Marketing Innovation: Creating Competitive Advantage by Ken Bernhardt Regents' Professor of Marketing and Assistant Dean for Corporate Relations  Robinson College of Business, Georgia State University Atlanta Business Chronicle - January 27, 2006 Peter Drucker, the late management guru, stated that the two reasons for a company's existence were marketing and innovation.  He maintained that if a company didn't innovate, it wouldn't be an effective organization and couldn't be successful over time.  A recent Booz Allen Hamilton survey of senior executives in 50 major companies found that 90 percent of these top managers said innovation was critical to achieving their strategic objectives. Yet most of these executives were only marginally satisfied with their current innovation organization, and only half of the improvement efforts met expectations. Dictionary.com defines innovation as "a creation (a new device or process) resulting from study and experimentation; …the act of introducing something new."  In other words, innovation is the alteration of what is established.  Marketers have been criticized for years for not being innovative. Most new products, for example, are merely line extensions or minor improvements, which is perhaps the reason that a majority of new products fail.  Marketers are also frequently criticized for being slow to respond to market needs.  This is not a new phenomenon. The U.S. auto companies have been a poster child for this lack of innovation for about a century.  As Business Week reported last year in a major feature article on innovation, American farmers were lobbying manufacturers to make cars with detachable back seats as early as 1909, but it took Detroit more than a decade to "invent" the pickup truck. Why is it so important for companies to innovate?  A recent study by Accenture estimated that the average company loses half its customers within 5 years of attracting them.  Innovation is not only the best way to attract new customers, it is also the best way to keep your current customers.  Examples of companies that have faltered in recent years include Coca Cola, Levi Strauss, Kodak, and Ford.  Each has been slow to innovate as their industry and consumers have changed.  Markets today are changing rapidly.  As the CMO of McDonald's stated recently, "you own ideas for about an hour and a half."    So, if it's so important and so hard to stay ahead of the competition, what are the best practices used by innovative companies today? Handbag designer Coach used to introduce new products quarterly; now they do it monthly.  As their CEO said last year, "Complacency has no place in this market."  In any given month, new products account for 30 percent of its U.S. retail store sales. Innovative companies are continually seeking insights.  Traditionally, companies seeking innovations sent out their marketing researchers to discover "unmet needs" among customers.  A number of ideas were brought back, they were screened, and a few were turned over to the new product development group.  The failure rate of these new products according to several studies is about 70 percent.  Harnessing customer innovation requires new methods today.  Instead of researching a representative sample of customers, firms must identify those special customers who are innovators.  Henry Ford may have created the best definition for the need for insight when he said, "If I'd asked people what they wanted, I'd have given them a faster horse."  In other words, simply conducting marketing research the traditional way is no longer a sufficient mechanism for obtaining customer insights.  BMW provides an example of how a company has done things differently.  They posted a toolkit on their website that let customers develop ideas showing how the company could take advantage of telematics and in-car online services.  From the 1000 customers who made suggestions, BMW chose 15 and invited them to meet with company engineers in Munich.  Some of these ideas are now in development and are highly likely to be successful. Interestingly, the customers didn't want money for their ideas.  MIT's Eric Von Hipple calls these customers "lead users."  GE's healthcare division calls them "luminaries."  They regularly bring in up to 25 well published doctors and research scientists from leading medical institutions to discuss evolving technology.  A number of GE products have emerged from these collaborations.  Innovative companies have a clear focus on the marketplace.  Procter and Gamble is a company that BrandWeek says has a "monomaniacal focus on the notion that the consumer is boss."  P&G CEO A.G. Lafley has issued a Manifesto which in addition to the consumer is boss mandate also asks his managers to "Lead change."  This has enabled them to grow 3 times the rate of the industry.  An example of changed thinking at P&G: Pampers no longer stands for diapers, but is now baby care and Tide is not detergent, but fabric care. This change in thinking has opened up a wealth of innovative new product concepts for P&G.  Roberto Goizueta perhaps started this change in thinking when he declared that Coca Cola should pay attention to "share of stomach" instead of share of market vs. Pepsi Cola.  The most innovative companies are also those which take the most risk.  A great friend of mine was the senior marketing officer in a huge, rapidly growing Fortune 500 company.  In his annual review, after the glowing comments for the successes the company had, he was told that the expectation for next year was that he would make more mistakes.  This attitude by the company's leadership certainly changes the game from minimizing risk to maximizing reward, from fine tuning marketing to breaking new ground, and from following formulas to pushing boundaries. Is your New Year's resolution to be more innovative in 2006?  Well, here's your chance to see the outstanding marketing innovations developed in Georgia during 2005. Come to the Marketing Awards for Excellence (MAX Awards) breakfast sponsored by Atlanta Business Chronicle and Georgia State's Robinson College of Business on February 17th at the new Twelve Hotel in Atlantic Station.  Call 404-651-4174 or go to www.robinson.gsu.edu/marketing for more information or to register.  You'll see examples of how companies have developed the capacity to redefine industry models in ways that create value for consumers, undermine their competition, and produce new wealth for shareholders.  What better way to start the New Year?