were considered impossible to produce.
   • Advance in the health sciences: those provide opportunities for new food products suited to the management of healthy lifestyles by consumers (e.g. probiotic and prebiotic positive effect on human intestinal microflora).

Product Life Cycle Stages

Product life cycle: it is the amount of time a product goes from being introduced into the market until it's taken off the shelves. There are 4 stages in a product's life cycle: introduction, growth, maturation and decline.

Introduction Growth Maturity

Time

Sales

Sales and profits ($)

Profit

Decline

1. Introduction: put the product in the market > it's a very expensive step of a new product launch, because if it's new, the consumer does not know and we need to promote it with adv, promotions and we have to pay supermarket to obtain the space in the shelf (10'000 euros per supermarket > multiplied by 100 supermarkets, it is 1 million euros). The failure rate is high; hence, profits are usually small or negative.
2. Growth: sales grow at an increasing rate, profits are healthy, and many competitors enter the market. Distribution becomes a major key to success in order to establish a strong market position. Most firms have recovered their development cost by now. Price reductions result from increased competition and from cost reductions from producing larger quantities of items (economies of scale).
3. Maturity: sales continue to mount, but at a decreasing rate. Most products that have been on the market for a long time are in this stage; most marketing strategies are designed for mature products. One such strategy is to bring out several variations of a basic product (line extension).
4. Decline (and death): when sales and profits fall; the rate of decline is governed by 2 factors: the rate of change in consumer preferences; the rate at which new products enter the market. Sometimes companies can improve a product by implementing changes to the product, such as new ingredients or new services; if the changes are accepted by customers, it can lead to a product moving out of the decline stage and back into the introduction stage.

Classifying Innovation

Ways to classify innovation: there are different conceptualizations of innovation, and many ways to classify it, based on many different criteria, such as:

• The novelty of the technology used.
• The value perceived by the consumer.
• The question to be answered.
• The domain to be applied.
• The source of innovation.
• The drivers of the innovation ...Technology push and market pull innovations: a traditional method of classification is based on the 2 general drivers of innovation:
• Scientific and technological knowledge and skills that can be applied to invent a new product or process
• A recognition of a need or a potential market for an invention; that need generates a 'market pull innovation'.

Technology Push vs. Market Pull

Technology push vs. Market pull

Technology push Research & Developement

Production

Marketing

Need?

Market pull (demand pull) Research & Developement

Production

Marketing

Expressed Market Need

Technology push innovation: is a model linear that suggests that the innovation process starts with an idea or a discovery. Sometimes this is by a creative individual, however more often, the starting point is from R&D departments.

Market pull innovation: is a model that suggests that the stimulus for innovation comes from the needs of society or a particular section of the market (starting point is the customer).

The Innovation Matrix

The innovation matrix is an innovation framework that separates types of innovation into 4 categories: disruptive innovation, incremental innovation, architectural innovation, and radical innovation. These categories can apply to product innovation, market innovation (does the innovation create a new market, or address the existing one?), technological innovation, or process innovation.

New

Architectural innovation

Radical innovation

MARKETS

Existing

Incremental innovation

Disruptive innovation

New

Existing

TECHNOLOGIES

• Incremental innovation or sustaining innovation: uses an existing technology to produce something for an existing market (don't create and use anything new, but make improvements for something already existing) > all the new variants of products. For example, cars' market, or low-cost companies' airplane.
• Disruptive innovation: introduction of product or service into an established industry that perform in a better way. It occurs when is delivered in a new way. For example, non-digital camera replaced by digital cameras, then digital cameras are replaced by smartphone's camera, or CDs-> Spotify, or traditional buy of something > e- commerce. Market is the same, but the way we deliver and satisfy the need is changed.
• Architectural innovation: the technology is already existing but is used to produce a new product with new markets and new consumers. For example, smart-watch, copiers by canon that reduces the dimension of it.
• Radical innovation: less frequent ad most difficult to see in the market > new products/services are developed using new technologies that open up new markets. For example, airplane is a new technology that creates a new market, a new way to move all over the world. They create discontinuity in the market, because change the market in general. For example, sterilization and pasteurization in the past, aseptic packaging, probiotics ...

The type of innovation is dependent on two factors:

• Market - does the innovation create a new market, or address the existing market?
• Technology - does the innovation use a new technology or an existing technology?

New

Architectural Innovation

Radical Innovation

Market

Existing

Incremental Innovation

Disruptive Innovation

Existing

New

Technology

Make or Buy Concept

Make or buy concept: a company can also add new offerings through acquisitions- the acquisition route can take 3 forms:

basic research

applied research

development

marketing and sales

customer needs

development

production

marketing and sales. It can buy a license or franchise from another company;

• It can acquire patents from others;
• It can buy other companies.

Blue Ocean Strategy

Blue ocean strategy innovation: "Imagine a market universe composed of two sorts of oceans: red oceans and blue oceans. Red oceans represent all the industries in existence today. This is the known market space. Blue oceans denote all the industries not in existence today.

In the red oceans, industry boundaries are defined and accepted, and the competitive rules of the game are known. Here, companies try to outperform their rivals to grab a greater share of existing demand. As the market space gets crowded, prospects for profits and growth are reduced. Products become commodities, and fierce competition turns the red ocean bloody.

Blue oceans, in contrast, are defined by untapped market space, demand creation, and the opportunity for highly profitable growth."

The 4 Actions Framework of Blue Ocean Strategy

The 4 actions framework of the blue ocean strategy:

For example, the strategy of canvas of yellow tail wine: in US there were 2 distinct segments in the market -> low budget and premium wines; yellow tail carried a revolution in this market: low price, easy of selection, easy drinking, fun and adventure.

The Strategy Canvas of [yellow tail]

High

Premium Wines

[yellow tail]

Budget Wines

yellow tail

Low

Price

Above-the-line marketing

Vineyard prestige and legacy

Wine range

Ease of selection

Use of enological terminology and distinctions in wine communication

Aging quality

Wine complexity

Easy drinking

Fun and adventure

Eliminate

Raise

Which factors that the industry has long competed on should be eliminated ?

Which factors should be raised well above the industry's standard?

Reduce

Create

Which factors should be reduced well below the industry's standard?

Which factors should be created that the industry has never offered?

Red Ocean Strategy

Blue Ocean Strategy

Compete in existing market space.

Create uncontested market space.

Beat the competition.

Make the competition irrelevant.

Exploit existing demand.

Create and capture new demand.

Make the value-cost trade-off.

Break the value-cost trade-off.

Align the whole system of a firm's activities with its strategic choice of differentiation or low cost.

Align the whole system of a firm's activities in pursuit of differentiation and low cost.

Business launch

86%

14%

Revenue Impact

62%

38%

39%

61%

Launches within red oceans

Launches for creating blue oceans

Design Driven Innovation

Design driven innovation (innovation of meaning): is not intended to design a new product, but gives a new meaning of it. Design driven means an innovation which gives a totally new meaning to a product: for example, kinder surprise > small chocolate egg with surprise, they are not selling simply chocolate, but a combination Profit Impact of it + a surprise. The competitors are not always the same product' companies, but other types that satisfy the same need. Product composition means also a combination of needed which have to be satisfied: can we satisfy the same needs with other products?