Re-defining Value: A new approach to Innovation

Innovation often starts with the product. Clayton Christiansen talked about disruptive and sustaining innovation. These are concerned with innovation centered around products and markets targeted. Some of the world’s most innovative companies such as 3M are introducing innovative products ensuring that a substantial part of their revenue comes from products introduced in the last 3-5 years. But there is another way to innovate. This may be called Cultural Innovation. Cultural Innovation does not focus on developing new features of a product or a new product itself. Cultural Innovation does not try to outdo competitors on existing notions of value. Cultural Innovation relies on changing perceptions of what constitutes value in the category by consumers. As competitors concentrate on introducing innovative features of the product consistent with what is considered important according conventional notions of value, Cultural Innovation redefines value and provides features and attributes consistent with the redefined notion of value.

Removing unnecessary bits/bytes of information reduces the file size. This type of compression is known as Lossy compression. In media files such as video, image and different audio formats, the final representation of the data may not be required to be the same as the source representation. MP3 and JPEG are the most common formats which use lossy compression. An example of an audio file where the complete information about the original audio is not represented is MP3 file. Instead, in an MP3 file, some of the unwanted sounds which humans can’t hear is removed. Similarly, in JPEG images non-critical parts of the image are removed. For instance, when we consider a picture with a blue sky, the compression of the JPEG image that takes place is such that only one or two shades are blue, instead of considering dozens of different shades in the image. Lossy compression is not suitable for files where all the information is critical or in other words files originality needs to be maintained.

Ford Explorer

In the 1980s the average American family went for the minivan. It was spacious, comfortable. It afforded easy entry, easy egress, great storage. It was great for hauling the entire family, kids and their friends. It was ideal for weekend trips and for shopping. Moms loved them. Chrysler relied on its minivan to achieve great commercial success. The value paradigms were space, economy, convenience and comfort. There was however something that was missing. The minivan was too pragmatic and utilitarian. So much so that it was almost boring. It was something that homemakers used to run household routines like shopping and helping kids with commuting to school. Minivans from all brands were pretty much the same. All utility, no identity. And no premium-ness whatsoever.

People yearned for identity, projection of self-image, of being different. An unstated desire to dominate the road. A sense of freedom and power. And safety. People started to imagine a car as a way to project a swashbuckling image, a vehicle for on road and off-road adventures even if in reality it would be used mainly for traditional chores.

The SUV seemed to be the answer. At that time the SUVs available were The Jeep Cherokee and Chevy Suburban. Both were rough vehicles which did not offer the comfort and amenities needed for a family vehicle. The other options available, the Ford Bronco and the Chevy S-10 Blazer were two door vehicles.

Jeep had a great off road pedigree. It launched the Grand Cherokee. But it was beaten by the Ford Explorer. And the Grand Cherokee had a greater appeal among young singles than among affluent families.

The Explorer created the image of an exciting family life filled with outings in the wilderness, travel to remote places filled with novelty and excitement, a far cry from a value proposition centred around pickup and drop for school children and trips to the grocery store. It also stopped short of the Cherokee’s proposition of macho high adventure excursions. The Explorer connected with the affluent family’s ideal of a family life filled with the excitement of frontier adventure.

The owners of the Explorer were using the vehicle in the same way as they did the minivan. For groceries and trips to the soccer practice club. But in their minds, they were living a life of adventure, exploration and excitement. They related to the images they saw in the advertisements, of frontier landscapes and adventure trips.

People believed that the huge size and weight of the vehicle made them safe. The elevated driver seat made them feel more in control. Women loved the feeling of sitting on an elevated seat and the feeling of invincibility and power that went with it.

Was the explorer a technological marvel? Hardly. Its technology was dated. Its acceleration was poor. Its centre of gravity was high and it cornered poorly. It was expensive to maintain relative to minivans. It was a gas guzzler. All this in fact added to the appeal of the car. It gave it a sense of premium-ness because it was expensive. It was typically an acquisition which the cost conscious family would avoid making! Ford had created an innovation based on a value paradigm very different from the value paradigm of the minivan- space, economy, convenience and comfort. The paradigm was adventure, excitement, power, and premium-ness. The product was in fact relatively ordinary in technological terms. Not a better mousetrap, certainly. But culturally a distinct and attractive one.

Starbucks

College friends, Zev Siegel, Jerry Baldwin and Gordon Bowker decided to start a coffee business in 1973. They were mentored by Alfred Peet, the man who brought custom coffee roasting to the U.S. Starbucks’ initial focus was on bringing high-quality beans to consumers who are more accustomed to instant or canned coffee. Essentially the value paradigm was superior coffee. A better mousetrap, so to speak.

Howard Schulz, who joined the company as Director of Marketing and later acquired the company changed that. Schultz changed the coffee stores into cafes serving coffee as a beverage. The surroundings were exotic. The interiors were like quaint Italian cafes. They had an old world charm. That was not all. Starbucks has managed to differentiate itself from competitors by creating the unique value proposition of becoming the “third place” for customers, after home and the workplace. Purchasing a cup of coffee became an “affordable luxury” and an experience in itself. Customers were able to order customized drinks and enjoy the beverage in a relaxed, upscale environment. Starbucks had transformed the value proposition of coffee businesses from Quality Coffee with many flavours to a personalised experience of a place which was neither home nor work, yet it was your own place. You could hang out with friends as long as you wanted to.

It was not as expensive as a private upscale club but afforded a similar experience. And the coffee could be customised. And it tasted great too! Starbucks elevated coffee drinking from a rather mundane experience to one filled with the novelty of traditional European surroundings, and the appeal of personalization and the opportunity to fraternize.

Barnes and Noble

In 1971, Leonard Riggio acquired the Barnes & Noble trade name and flagship bookstore in Manhattan. Within a few years, he had grown the Barnes & Noble Fifth Avenue store in New York City into “The World’s Largest Bookstore. ” Today, Barnes & Noble serves over 600 communities across the US and is the #1 book retailer in the United States.

Barnes and Noble operates differently from most other bookstores in the United States. Each store is an integral part of the community, its contents, interiors and designs are different, reflecting local choices. If the coffee shops in the stores are counted as independent restaurants, Barnes and Noble has the largest coffee chain in the United States after Starbucks. Barnes and Noble hosts Storytime events for young children where authors interact with children and parents, creating interest in the books authored by them.

The ‘Discover Great New Writers’ Program recognises literary excellence in all categories. Customers are encouraged to sit around, browse through books, chat up with shop assistants who were likely to be knowledgeable about the books in their section and generally experience the books without a pressure to make an immediate purchase. Barnes and Noble had redefined value. The traditional notion of value was offering the right titles at the right time and the right price. Barnes and Noble redefined value as relaxing in a literary environment, chatting up knowledgeable book lovers, enjoying a coffee in a soothing setting, introducing children to authors and the joy of reading, discovering literary talent and indulging in a form of entertainment book lovers yearned for. Barnes and Noble had succeeded in transforming what was seen as value.

It is not our case here that Cultural Innovation is a substitute for product or service excellence. In order to succeed, companies practicing Cultural Innovation need to offer outstanding products. The product or service quality must be at par or superior to competitors. The Explorer, while not outstanding technologically, was a great product, Starbucks offers the highest quality coffee and Barnes and Noble offers the best assortment, location, convenience and price. But they did not compete on these features. They competed in a new space created by a distinct redefined value. The redefined value created a new playing field in which rivals have not yet started competing.