Innovations may be looked at from various perspectives. The following classification presents the perspectives of the customer and the target market.
Innovation from Customer’s Perspective
Innovation can be of 3 types, on the basis of extent of change they cause in consumer’s existing habits. – Discontinuous innovations, Dynamically continuous innovations and Continuous innovations. The classification of an innovation along the above lines is done on the basis of the extent to which the innovation causes change in existing customer habits.
Therefore, the type of innovation depends on the type of customer towards which it is aimed at. The same innovation may be continuous for one segment of customers and dynamically continuous for another. The discontinuous innovation causes a drastic change in customers’ existing habits.
Types of Innovations
Discontinuous innovations by their very nature are discontinuous to every customer segment, since they comprise new-to-the-world products only. These new products are so fundamentally different from products that already exist that they reshape markets and competition. For instance, mobile phone technology and the Internet drastically changed the way people communicate.
Continuous innovation is the other extreme where an existing product undergoes marginal changes, without altering customer habits. Sometimes the customer may not even perceive these products to be new though the company may invested a lot of money to improve its existing products. For instance, a shampoo which is different from existing products only in its brand name, fragrance, color, packaging is also a new product, though it is a continuous innovation.
The continuous innovation should be above the perceptual threshold of the customer i.e. there should be a ‘Just Noticeable Difference’ (jnd) between the continuous innovation and the existing options for the customer to perceive this innovation as an improvement. Put simply, the customer should find the new product different from the existing options that he is aware of.
Dynamically continuous innovation falls between the discontinuous and continuous innovation. The changes in customer habits caused by such an innovation are not as large as in a discontinuous innovation, and not as negligible as in a continuous innovation. The progression from a manual to an electronic typewriter, and the advent of cable and satellite television are examples.
Innovation from Company’s Perspective
A company may define an innovation differently based on what the company tries to achieve from the new product.
Product Replacements include revisions and adjustments of existing products, repositioning and cost reductions. For instance, Tata Motors limited, an Indian automobile manufacturer improved its first offering Indica and relaunched it after receiving customer complaints.
Addition to Existing Lines, for instance, addition of new brands, new technologies (for instance, Pentium IV processor, an improvement over Pentium Ill, or Mach Ill over Mach II by Gillette), new varieties of flavors, fragrances, SKUs (size of the product, for instance, a 100 gm toothpaste along with the existing 250 gm tubes), product forms (for instance, liquid soaps in addition to bars) etc.
New Product Lines: when the company moves to new product lines that hitherto did not exist in their portfolio. It widens the company’s product mix. For instance, LG, the Korean electronics company is now manufacturing soaps and shampoos in the Chinese market, besides being a major player in the consumer electronics market. Another Korean company Daewoo (acquired by GM), which manufactured cars, is now moving into consumer electronics.
New-to-the-world Products are those products that create entirely new markets. These products carry the highest risk since it is difficult to predict customers’ reaction. Marketing research will be unreliable in predicting demand as people do not really understand the full benefits of the products until they get a chance to experience them. It may take time for the products to be accepted.
But if and when these products ore accepted, the company’s gains are huge. Successful new-to-the-world products are pure technological innovations which serve a very strong latent need. There was always the need for for mobile connectivity but a simple marketing research exercise would not have revealed this need as customers believed that this need could not be met. How many times have we been stuck in traffic jams wanting to contact our people at home but still did not curse technologists or marketers for not providing us mobile connectivity.
The idea of mobile connectivity did not cross our minds because we believed that it was in realms of infeasibility. But as soon as the relevant technology come forth to enable the mobile connectivity, customers lapped it up. Probably, the diffusion of mobile connectivity among customers across the world has been faster than that of any other technology. Successful new-to-the-world products are the concurrence of strong latent needs and emergence of on enabling technology.
However, it is clear that the classification of innovation from a firm’s perspective can also be included in the earlier classification of discontinuous, dynamically continuous and continuous innovations. For instance, new-to-the-world products are discontinuous innovations, while product replacements are continuous innovations. Firms need to understand that continuous innovations such as adding a brand variant to an existing product line lack significant risk, but offers less significant returns, while discontinuous innovations are extremely risky, but if successful, returns could be huge.