Lecture notes Marketing & Innovation

Marketing & innovation

Lecture 1
Market orientation – innovation
Innovations facilitate the conversion of market-oriented business philosophy into superior
corporate performance

Market orientation -> innovation -> performance
i.e., innovation is one way of implementing market orientation

why innovation is important for organizations: only me-too products are not enough (price
competition). Ketchup bottles with one cheaper than the other

 Innovation for survival
 In the long run, there is a big difference. The innovations help you and the
promotions have a negative effect on the long run. Is that explainable or does it make
sense? Promotions are very expensive. On short run, people are coming. On the long
term, you are continuously giving things away (expensive)
 Why would the relationship of promotions and innovations negative? If they use
more innovation, they use less promotion (you don’t need it, or less need it). If you
have innovations that are successful, you don’t have to give away things
(promotions)

Importance for new products
 Facilitates implementation market orientation
 Needed for differentiating from competitors
 Needed for long term performance/survival
 So, what is the problem (why a course on marketing & innovation)?

Inertia = keep on doing the same thing, absence of change. But, by definition, innovation is
change. For the customer, firm, firms’ context. One of the main problems is how to
overcome this inertia (not willing to change). How can I convince the organization as well as
customers that they should do things in a different way. Successful new products/services
are mainly about overcoming this inertia.

What does creating customer value require?
Customer intimacy: true customer intimacy (…) requires a deep understanding of the context
in which our products and services are used during our customers day-to-day lives (Fournier
et al. 1998).




1

, Lecture 2: Product Strategy

Slide: How technologies evolve (2)
In the beginning, when you introduce new technology (takes you more money to get it) ->
but if the advantage is big enough, there is a part of consumers that are willing to pay the
price. In the end, prices can be lower.

Why do leading firms fail?
 Managerial myopia -> not seeing that something is coming that is taking over the
whole market. Basically, ignoring martializing the new intrance (Airbnb) and not
adapting.
 ‘Small markets don’t solve the growth needs of large companies’ if you are a big
successful company, you expect a certain amount of growth that requires bigger
markets for sales -> these small markets are not interested by the big companies.
they miss the boat for the next generation. Most companies understand this (long-
term perspective) and that small markets need time to grow.
 Core capabilities become core rigidities: develop new products the old-fashioned
way -> culture, systems are developed within the organizations. Core capabilities are
very hard to change (inertia).

Article: Tripsas (1997): unraveling the process of creative destruction: complementary assets
an incumbent survival in the typesetter industry

2 perspectives on the process of creative destruction:
1. Following Schumepters work: fluid industries where new entrants innovate with
technologically superior products and displace incumbent (gevestigde) firms, only to
have the cycle repeated
2. In contrast, other research has built in schumpeters later work, focusing on the
advantages that established firms have over new entrants

3 factors influencing performance of incumbents and new entrants during radical
technological change:
1. Investments in developing new technology
2. Technical capabilities
3. Ability to appropriate the benefits of technological innovation through specialized
complementary assets (gespecialiseerde aanvullende activa)

The balance and interaction among these 3 factors determine whether incumbents or new
entrants are more successful in the face of competence-destroying technological change.

If incumbents do the following:
- No investment -> new entrants dominate
- Investments -> technology of incumbents is inferior (mindermatig)
- No technological capabilities -> new entrants dominate
- Technological capabilities -> technology of incumbents is inferior. When technology
of incumbents would be as good/better new entrants, it still depends on the
complementary assets

2

, - No complementary assets -> if assets are devaluate / new entrants get these assets:
new entrants dominate, even if their technology is inferior (incumbents have no
buffer)
- Complementary assets -> if assets aren’t devaluated/new entrants can’t get these
assets: incumbents dominate even though they have inferior technological
capabilities
- Both have no complimentary assets -> unclear who dominates. It all depends on
complementary assets

There is an order in the points above. The third one is the trick. There are incumbents that
survive if the assets are complimentary that were valuable previous and remain valuable in
the new situation.

Similarities between theory discussed and article: Theoretically, there could be a problem. If
you are a company that is developing with old capabilities, you are likely you come up with a
product that is not as good as the new entrants.

Difference: specialized complementary assets. Incumbents can still survive depending on the
assets. The problem is: how do you define these assets? Lots of managers have the tendency
to see almost everything as a complementary asset. That is a bit tricky (e.g., customer
loyalty: our customers are sooo loyal).

How do you link this to cannibalization? Capabilities that have become core regularities. Can
you somehow leave these capabilities behind (cannibalize these). That is needed.
 ARTICLE: Hillebrand, Kemp & Nijssen (2011): Customer orientation and future
market focus in NSD.

Willingness to cannibalize (a disposition of the organization that helps you on 3 aspects of
your organization)
What is it?
 3 dimensions
- W2C previous investments (important one, e.g., metro line -> more expensive than
expected, takes longer than expected, we cannot stop because already started. Not
very rational argument but happens a lot. Are you willing to cannibalize on this
investment? Set apart and move forward?)
- W2C Capabilities. Are you willing to forget about the capabilities that you have built
up, made you successful, and to start up from scratch. Leave the past behind.
- W2C sales (marketing) are you willing to forget that your current product sells so
well?

e.g., iPad cannibalizing on the notebook. For sales manager, this is not likely to do. They are
payed by how many notebooks they are selling.

Traditional perspective on cannibalization in marketing. It is better to cannibalize yourself
instead of the competitors doing it.




3

, l
Basically, due to the size of the firm. Big firms are just lowsy innovators. They are
hierarchical. But size does not have an effect on innovation. Cannibalization has an effect on
this. This turns out to be a major thing about radical innovation. You can still be a big firm
and do radical innovations.

How do you build up willingness to cannibalize
Is there someone who is championing the organization to innovate? That helps to leave the
past behind and willingness to cannibalize.
Most important factor that explains willingness to cannibalize: Do you have a future
market focus?




ARTICLE: To what degree should companies focus on their customers?
Focusing on your current customers vs on your future customer.

Main conclusion: why not forget about customer orientation? It is nice to have a future, but
to have a future it means you have to be successful now.
Firm innovativeness -> how radical are your innovations.
If you want to do this, you need to have a future market focus. Incremental are important.
Customer orientation has a negative sign, only on firm innovativeness, not on incremental
change. If you only focus on this, you miss the boat for radical innovation (long term). This
article only focusses on radical innovation.

4