If an idea is good and profitable you can bet your children that others will enter your market and start competing for sales. More often that not these entrants will compete on price, putting pressure on your business by driving down the cost.
This is what we refer to as commoditisation. That is, the change from monopolistic to perfect
competition and the change from distinguishable to standardised.
Examples of commoditisation include: electricity, air travel, telecoms.
Why do we need to innovate?
In business, any innovation is a potential source of competitive advantage. If it proves succesful competitors will try to emulate and copy it.
There is a constant pressure towards commoditisation of any successful innovation as everyone tries to take advantage of it.
What can we do to avoid getting caught up in the commoditisation spiral?
The matrix below shows us the abundance of phases where we can innovate accross each stage of the customer-experience.
The Six Stages of the buyer experience cycle (x-axis)
[Please Deliver Unless Some Man Dies]
A customer experience can usually be broken down into a cycle of six distinct stages, from purchase to disposal.
Each stage encompasses a variety of specific experiences. E.g. Purchasing includes the experiences of browsing amazon.com as well as the experience of pushing a physical shopping cart through Tescos.
In order to guage the quality of the buyer's experience at each stage:
A customer's product experience passes through six stages.To help companies assess the quality of a buyer's total experience, their are key questions for each stage.
Together they uncover the full picture of the experience cycle.
The Six Utility Levers (y-axis)
[Please Start Changing Rate Instead of Experience]
The ways in which companies unlock utility for their customers.
The most common lever used is customer productivity - helping customers do things faster, better or in easier ways.
E.g. , the financial company Bloomberg makes traders more efficent by offering online analytics that quickly analyses and compare the raw information it delivers.
By placing a new product on one of the 36 spaces of the Buyer Utility map, one can quickly see if/how the new idea creates a different utility proposition from existing products.
Innovation, using the map can be achieved via:
| UTILITY LEVER | CUSTOMER-EXPREIENCE STAGE |
| New | New |
| Same | New |
| New | Same |
New utility lever at the same stage:
Starbucks - revolutionised the office-workers' coffee break traditionally coffee in delis or fast-food places , competitors offered fast + cheap coffee - in terms of the map those competitors focused on delivering productivity in the purchasing experience.
Starbucks however moved into a new space entirely, by establishing a chic coffee bars with an exotic mix of brews, the company injected fun and cachet into the coffee purchasing experience. They inovvated in the fun & image/purchase space.
(They also offered convenience & comfort in the delivery.)
Same utility lever at a new stage:
Innovation through extending a familiarity utility to differnt parts of the customers' experience.
Michael Dell did just this in the computer business. Manufacturers used to compete by offering faster computers with more features and software.
In terms of the map this was productivity in the use of their machines. Dell extended the same utility to the delivery experience. By bypassing dealers, Dell delivers PCs tailored to customers' needs faster than any other manufacturer. Aswell as the costs saved by removing this link in the value chain.
New utility at a a new stage:
Something completely new, e.g. Alto, a disposable fluorescent bulb manufacturered by Phillips. Most bulb manufacturers competed to offer customers more productivity in use, they did not pay attention to the fact that the bulbs had to be carried off to a special dump because of their harmful mercury content.
By creating a bulb that could be disposed of environmentally friendally they moved into a whole new space. Env. friendliness in disposal. In its first year alone it poached 25% of the US market while enjoying supperior margins.
Apple's ipod focussed on Fun & Image at a new stage, durng use. They alsoe focused on usability simplicity when other manufacturers were innovating around price, storage and quality of music to the point of diminishing returns.
Beyond highlighting the difference between ideas that are genuine innovations and those that are essentially revisions of existing offerings, the buyer utility map reminds one just how many unexplored innovation possibilities there are.
Example of an innovative company that created exceptional utility:
Charles Schwab was a discount broker.Schwab's first innovation was to make customers feel safe trading over the phone and later online. At the time when most brokers were competing on price, Schwab recognised that customers were actually more concerned about the safe executions of their trades. By providing instantaneous computer confirmation the perceived risk is eliminated.
Schwab then went on to make purchasing more convenient. Most discount brokers were only open during normal office hours when most of their customers weren't free. Schwab offered 24hr 7 day a week service and a Schwab one cash management a/c avoiding the inconvenient bank hours.
The next innovation came in the simplicity and maintenance space. It saw how difficult it was for customers to track and manage their mutual fund investments. Customers would typically receive statements from each of the fund companies they dealt with. They would be burdened by sticking it all together to get a better picture of performance. Schwab launched One Source a consolodated statement of all mutual investments purchased through Schwab.
Whether or not Schwab continus to lead will be dependent in great part on their ability to sniff out new utility spaces before competitors do.
On what spaces does your company lie? Where could they move to?
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