Generating New Product Ideas — Business Marketing

A core distinction between business market customers, vis-à-vis consumers of consumer products, is their focus on functionality and performance. They have systems and processes for evaluating their purchases in a fairly rational manner. To succeed, new offerings need to deliver value and suppliers need to demonstrate exactly how the value is derived. This requires a deep understanding of customers and how they derive value from their products.

The analysis of customer transaction data, via customer satisfaction and relationship management methods, can provide an appreciation of customer needs and preferences, leading to ideas of products or services to better serve the customers.

Value-in-Use analysis provides for a comprehensive understanding of the value customers derive from a product or service. Value-in-Use (VIUA versus B) is the difference in value (ValueA − ValueB) minus the difference in price (PriceA − PriceB) that a supplier’s new offering provides a customer relative to an alternative offering. And value is the economic, technical, service and social benefit net of all the costs incurred in extracting the benefit.

The computation of VIU requires a thorough understanding of each step in the use of the product or service, i.e., all benefits and cost elements need to be accounted for to arrive at the total cost of ownership (TCO) of the offering by the customer. Moreover, the results cannot be generalized since VIU varies from one type of customer to another and their usage and cost elements differ.

Activity-based costing (ABC) methods that quantify all expenses related to the use of a product or service, are often used for deriving VIU and estimating TCO.

Customers as a Source of Ideas

New product development - Sourcing new product ideas from customers - PCB conceived by US Army’s Signal’s Corps

Exhibit 9.15   US Army’s Signal’s Corps needing miniaturized communication equipment, seized on the idea of PCB, designed, produced it and then sought potential suppliers. (Photo courtesy T/4 Harold Newman, U.S. Army Signal Corps).

Considering the nature of business markets, it is not surprising that the highest proportion of new product ideas originate with customers. Customers however do differ in many ways, and some are more innovative than others.

“Organizations, by their very nature are designed to promote order and routine. They are inhospitable environments for innovation.” This observation by Levitt applies especially to big companies that tend to be process-centric, focusing on streamlining and minimizing costs. Their heavy investments in existing technologies become a burden when disruptions occur in their markets. Big customers therefore can be relied more on incremental innovations that help improve processes, rather than breakthroughs that disrupt the existing market dynamics.

Lead users on the other hand tend to be innovative companies that identify solutions well before their competitors and suppliers. For example, the U.S. Army Signal Corps (Exhibit 9.15), needing miniaturized communication equipment, conceived of the use of the PCB (printed circuit board) in their equipment, designed and produced the required PCBs, and sought potential suppliers.

Leap-Frog users are aggressive companies, possibly new entrants pursuing riskier development strategy. Tesla was an apt example of a leap-frog user of lithium batteries, which changed public and industry perception of what an electric car can be.

Salespeople, suppliers, market research agencies and competitors are also important sources that need to be regularly tapped for new product ideas.

Importantly, for ideas to flow, it requires the development of systems to encourage sourcing, and facilitate the submission of ideas. At the most basic level this requires a destination such as the NPD department, where the ideas may be submitted.

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