INNOVATIONS IN MARKETING

Chapter - 4

Innovations and Entrepreneurship

In todays world of intense competition, along with fast- changing markets and technologies, Innovations has achieved great importance. How to innovate is the key question.

What is Innovation?

Innovation is not a technical term. It is an economic and social term. Its criterion is not science or technology, but a change in the economic or social environment, a change in the behavior of people as consumers, producers or as citizens. Innovation is investing of resources to create new wealth or investing of wealth to create new resources. It is measured by assessing its impact on environment, and therefore innovation should always be market focused.

Innovation is the responsibility of every executive, and it begins with a conscious search for opportunities. Finding those opportunities and exploiting them with focused, practical solutions - requires disciplined work.

Innovation & Entrepreneurship - The link

Innovation is the specific function of entrepreneurship, whether in an existing business, a public service institution, or a new venture started by a lone individual in the family. It is the means by which the entrepreneur either creates new wealth-producing resources or endows existing resources with enhanced potential for creating wealth.

There prevails a lot of confusion about the proper definition of Entrepreneurship. Some use the term to refer to all small businesses; others, to all new businesses. In practice, however, a great many well-established businesses engage in highly successful entrepreneurship. The term then refers not to an enterprises size or age but to a kind of activity. At the heart of that, activity is Innovation: the effort to create purposeful focused change in an enterprises economic or social potential.

What is Innovative Strategy?

Like all business strategies, an innovative strategy starts out with the question, What is our business and what should it be? But its assumptions regarding the future are different from the assumption made with respect to the ongoing business.

The first objective of a strategy for the ongoing business is to optimize what already exists. However, the ruling assumption of an innovative strategy is whatever exists is aging. The assumption must be made that existing product lines and services, existing markets and distribution channels etc will sooner or later will go down rather than up. The motto of a strategy for the on going business is Better and More, however the motto of a strategy for Innovation is New and Different. Innovative Strategy is planned out by systematically getting rid of the old, the dying and the obsolete, because abandoning yesterday alone will free resources for tomorrow.

The scope of Innovation is verified in terms of

Relative Advantage that the Innovation will provide them with.

Compatibility - the degree to which the Innovation will be compatible with the values of the employees as well as the consumers.

Complexity of the Innovation to understand the period required to penetrate the market.

Why does one need to Innovate?

To face competition

To stand out in a clutter

To survive recession

To solve certain problems

Innovations and Profits: Joseph Schumpeters Theory of Profits

It has been held by Schumpeter that the main function of the entrepreneur is to introduce Innovations in the economy and profits are reward for his performing this function. Innovation as used by Schumpeter, has a very wide connotation. Any new measure or policy adopted by an entrepreneur to reduce the cost of production or to increase the demand for his product is an Innovation.

Hence, Innovations can be divided into two categories:

1. Those which reduce the cost of production i.e. which change the production functions. In this first type of Innovation are included the introduction of new machinery, new and cheaper technique or process of production, exploitation of a new source of raw material, a new and better method of organizing the firm etc.

2. Those which increase the demand for the product i.e. which change the demand or utility function. In this category are included the introduction of a new product, a new variety or design of the product, a new and superior method of advertisement, discovery of new markets etc.

Role of an Innovator

Schumpeter assigns the role of the Innovator to the Entrepreneur. The Entrepreneur in not a man of ordinary managerial ability, but one who introduces something entirely new. The Entrepreneur is motivated by the desire to be the founder of a private commercial kingdom, the will to conquer and prove his superiority and the joy of creating, of getting things done or simply of exercising ones energy and ingenuity.

To perform his economic function, the entrepreneur requires two things - the existence of technical knowledge to produce new products and the power of disposal over the factors of production in the form of finances.

Role of Profits

An entrepreneur innovates to earn profits. Profits arise due to dynamic changes resulting from an Innovation. They continue to exist until the Innovation becomes general.

Breaking of the circular flow

Schumpeters model talks about the breaking of the circular flow with an innovation in the form of a new product by an entrepreneur for earning profits. Profits caused by a particular Innovation tends to be competed away as others imitate and adapt that. But if the entrepreneur comes out with another Innovation at that time when the favorable effects of the former Innovation are dying out, he will make profits again. Therefore as long as Innovations exist, profits continue to arise out of them. So, according to Joseph Schumpeter, Innovation is the sole cause of profit.Sources of Innovation: Peter F. Drucker

How to Innovate?

Peter F. Drucker in his book Innovation and Entrepreneurship answer this key question. He says, Innovation can be systematically managed if one knows where and how to look.

Drucker mentions the different sources of Innovation.

Sources of Innovation

Innovations can spring from a flash of genius, however, most Innovations result from a conscious, purposeful search for Innovation opportunities, which are found in only a few situations.

Within a company or Industry, areas of opportunity can exist in the form of the following:

Unexpected occurrences

Incongruities

Process needs

Industry and Market changes

Outside the Company in its Social and Intellectual environment, areas of opportunity can exist in the form of the following:

Demographic changes

Changes in perception

New knowledge

These sources are different in terms of the nature of risk, difficulty in implementation, complexity, and potential for Innovation may lie in more than one area at a time. But together, they account for the great majority of all Innovation opportunities.

For the purpose of clear understanding, we shall look into these different Sources of Innovation with opportunities explored by the entrepreneurs (authorized dealers) in the two wheeler industry.

Sources of Innovation:

1.Unexpected Occurrences. The easiest and simplest source of Innovation opportunity - the unexpected.

Baja launched sunny for the rural and semi -urban markets to up-grade over the mopeds using modern technology (no gears) which made riding more comfortable and hassle free. But the product did not appeal to them. Here market survey revealed that men found the vehicle less macho and hence rejected it, but the vehicle it was well accepted by female riders who formed a sizeable portion of riders in these areas. Bajaj smartly started advertising the product targeting the females and now vehicle was as the new savvy thing in the market, a product that is smart, easy an comfortable specially for the girls. Bajaj accidentally found a new market, which was huge enough, and till now they treated it as the spillover from the primary target - male users.

(Information Source: Sah & Sanghi Motors, Malialaxmi, Mumbai )The unexpected failure is also an important Innovation opportunity source.

When Hero Hondas sales figures were reaching the sky with its 4-stroke economy bike CD100, Bajaj developed its own 4-stroke economy bike 4S, which gave more mileage than CDIOO. Bajaj, confident that its product will beat the competition, launched the bike with great hype with publicity and advertisements comparing the technical superiority against Hero Honda - but the public was not interested. They had already tried and tested the CD100 and were very satisfied with its performance. They refused to acknowledge anyone who compared with it as a result the marketing launch failed. But this was a lesson Bajaj learnt.

When they came out with their new, model Caliber (in Jan99), they took it utmost care not to repeat the same mistakes of comparing and positioned it in a very unconventional way. They carried out a soft launch. The result - Caliber grabbed 15% of share in sales within 4 months of launch.

(Information Source: VIP Automobile, Khar, Mumbai)

Unexpected successes and failures are such productive sources of Innovation opportunities because most businesses dismiss, disregard, and even resent them. No manufacturer thought of launching a two-wheeler for females thinking that they are not the decision makers in buying, they do not constitute a big enough market, they can use mopeds if they have to, they can not have their separate vehicle etc.. With such ideas in mind no marketer was willing to leap in this market segment. The successes of Bajaj Sunny and TVS Scooty have proved otherwise.

2.Incongruities & Disagreements

An incongruity within the logic or rhythm of a process can give rise to Innovation opportunity. 70% of two-wheelers are bought on finance provided by banks or other financial institutions. The process was time consuming and tidious. Also the interest charges were high and the acceptance criteria very strict. To cut this time and process short, and make their products available at a reasonable rate, Bajaj started its auto finance company Bajaj Auto Finance which was provided to all their dealers. Even the interest charged was lower than the rest. (Banks charge 18-20%, whereas Bajaj charges

(Information source: VIP Automobile)

An incongruity between economic realities can also lead to Innovations.

In the late 80s, newer vehicles with Japanese technology bombarded two-wheeler users in India. The problem was that those who already had old model vehicles would not buy a new vehicle until he finds a buyer for his old vehicle. Here Alibhai Premji (dealers since 1920) found a solution. They started Exchange schemes where they would appoint an evaluator (Usually a second hand vehicle dealer) who would evaluate the old vehicle and buy it and that amount would be deducted from the price of the new vehicle. This scheme facilitated the old vehicle owners and also pushed the sales of the dealer. Many companies like Bajaj, LML, and also many dealers later adopted this scheme.

(Information source: Alibhai Premji, Tyrewala)3. Process needs.

We saw earlier how two-wheeler sales were promoted - through exchange schemes and in-house financing. Now came a new element - time. Time to wait for the exchange scheme, then finance for the balance amount and then waiting for the bike with the colour chosen. All this took time, which an urban buyer did not have. Auto-riders came in with a new concept. Instant Loan Melas. They would put up a stall in a convenient location in the city a d advertise it. Representatives of their vehicle exchange department, sales department, technicians to aid test rides and inquiries, finance company, insurance/ RTO registration agent, stores/delivery all would be present at the same time. Customers are promised that the entire process would take them one hour after which they would be riding back home on a bike of their colour choice.

(Information Source: Autorider, Santacruz, Mumbai.)

4. Industry and Market changes. Industry structures can - and often do- change overnight. Such changes create tremendous opportunity for Innovation. Established companies, concentrating on defending what they already have, tend not to counterattack when a newcomer challenges them. When market or industry structures change, traditional industry leaders neglect the fast growing market segments. New opportunities rarely fit the way the industry has always approached the market, defined it, or organized to serve it. Innovators therefore have a good chance of being left alone for a long time.

5. Demographic changes.

Demographic events lead times. Demographics are the most reliable sources of Innovation opportunity coming from outside the company. Those who watch them can reap great rewards from them. Managers have known for a long time that demographics matter, but they have always believed that population statistics change slowly. However, we have seen that in this century, it has changed very quickly. Innovation opportunities possible due to changes in the numbers of people, their age distribution, education, occupations and geographical location are one of the most rewarding and less risky of entrepreneurial pursuits.

In the 80s, the primary target of a bike zi7as a man, SEC B/C, aged 25-40 years, income Rs.5,000 /p.m. and above. In the 90s, the shift was clearly seen. Though this segment was still catered by the economy bikes segment, a new audience was formed; boy, SEC Al, A2, aged 17-21 years, pocket money Rs. 5,000/p.m. and above. The significant part of this change was that this young audience would be the decision-maker. Gemini Motors, Bandra, Mumbai caught on this segment. It launched the TVS Shogun by sponsoring college festivals like Mood Indigo I.I.T, Povai, Malhaar in St. Xaviers, etc.. Where this young audience was able to test ride the vehicle. So huge was the response and success, those Gemini Motors has since then sponsored many college festivals on a regular basis and launched two other models using this ready audience. All this was supported by TVS (45% financial expenses).

6. Changes in perception. The glass is half-empty and the glass is half-full are descriptions of the same phenomenon but have vastly different meanings. Changing a managers perception from half-full to half-empty opens big Innovation opportunities. A change in perception does not alter facts. It changes their meaning, though and very quickly. What determines whether people see a glass as half-full or half-empty is the mood rather than fact, and a change in mood defies quantification. It has to be concrete, defined and could be tested. Then it can be exploited for Innovation opportunity.

We saw earlier how Bajaj Sunny discounted as a rural small town Scooterette and as replacement for conventional Moped. The dealer in the in bigger town however, saw sales picking up by women riders and this finding was passed to the company, which smoothly positioned the vehicle as an easy riding machine and strategically placed it as apt for female riders. This strategy was then supported by the dealers who provided test rides to these users who were able to get a feel of the vehicle, its driving ease and comfort. The result - Sunnys sales increased 300% within 3 months of the new campaign.

(Information Source: Shah & Sanghi Motors)

7. New knowledge. These are the superstars of entrepreneurship. they earn the publicity and the money. They can be scientific, technical or social. They are what people usually mean when they talk of Innovation. Knowledge-based innovations differ from all others in many ways. Like the time they take, their predictability, the challenge they pose to entrepreneurs etc.. They have the longest lead time of all Innovations, long time span between the emergence of new knowledge and its convergence to usable technology.

Kinetic Honda launched the first gear-less scooter in India. Indians saw, this as a technological innovation. To supplement it and to support it Autoriders developed a test track at its workshop. The customers could actually experience the vehicle and also have their queries answered by the engineers at the workshop. No other automobile dealer, has yet been able to copy this as they do not have the infrastructure support. Also Kinetic Honda has protected this commitment by huge territory rights to Autorider.

(Information Source: Autoriders)Other Innovations observed in this industry:

VIP Motors - Any inquiry which is made by a prospective customer is recorded in the computer. All details regarding the model preferred, the mode of payment, approximate date/ occasion when purchase is intended, the users name, address, profession and even some points of the conversation are recorded. The salesman also puts in the date when he should give a follow up to this inquiry (usually 8-10 days later). The computer system is so built that on that particular date, the salesman the will get a print out on his table reminding him to contact that person and also gives all the details of the last conversations. In addition, in his absence, another salesperson can continue the sale.

Alibhai Premji - The oldest player in this in market (since 1920) and still going strong. They have a supermarket for two-wheelers where they offer all brands and surprisingly at a cheaper price than the authorized dealer of the company himself. All through the years they have continuously innovated to survive the competition. Presently they run high in their exchange scheme, keep in touch with the prospective customers by keeping records of their responses to test rides, etc..

Sai Service Motors - They haze realized the importance give servicing and after sales service. At their at their showroom at Andheri, they have kept their workshop walls of glass so that everyone who visits the showroom can see the quality of technical service they offer.

Gemini Motors They have bought a Delivery cum Breakdown Van. The van is used to deliver bikes, which could be surprise gifts and to help distressed customers who need help at times of breakdown. A unique service offered by only them. The showroom also boasts of a guest lounge for waiting customers whose vehicle are being serviced. It has a carrom board, television etc. The proprietor promises one such Innovation every year.

Fort Point Motors - Hero Honda is the bike for the economy seeking masses, They are found working at factories, offices find it difficult to take out time to visit the showrooms. Fortpoint Motors thus have developed a corporate sakes department, which puts stall at big companies, and offer vehicle to the employees at special price and loan scheme.

Principles of Innovation

Purposeful, systematic Innovation begins with the analysis of the sources of new Opportunities. Depending on the context, sources will have different importance at different times. However, whatever the situation, Innovators must analyze all opportunity sources. Because Innovation is both conceptual and perceptual, would-be innovators must go out and look, ask and listen. They should use both the right and the left side of their brains. They look at figures they look at people. They work out analytically what the Innovation has to be to satisfy an opportunity. Then they go out and look at potential users to study their expectations, their values, and their needs. Effective Innovations start small. They try to do one specific thing. Even Innovations that create new users and new markets should be directed towards a clear, specific and carefully designed application.