Innovation: Listening to the Market

The distinction often made between innovation and invention is that innovation is invention that has market value. But how can a company sense this market value and generate it?

In a typical innovation process, the product sits between technology and the market, generating the classic Technology-Product-Market triangle (see figure).  

I use the word “technology” more generally here—in the sense of a methodology of production, and not just information technology or other engineering technology. A purely technological approach to new product development runs the danger of a company developing the world’s best refrigeration system for people in the North Pole. A purely market-driven approach, on the other hand, does not fully leverage the capabilities that the technology can provide. Ideally, an innovative product is jointly shaped by both technological and market factors. Practically, however, the product idea starts with either the technology or the market need, and the product is then revised in a loop that encompasses both technological and market factors.

Thus, a company that seeks to innovate has two options. The first option is to let the market tell it what innovation is necessary, while the second option is to ‘use the company’s technology-knowhow to build an innovative product and convince the customer of the value of the innovation it has produced. Two examples from the mobile phone industry will illustrate the two options. After seeing a demand in emerging markets in Asia and Africa

cell-phone manufacturers like Micromax introduced cheap dual-SIM phones that used two SIM cards in a single phone. This is an example of how a company allowed the market to specify its needs. On the other hand, Apple’s iPhone is a great example of how a company can transform the product experience for a market and convince customers of the value of the innovation.

However, whether a company chooses to lead the market like Apple did with its iPhone, or whether it opts to follow the market like Micromax did with the dual-SIM phone, it is critical that it develops the ability to listen to the market. When the company chooses to lead the market, it must have the ability to understand market trends and also develop a persuasive argument that will convince prospective customers to buy the product. When the company wants to follow the market, it should be able to listen to customer expectations and needs as it develops the product.

Quite often companies fail to listen to the market. I will provide two examples, both to do with packaging.

In that post, I argued that the culture of jugaad in India enables the customer to deal with packaging that is difficult to open (for instance, using a knife to cut a bottle’s metal cap). This results in the pharmaceutical company not feeling a pressure to innovate.

For a company that does not want to innovate, it is an easy excuse to say that customers are quite happy with the product because they haven't complained. However, many innovations are about leading the market into new territory (again, the easy example is the iPhone). And, if a company does not listen to the market, innovation is stymied.

My second example is from a popular biscuit company. Typically, the packaging leaves half of the biscuits in a packet broken, if not powdered.

If the company was listening to the market, would this happen?

The first step in listening is to develop and awareness of the market and market forces. There are many ways to develop awareness. Some companies do this by establishing collaborations between the R&D team and the most market-facing divisions of the company—typically, marketing and sales, and sometimes, field operations or service technicians. A recent blog post on ForbesIndia.com shows how Philips in India is innovating by linking R&D and Sales & Marketing teams. Another approach to develop awareness is to conduct ethnographic market surveys that tell the company how the product is being used. For instance, ethnographic observation of how people use treadmills led an exercise equipment manufacturer to incorporate a magazine holder on its treadmill equipment. A third approach is for the designers to use another anthropological method called "participant-observation." Here, product designers actually use the product as if they were customers and draw on their experience as users of the product to modify its design.

Whatever the method, it is imperative that companies that want to innovate develop an awareness of the market and a sensitivity to customer demands, whether these demands are articulated or not.