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Innovation as a Strategy

What do you do when your most profitable market segment is fast becoming saturated by a number of smaller competitors-- and a 500-pound gorilla with deep pockets suddenly appears to grab what they can?

a. Directly attack the smaller competitors and try to crush them
b. Directly attack the gorilla and put yourself out of business
c. All of the above
d. None of the above

If you answered d, you're correct! At least partially-- The answer is not to do "nothing", but to do something innovative.

  

This is exactly the situation a client of mine found themselves in a couple of years ago. By developing an innovation centered solution, they not only saved their business but went on to enjoy increased profitability over the next two years.

Waging War
Attacking the competition is not only a poor substitute for good marketing-- it's war. And in war, the superior force almost always wins. Direct assaults often produce significant losses, especially when a well-capitalized foe fights back. In the 1980's a restaurant chain I'm familiar with was fighting for a bigger market share in the Midwestern U.S. They decided to attack a well positioned another chain by attempting to short circuit the competitor's highly successful free drink cup promotion. The attacking restaurant communicated to the competitor's customers that they were willing to offer a free food incentive to customers who would turn in their "free drink" cups. The victim responded by flooding the market with hundreds of the free cups, forcing the attacker to spend thousands of dollars to fulfill their advertised promise. Not smart.

Conquering New Ground
Rather than go to war with competitors, my client decided to establish a new position on a nearby, unoccupied hill. In other words, they opted to establish themselves in a new category that held the promise of higher gross margins. They did not invent a new product or service, they simply changed what they had, combined it with some additional features, and offered it to another market segment. By virtue of this planned innovation tactic, they established a new category. They did not have to beat the competition, they left it behind!

Prior to the competitive intrusion by the 500-pound gorilla, my client had offered seminars, books and videos targeted to beginning and advanced accounting software users. When the segment became so saturated as to become almost unprofitable, all of the expertise gained in producing the original programs was channeled into different seminar and expert level materials that appealed to consultants who installed and supported the very same software application. This new market was hungry for this highly specialized information and was willing to pay far more for it than the previous customers.

True innovation requires someone who can visualize the possibilities of an idea and who has the ability and tenacity to successfully implement it. That does not always mean that the innovator always has to create or invent something new, they can innovate by applying or implementing the inventions of others. There are many creative people who have new ideas, but never implement them.

A Viable Business Growth Strategy
Innovators go beyond simply solving the problem immediately before them. Instead of countering a competitor's every move, they try to distance themselves from the competition by moving into an area where the competitor may be weak, lacking in expertise, or unable to follow without significant investment of time and effort. The larger the competitor, usually the slower they are to react to a smaller, more innovative challenger. Distancing yourself and creating barriers to entry through innovation can help create a sustainable competitive advantage for your company.

Marketing can be a bit tricky after you've established yourself alone (at least for a while!) in a new category. You probably have been used to aggressively promoting your "brand" while fighting it out with competitors. A shift in emphasis may be necessary for a while in terms of educating buyers as to the benefits associated with your new category/offering. As new competitors follow you into the new category, you will need to go back toward brand building again. When Sony first created the category of small, portable, self-contained audio tape players by introducing the Walkman, they first needed to educate potential buyers as to what a "Walkman" was and why you should have one. As others entered the market (category) they needed to change their approach to a "Why you should buy ours instead of theirs" message.

As far as my client goes, their old competitors may eventually catch up with them someday, but by then they'll innovate again!