Moderator:

(E) Christine Ross, partner, Spider Marketing Solutions, managing director, KiC

McArthur: Innovation is now on everybody’s lips. Clients have taken a bit more initiative with it in terms of dedicating time in the marketer’s agenda. Why’s it happening?

Nykoliation: [When I was at] Kraft, it really did come out of a business need: How do you grow [very established brands] unless the population is growing, which it wasn’t. The traditional brand model wasn’t getting the results. [You had to] flip it and say: ‘What is it that you really do care about and what role could I possibly play?’ and then fit your product into that situation.

Barroll: True innovation doesn’t just meet and understand consumers’ needs, it gets ahead of where existing behaviour is.

So, for example, Apple got ahead of what was innovation and Nike truly changed the way sports apparel was manufactured and marketed.

McArthur: The age-old role of the marketer is to identify a consumer need and fill it. Is innovation the ability to do that sooner and faster than anyone else? Or is it recognizing something that consumers haven’t recognized yet?

Barroll: I think there are a few different layers. One would be the high ground of true sustainable, competitive advantage, which is recognizing what hasn’t been recognized before, and then the second layer is identifying consumer needs. Third is where most companies play, the main competitive ‘me-too’ phase, and then the fourth is losing ground because they aren’t doing anything.

McArthur: Do you think it’s possible to actually lead consumer behaviour from a marketing perspective?

Barroll: Major companies that are innovating are creating needs. For instance, we never had a need for a $4 cup of coffee until Starbucks came along.

Ross: True innovation is a great idea that has commercial value. Companies that do it found a way to be the first ones out with an idea, got the early adopters on, and then took it to the mass market. So are we seeing a need and filling it, or is someone doing a good job of seeing where we’re going as society?

Barroll: That’s a great point. Innovation starts to influence society and culture. Globally we’re becoming a fast food world, and that was driven by the convenience that McDonald’s created. With Starbucks, now there’s arguably this whole other trend towards experience.

But certainly there’s an element of seeing the early points of a trend and making it larger than life to the point where it drives the trend.

Ross: There’s a huge contingency out there of professional trending companies. There’s one called WGFN out of New York.

It costs US$40,000 for this study that comes out weekly and annually. You read through it, and there are so many different nuggets in there that a marketer can take and translate into new products, or marketing concepts.

Mason: I’m always looking to Japan to find out what the next big thing is. There are a couple of things I’ve noticed. One is a chain of stores that will take products and display them based on sales for that particular week. So if something’s in the window, and people are buying things at the back of the store, the next week that’s in the window.

McArthur: If you look at what Virgin is doing – is that innovation? They have identified a flaw in the models of other phone companies, the hidden charges.

Nykoliation: I think it is playing into a bigger trend, of simplification and consumer savvy. I think they anticipated where consumers are going in terms of ‘I’m smarter than that.’

Ross: If there were a hierarchy of consumer savvy or behaviour, innovation would be at the top. The days of: ‘I’ll buy that car even though in three months it’s going to break down’ are over and now it’s more: ‘I’m not buying that unless it meets my needs, it’s innovative, the design makes sense, and it fits into my lifestyle.’

Barroll: Virgin also has companies like Virgin Atlantic, where they’re trying to make [space] travel more accessible. I would say that’s innovation that is ahead of consumers.

Mason: I’d say Virgin is doing that in order to create the idea that they are innovative. Whether they can deliver on that is a question.

McArthur: Do new brands have an advantage?

Barroll: In many cases [yes.] But some companies have somehow, despite their size, been able to maintain a focus on innovation. For example, Nike introduced the first running shoe with the waffle soles in 1974, Nike Air Max was launched in 1987 and now, 15 years later, they’ve developed the Nike Shox. They are a $14 billion company, but they’ve been able to maintain that same mentality.

Nykoliation: It has to come from the culture, and it can’t be one person off in a corner, being told to ‘innovate for us.’

You have to be encouraged to go out on a limb, because you will fail more often than you succeed.

Nike understands the psyche of the athlete within so many of us. You look at that NikeRunTO – they took it to another level, where they’ve made it local and pitted us against each other. That’s just who they are – how they recruit, how they’re structured, where they put their resources, all support that. And look at P&G. I wouldn’t put them in the same category as Nike in terms of how they innovate, but look at what they’ve been doing the past few years in

the U.S. – wow!

Ross: If you look at the product awards show this year, household products is the number-one category for innovation. Somebody said: ‘Let’s combine needing to clean with an eraser.’

Barroll: That’s a great point. Packaged goods advertisers and marketers need to look outside their categories to a degree like Procter & Gamble has, but even take it one step further and look at different business models.

Ross: Some of the most critically acclaimed innovation from around the world is literally the successful bringing together of two seemingly random processes or items.

There is a wonderful example of how an engineering firm brainstormed how to deal with chemical leaks. A woman says: ‘My son’s diapers change colours when they’re wet’ and somebody takes that technology and applies it to a multinational chemical engineering firm.

The people who are leading in innovation are looking at societal movement and not just their own categories.

Nykoliation: It’s asking why. When you sit in a focus group, you should listen, because the real nugget will not be said, but it’s there.

Ross: There was a woman I heard speak about a year ago, and she said, if you do not have any kids between 12 and 24 in any of your innovation sessions, you are doomed, because they are adopting everything first.

Barroll: My job at PepsiCo is to [look at things] with that child’s mentality – to ask why? Why not? Why can’t we? The role of the innovator is to continue to ask questions and follow their convictions. Then there’s the execution part, which involves understanding constraints imposed by reality.

McArthur: But in which way are results measured in that role?

Barroll: One of the hallmarks of an innovation culture is that it accepts failure. But there also needs to be success. So, how do you measure it? By the bottom line. If a new product or innovation leads to top-line growth that is profitable, then you’ve succeeded.

Nykoliation: As long as you can take a true learning [out of a failure] that you can use next time, then it isn’t a true failure.

Barroll: I’m going to benefit in learning

from someone else’s failure and it becomes this overall building prospect where everyone’s willing to try things and fail, work from their mistakes and other people’s – and because of this I’m able to achieve those measures of success.

Nykoliation: At Kraft, we had to innovate how we track success. And that was not easy. In order to keep getting funding, we needed to prove that we were making progress.

Ross: Innovation has to be written into your mission; it has to be defined. You have to put a process in place. It even begs the question – how do you hire people then? Maybe you don’t want to hire anyone who’s not curious – so how do you interview for that in traditional HR?

Barroll: One thing that innovation fuels is incremental innovation. We’ve all read articles about companies falling victim to just having simple line extensions rather than having true innovation. There’s an interesting article that was in Harper’s Business Review, which talks about red water innovation versus blue water innovation. Red water is one competitor fighting another – sharks in the water, and everyone kind of loses. And blue innovation is when you come up with things that nobody has thought of yet. It makes you almost untouchable for a short time.

At Pepsi, we saw the changing landscape and decided to not just focus on carbonated soft drinks. It was looking at ourselves as an overall beverage company. Opening that up was a transformational type of innovation.

McArthur: So it’s the willingness to test the flexibility of a brand?

Barroll: A brand, and even beyond the brand. Certainly Pepsi is still a carbonated soft drink. But if you look at the business model, you can become myopic.

Barroll: And I think innovation takes a willingness to check your ego and instead of saying: ‘We have 55% or 70% of such and such a category,’ you broaden that scope to only a 12% share of a broader consumer need you’re now defining as a category.

Nykoliation: We’ve been talking a lot about innovation as it pertains to product. What I’m really encouraged about is innovation in how companies are talking to consumers.

If you look at the viral campaigns – the iPod didn’t advertise for how long? Crest Whitestrips didn’t advertise for a whole year, and yet it’s one of the best launches they’ve ever had. At Kraft it was a program of offering food solutions. It was saying: ‘Moms need to get their kids to soccer practice, and they just need to get them fed, without any arguments.’ That’s actually what we were trying to solve.

So when we looked at it and thought, how can we communicate that, we realized the 30-second ad isn’t the right solution. So we changed our models. The TV show in Quebec, which is called Qu’est-ce qui mijote, is doing so well. The Web site is the largest food Web site in Canada, and the e-mail program is the largest in North America.

Mason: It’s not always the sexiest way of doing it. You could have gone broadcast and talked to yourself. You have to find out what consumers are listening to.

Nykolation: PlayStation launched one of its games from a blog.

You have to think of it as content, not advertising. If you think of it that way, then you go ‘content must be meaningful.

What am I saying that’s so meaningful that people would want to receive this?’

Jim Stengel, the CMO of P&G had a great quote in one of his speeches where he said ‘all advertising should be permission marketing.’ It should be so engaging that customers want to receive it.

I look at P&G and how they’ve spent millions on The Apprentice and Survivor, but they’re getting ahead of the PVR curve. Is it the best way? I’m not sure.

McArthur: It would be interesting to know how many innovations come out of a smaller budget. Because a lot of times when you’re facing those restrictions, you’re forced to think more creatively.

Barroll: It’s a good exercise even when you have a big budget to come up with an idea that you can launch with a tenth of the cost. That necessity might create innovation.

Nykoliation: I look at the iPod Shuffle. I don’t know if it was a design constraint, but there’s no screen to tell you what song you’re on. Most of us go: ‘That’s a fatal flaw. How can you have something with 100 songs and not tell me?’ But then they spin it around and it’s: ‘Life is random.’

I thought good for them for seeing it as an opportunity. Most of us in the traditional world would go: ‘It kind of fell short, didn’t it?’ and then shelf it.

Barroll: We’re talking about marketing and product innovation – that’s an example of both of those coming together and creating a true, bona fide, grand slam homerun innovation across the board.