The usefulness of ‘market orientation’ to the success of radical innovation
New product development is a very risky business. It can be a hit-and-miss affair and a game of winning and losing. Many new products fail (e.g. the Sinclair C5, Sony’s BetaMax, Apple’s Newton and so on) and there is very little chance of success. The risk is particularly high for radical product concepts, which are completely new to the market. There are several ways in which high-tech companies can minimise the hazards of new product development but many authors argue that the key to successful radical innovation is marketing orientation or customer focus (Rosen et al., 1998; Goldsmith and Flynn, 1992). However, others argue that firms should not allow themselves to be dictated to by customers’ needs and wants in designing and developing new products (Brownlie and Saren, 1992; Pearson, 1993). At this point it would be very useful to clarify what is meant by the terms ‘marketing orientation’ and ‘radical innovation.’
Market-orientated firms put consumers ‘at the centre of the commercial universe’ whereby all their activities (i.e. marketing, purchasing, finance and manufacturing) revolve around the consumer (Keith, 1960). Lancaster and Massingham (1998) define a market-orientated firm as follows:
A market-orientated firm produces goods and services that the consumer wants to buy rather than what the firm wants to make (p. 6).
Radical innovation involves the development of a completely new product concept. This includes many examples such as the steam engine, the car, television, compact disks, computers and Sir Frank Whittle’s jet engine (Andrews, 1975).
In this discussion, three arguments against a market-orientated approach will be examined. After this, three arguments in favour of market orientation will be considered. Finally, this debate will conclude by stating whether a market orientation is really useful for successful radical innovation.
Arguments against adopting market orientation
The first argument against a market-orientated philosophy is that consumers cannot possibly articulate their own needs and wants for things that go beyond the realms of their own experience; i.e. for new product concepts that are yet to exist.
Several basic marketing textbooks prescribe that firms should develop and sell products that meet customer needs and wants and this stipulation includes new product development. However problems arise when there is no established need or benefit in the consumer’s mind regarding new product concepts. This in turn makes marketing research very difficult and therefore it is argued that, under these circumstances, market research discourages major innovation (Tauber, 1974). Tauber argued that early adopter behaviours are not valid predictors of later adoption behaviours. By that he meant that the time span of test markets (six months to two years) and semi-controlled experiments isn’t long enough, particularly for discontinuous (radical) innovations. Major innovations that require a significant change in behaviour will take longer to gain acceptance from the general public. Tauber uses birth control pills as an example. These required a complete restructuring of public thinking. Since the diffusion process takes longer for radical innovations, the innovations are more likely to perform poorly during the testing period. Hence a long-term view is necessary for marketing discontinuous products.
Tauber also argues that market research ignores the social interaction that occurs in the diffusion process. Market research tends to simulate conditions that consist of isolated individuals and individual demand curves are then summed up to give aggregate demand. Group interaction is particularly important for discontinuous innovations, as the risk of purchase is very high, whereby the purchaser is ambivalent about the product’s performance and/or about the peer group reaction to adopting the product. For example, low fat fruit yoghurt, during its launch stage, was seen as a ‘health-nut food with an awful taste.’ However, as more people started to try the product, it was increasingly accepted (Tauber, 1974, p. 24).
The second argument is that major innovations which cause the consumer to make considerable tradeoffs or a significant change in consumption patterns are unlikely to engender a positive reaction. For example, when Nescafé Instant Coffee was launched in the 1950s, consumers, particularly housewives, had negative feelings towards the product. Nevertheless it was later found that consumers did not have negative feelings towards the product per se but towards the adoption decision itself – the trade-off between convenience and the guilt of being regarded as a lazy housewife (ibid. p. 25).
Finally, Tauber argues that while consumers can determine a need for incremental innovation, major innovations realise new needs and new markets that consumers cannot anticipate. For example, very few people could have imagined a need for automobiles or televisions before they were invented (ibid. pp. 25 – 26).
As consumers find it very difficult to identify their own needs from radical innovations, it is argued that the success of a new product arises more from a proactive market interpretation than a religious adopting of ideas by key customers (Johne, 1994, p. 52). Johne contends that firms should avoid being totally dictated to by customers as they may risk losing control over their destinies. He suggested that businesses should firstly utilise innovators and market leaders as a fundamental source for new product ideas. Secondly, businesses should attempt to recognise overall trends in the marketplace as a whole which can be weighed against individual customer suggestions. Brownlie and Saren (1992) echo this position and they assert that new product design and development should be based upon several measures and not solely on end-user needs. They cite technological expertise, R & D resources, labour and production capacity, strategic objectives and existing product/market experience as important factors for the successful launch of new products (ibid. p. 42). Finally, Brownlie and Saren maintain that the effective capitalisation and utilisation of technology in the product-development process is at least as important as focus on the customer.
Beard and Easingwood (1992) argue that ‘Good, High-Tech Marketing’ entailed a technology-push strategy – recognising a need before it is widely perceived and creating new markets. This type of strategy is suitable if no established need or benefit exists in the consumer’s mind. There are many examples of firms that have used a push strategy to launch their products. These include the Sony Walkman and Canon. Canon, for example, became highly successful in the global photocopier market by slowly obtaining, consolidating and exploiting core technological competences. This long-term strategy took more than ten years to achieve (Pearson, 1993).
The third and final argument against adopting a market-orientated approach is that it is difficult to apply basic tenets of marketing to high-tech and rapidly changing markets (Beard and Easingwood, 1992, p. 5). High levels of uncertainty exist in such markets (demand as well as supply). Elements that give rise to this uncertainty include short product life cycles, frequently changing market segments and industry boundaries which are clouded by the entry of new technologies. Since high-tech markets are uncertain and rapidly changing, it has been asserted that companies should focus on building long-term and more durable sources of competitive advantage such as the ability to provide a superior product. Competing firms find it very difficult to imitate such sources of competitive advantage. In contrast, factors like price and promotion offer only short-term competitive advantage as these are more easily imitated by competitors (Lawless and Fisher, 1990).
Arguments in favour of adopting market orientation
Many examples of new product failure due to a lack of customer focus have been cited and thus three assertions in favour of adopting a market orientation are proposed.
Firstly, a market orientation aids high-tech firms in understanding consumer needs and wants and forces them to concentrate on perfecting the value package (i.e. improving both product performance and the marketing mix) rather than just focusing on providing a superior product (Rosen et al., 1998). Rosen et al maintain that new product concepts, which tend to be more complicated, require greater customer education in the form of product information. A greater marketing effort should be made to convey the information, which in turn would lead to greater consumer effort to digest the information. Rosen et al(1998) add that new product complexity hinders the adoption process and therefore promotional strategies should be employed to ensure that the intricacies of the product are understood and appreciated.
According to the model of the new product development process, the critical phases include product idea generation, idea screening, concept testing, business analysis, marketing mix development, test marketing and commercialisation. However Rosen et al.have found that most high-tech firms ignore the concept testing and test marketing stages of the new product development process. This is because they are in hurry to be the first to launch the product in the market. This leads to poorly formulated marketing mix strategies and new product failure. The authors present three case studies of new product failure: Philips CD-I, Apple’s Newton and Sony’s BetaMax. For the purpose of this discussion, Sony’s BetaMax will be considered in detail.
The BetaMax video cassette recorder was first launched in 1975. This product was far superior, in terms picture quality, to the VHS format, which was launched in 1976. The BetaMax, however, had only a one-hour tape capacity compared to VHS‘s minimum tape capacity of two hours. Sony neglected to carry out marketing research and it was found that consumers preferred the longer tape capacity. Another barrier to success was the high price of Beta movie cassettes, which were priced at $79.95 compared to VHS tapes that cost $29.95. To summarise, the BetaMax was a superior product but it lacked the attributes wanted by consumers.
The second argument for a market-orientated approach was put forward by Cooper (1994). He argued that by working closely with the consumer throughout the product-development process, problems can be identified and the final product can be adjusted appropriately to gain market acceptance. Firstly he suggests that consumers should be involved in the idea-generation stage. This should be done through focus groups and by developing relationships with innovators and early adopters. Secondly, market research should be used as input for product design in order to identify user needs and competitive product strategies. This enables the design team to translate those needs into an appropriate product. Thirdly, even for technology-push products, significant marketing input should be made to shape the final product design in the way that the consumer wants it, in order to increase the likelihood of market acceptance. Finally Cooper maintains that consumers should be involved throughout the entire project so that feedback can be obtained concerning product performance in the market and needed design changes.
The final contention in favour of a customer focus in new product development is that a market orientation can assist firms in identifying innovator and early adopter categories. These groups, first defined by Rogers in 1962, play a crucial role in the diffusion process of a product in the market (Goldsmith and Flynn, 1992). This implies that effective target marketing to innovators and early adopters can speed up the diffusion process. Innovators help promote the product to later buyers through positive word-of-mouth communication. This encourages the more risk-averse early and late majority groups to purchase the product. It is therefore important for firms to tailor the right marketing mix for innovating groups. Goldsmith and Flynn illustrate this point through their studies of innovating and non-innovating women in the purchase of clothing. One of their findings was that the female innovators shopped more frequently than female non-innovators. For the fashion retailer, these findings suggest that inventories and displays must be updated regularly so that innovators are not bored by the same in-store displays.
In this debate the arguments opposed to- and in favour of market orientation for the success of radical innovation were discussed. The main problems with a market orientation are that, firstly, consumers cannot articulate their own needs for product concepts that do not exist. Secondly, firms should not allow themselves to be totally dictated to by consumer demand as they may lose control over their destiny and, finally, the application of marketing principles cannot be carried out due to the volatility of high-tech markets. The main benefits of a customer focus are that such focus induces companies to perfect the complete value package (product performance and marketing mix). Secondly, by involving the consumer throughout the product development process, problems can be discovered before launch takes place and, finally, a marketing orientation can help firms identify the innovator and early adopter categories, which play a crucial role in the diffusion process.
Furthermore, throughout this discussion the importance of a strong R & D – Marketing interface has been implicitly referred to. Shanklin and Ryans (1984) stated that a strong relationship between R & D and Marketing could lead to agreements regarding target markets, priorities, expectations and timing.
From this discussion, it can be concluded that a market orientation is useful for shaping the final product design to suit consumer needs as long as it is strongly supported by a drive for technological excellence. Consumers cannot always articulate their own needs for commodities which do not yet exist. This is to ensure that companies can obtain a more long-term and sustainable competitive advantage.
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