The better way to innovate

Marketers are obsessed with product innovation, so much so that they often wage battles over which brand is more adept at whitening teeth or how many blades are needed in a razor head. But this isn't the best way to innovate, according to Niraj Dawar, a professor of marketing at the University of Western Ontario's Richard Ivey School of Business. In fact, a preoccupation with R&D can be a detriment, he says.

Marketers are obsessed with product innovation, so much so that they often wage battles over which brand is more adept at whitening teeth or how many blades are needed in a razor head. But this isn’t the best way to innovate, according to Niraj Dawar, a professor of marketing at the University of Western Ontario’s Richard Ivey School of Business. In fact, a preoccupation with R&D can be a detriment, he says.

‘If we get stuck looking at the product we’re selling, and if competitors come out with better [items], we lose our competitive edge,’ says Dawar, who in the past has consulted for companies like BMW Canada, McCain Foods and SC Johnson in Europe.

The better way is marketing-driven innovation, which Dawar defines as the ability to find new customer segments, determine new needs and/or find new channels to push product.

The difference, says Dawar, is that companies that innovate this way put the customer first. ‘If you start with the customer’s needs, you’re going to be able to develop an offering that fits those needs.’ In other words, innovation shouldn’t be the sole responsibility of the R&D division. And marketers should explore different pricing and segmentation opportunities for each of their brands, instead of fixating on product features.

Dawar recounts how an international pharmaceutical company he worked with carved out two very different consumer targets for a pregnancy test – one group was hoping for positive news, the other wasn’t. The firm changed the packaging and shelf location for the two segments. Thus, the first package, which was found in the baby section of drugstores, came in hues of blue and pink and depicted a smiling baby. The second red-and-white package, situated on a shelf near the contraceptives, was much more clinical, and the literature emphasized the product’s accuracy. ‘This is the kind of innovation that is often missed,’ says Dawar.

But not all companies are missing out. Dawar cites Toronto-based radio frequency identification for business (RFID) firm Samsys, which effectively fulfilled a need in the marketplace.

When it launched 10 years ago, Samsys produced tags and readers, used to track merchandise through a retail organization, just like everybody else in the industry. It wasn’t long before founder, chairman and CEO Cliff Horwitz recognized a major problem.

First, each offering was able to read only certain frequencies, making it difficult for customers to track the various products they needed to track. Second, each manufacturer’s tags and readers had their own protocol, so once a customer purchased a system, they were stuck with it.

Plus, customers had an immense fear of technological obsolescence, so Samsys eradicated that barrier to purchase by creating a multi-protocol, multi-frequency reader that worked with a variety of tags.

‘What struck me was that as long as this mutual exclusivity existed, it was going to act as a retardant on the uptake of technology within the RFID space,’ recalls Horwitz. ‘Instead of simply perpetuating what had been the typical modus operandi, we decided to change things.’

In fact, Samsys pulled out of the tag business altogether. That move helped Horwitz convince his former competitors to allow him to incorporate their proprietary intellectual property – their tag’s protocol – into his reader. But he also pointed out to them that if they lost a bid initially, they would never be able to pitch their business to that client again, since the likelihood of anyone changing their entire infrastructure was rare. ‘They bought into that vision.’

Samsys made the switch to concentrating on tag readers five years ago, but it’s taken that long to educate customers on RFID technology. Since products are now standardized, Samsys recently debuted a traditional marketing campaign, including advertising on industry Web sites, such as rfidjournal.com, in trade pubs and newspapers. Created by Ashley Randall, an agency in North Carolina, the campaign’s slogan is ‘the power to choose,’ and the message is that Samsys offers the lowest risk. ‘We’re [saying] that we’re least likely to [suffer from] premature obsolescence.’

The results speak for themselves. Revenue for the third quarter, ended June 30, was just over $1 million, a whopping 900% jump from the previous year.

Like Horwitz, Chip Wilson, founder of the yoga retail apparel chain Lululemon, sensed a new opportunity. He also saw a significant niche emerging. A former skateboarder and snowboarder, Wilson suffered from back pain. So he joined the first yoga class he could find in his hometown of Vancouver.

At that point the class consisted of himself and six women, but within two months the class size quintupled. Explains Wilson: ‘A woman from New York was teaching. She was an investment banker who dropped out and moved to Vancouver. That is probably the classic Lululemon market – a very successful 30-year-old woman, working 14 hours a day, and not as healthy as she’d like to be.’

But Wilson noticed another thing in that yoga class. His cotton sweats just weren’t cutting it: they held on to moisture, making it difficult to move into different positions. That was in 1997. Wilson put all his money into Lululemon.

At first the brand grew through word-of-mouth, in part thanks to the strength of the product. But Wilson helped fuel its popularity through grassroots marketing. Lululemon runs its online publication called Luluzine on its Web site. In each market, the company finds nine or 10 people immersed in the culture to act as ambassadors for its brand. Lululemon also features local yoga practitioners in its magazine ads, which run in the Yoga Journal south of the border.

Wilson says he advertises ‘to cement in people’s minds that I was there before Nike, Adidas or Puma. I want to be the very best at yoga clothing.’

(Wilson also launched a skate- and snowboarding apparel company, Westbeach, in 1979. While he was early on the scene, he didn’t have any cash for advertising, and eventually the big guys caught on to the market, making it difficult for him to compete.)

If Lululemon’s expansion is any indication, things are going well. Stores are being opened in Santa Monica, San Francisco and Newport, and there will be 16 locations across Canada by the end of the year. Wilson plans to have shops in Australia and Japan by then too.

In the meantime, he’s also begun to serve a sub-set of the yoga market with the opening of Oqoqo in Vancouver. The shop sells stylish hemp, soy, bamboo and organic cotton clothing. ‘In Lululemon our clothes are technical – there’s a core number of people in the yoga community who shun that.’

Just like Wilson developed Lululemon in part out of his own needs, FACEAtelier in Calgary was born out of president Debbie Bondar’s frustration. Bondar couldn’t find any moderately priced cosmetics in the prestige market. ‘A lot of [cheaper] cosmetics are geared toward youth. I’m 50. I don’t want to buy make-up geared at teens.’

Bondar launched FACEatelier in November as ‘a cosmetic version of the little black dress – unfailingly elegant, simple and practical.’

Sold on the Web site, www.faceatelier.com, the cosmetics line is geared at three targets: mature women; students in make-up programs (Bondar offers them a discount); and professional make-up artists. The idea is that the latter two will help spread the word.

Bondar also recently partnered with the Elizabeth Glaser Pediatric AIDS Foundation in the States, which led to a charity event in Los Angeles. It was MC’ed by former Party of Fiver Scott Wolf, while The O.C.’s Chris Cormack and Melinda Clark also made appearances. Bondar handed out gift bags, and she’s been known to seed her product through the Vancouver film industry. This seems to work: Cameron Diaz has reportedly used FACEatelier.

Bondar says grassroots marketing is the best way to break into the market. ‘Quite frankly, it’s the only thing you can do with cosmetics because reputation is built on editorial – ads don’t work except for the big guys.’

Bondar recently hired a publicist and FACEatelier has been featured in local magazines and newspapers such as Calgary Avenue, the Herald and Alberta Venture. The product is also on shelves in two retail locations, Kiss & Make-up in West Vancouver and Hedkandi in Calgary.

Perhaps what is most refreshing about Bondar’s approach is that she doesn’t rely on negative marketing, like so many other beauty brands. She’s not telling women how to get rid of crow’s feet, or suggesting that the younger you look, the happier you’ll be. On her Web site she writes: ‘On my 50th birthday, I’m feeling very good about it. Fifty, people are wont to say, is the new 30. I don’t understand why 50 can’t just be what it is. I for one don’t want to be 30 again.’

Bondar has clued into an underserved market. She isn’t about following the leader with lipstick that stays painted on for eight hours or mascara that comes with a primer. This bodes well for FACEatelier’s future, because as Professor Dawar says, those who innovate through the development of new markets will survive in the long run.

And there’s another key benefit to customer-led innovation – brands can spend a lot less time and money persuading consumers that their product is king. That’s because when a product addresses the customer’s needs in the first place, the facts speak for themselves.