When it comes to innovation, company leaders usually hit the drawing board to come up with new product features and designs. They look for a better car, bicycle or running shoe. However, as Niraj Dawar, marketing strategy expert and author of the book, "Tilt: Shifting Your Strategy from Products to Customers," explains, innovation with customer interactions also needs to happen if companies want to maintain a competitive advantage.
We recently spoke with Dawar about what companies need to understand about customer-centric innovation. Here are a few of his insights:
Q: What is the right balance between service and product design?
A: The distinction comes down to the difference between what we sell and how the customer uses the product. For example, a customer can buy a can of Coca-Cola from the grocery store in the form of a 24-pack and pay about 25 cents a can. However, the same customer will also willingly pay $2 for the same can of Coke when it's delivered at the point-of-thirst, such as on a hot day at the park, chilled from a vending machine. The difference is the 700 percent price increase, which is due entirely to the “how” and not the “what,” which the customer is willing to pay more for.
Q: How can companies get started with customer-centric innovation?
A: The first thing that they should have is a deep understanding of why their customers buy from them rather than from their competitors. This seems simple, but if you posed this question across all departments and to the C-suite, would everyone have the same answer? Once a brand can gain consensus on that question, then they can start asking additional questions, such as, why consumers who don’t buy from us choose another brand?
This line of thinking will help brand leaders understand the costs and risks that consumers are weighing during the purchase process. Once you start to inventory these costs and risks you can start to come up with ideas for systematically removing them and that is the spark for customer-centric innovation in the downstream.
Q: What is an example of customer-centric innovation that breaks with the traditional product-centric innovation standard?
A: Take the automobile industry, for example, which has historically been completely product-centered, managing from the factory first. Once you start to think about their product strategy in terms of the customer experience, you can see how customers have very different needs than what the automobile industry typically provides. One customer might want to drive a convertible to the beach, a minivan to pick up their kids from school and a 4x4 for their upcoming ski vacation — one customer who needs a variety of different vehicles for different activities. However, what the automobile industry ends up selling customers is a very rigid solution that only solves a customer’s needs for part of the time.
Now, imagine for example, that instead of selling a customer one car, they sold a mobility contract which would allow them to specify the type of car that they would need for a few days. If given 24 hours notice, the company could deliver them the SUV for one weekend and then the convertible for the next. Instead of thinking of innovation in terms of better cars, we’re now thinking of innovation in terms of the customer’s needs.
Q: What are a few examples of how this has been successful?
A: In the last ten years there have been two major innovations in the automobile industry. One has been on the product side with the gradual replacement of the internal combustion engine with electric engines, and the second big innovation has been with temporary ownership. Brands, such as Zipcar, have created a rental model similar to the hourly bicycle rental. This innovation is huge and will grow to be even bigger as consumers realize that the cars we buy are kept parked for 90 percent of the time and are only used for 10 percent of the time, so why pay for the other 90 percent?