How does innovation affect profitable growth?
You’re creating something new that hasn’t been done before when you have an innovative product or service. Right off the bat you’re going to have better control over pricing than you would in a market where the product set is known and well understood. There are no substitutions with an innovative product — it’s the first of its kind, so people have to come to you to get it. This gives you a great deal of pricing freedom. You still have to stay within the bounds of the customer’s perceived value of the product, but you can charge up to that perceived value and not have pricing be an issue. It also serves as a differentiator. You won’t have any competition or competitive bids, since it’s the first of its kind. Innovation creates greater satisfaction, particularly when you combine it with listening to customers. Customers will be more pleased with new and improved product sets if you listen to them.
How can you develop a strategy to combine all three approaches, and what benefits will that produce?
It starts with listening to customers and developing listening skills across the organization. It should even extend outside the organization. Sales or customer service people tend to listen to customers with company ears. They understand the problem much better than the customer does and tend to translate naïve language the customer uses into more sophisticated, technical language to describe the situation. They end up inserting their own bias.
It’s impossible to get away from this once you’ve been inside a company. You should have someone outside do the listening — someone who doesn’t understand the product or situation but understands customers. He or she writes down everything he or she hears, and can compare notes across customers. Customers tend to gravitate toward the same terms to describe similar situations. You can catch those trends across surveys and see what customers love that you should develop more, and what they don’t love that you should discontinue or change. That’s where it needs to start — listening to the customer with unbiased ears.
Then you need to act on what you heard and innovate your products and services toward customers. Eliminate things that are less effective, improve the cost structure and create a value proposition that would solve your customers’ problems. This gets you into an innovative product set that will be attractive to customers and produce better pricing. Customers will continue coming back and will refer new customers, who are already one step ahead in the trust cycle. You have to get customers to trust you before they buy from you, but if they’ve already bought from you or been referred, they’ve gone through a lot of the trust through proxy. It can also reduce competition. When customers love you and your innovative products, they’re not looking for anyone else.
Jim Lane is the director of GBQ Redbank Advisors, GBQ Partners LLC. Reach him at (614) 947-5257 or [email protected].