An Edge on the Market

At Merck KGaA, Darmstadt, Germany, our Curiosity initiative is investigating the relationship between curiosity and innovation. To date, the research phase has included a literature review, collaboration with experts, and implementation of surveys.

In addition, earlier in 2016 we connected with senior professionals in Germany and China who work in research and development, innovation, and new product development. The theme of customer-driven innovation arose frequently in these discussions, so we decided to take a closer look at it.

Some businesses are innovative almost by nature – for instance, China’s web services leader Baidu, sometimes referred to as “the Google of China,” or the German technology giant Schaeffler Gruppe, which registers more than 2,000 patents every year. For others, a desire to get an edge on the market or to expand may nudge innovative thinking into life.

Curiosity about the market and what hasn’t yet been tried may further lead to game-changing innovation and new or improved products and services.

As a German focus group member told us, „I would say that in 99.5% of the cases, market-oriented aspects are decisive factors for innovation today.”

In addition, a growing number of businesses are practicing customer-driven innovation, which directly responds to customers’ wants and needs (and in some cases anticipates them), or solves a particular customer challenge or problem.

In the general sense, “customer-driven“ innovation takes the real-world desires and needs of consumers into account when developing new products or services.

According to a 2011 study on customer co-innovation conducted by German scholars led by Frank Piller, professor of technology and innovation management at the Business School of RWTH Aachen University, customers may play different roles in the innovation process. Some provide clues about future trends and possible solutions, while others evaluate innovative ideas or weigh in on how to refine an early model or prototype.

Piller and his team identified three modes of producing and using customer information in new product development:

1. Listening into the customer domain. Businesses use customer information from channels, including sales data, internet log files, and third-party research reports.

This data is combined and studied with other information, such as performance reviews of existing products or services (including that of competitors), and informs designs and modifications on behalf of the consumer. (Read about how pioneering French global tech company Itron sifted through customer data to help identify and prioritize repair activity for water treatment systems.)

2. Asking customers. Early in the process, customers are invited to share their input, relating their preferences or unmet needs via surveys, interviews, or focus groups. Prof. Piller and team note an “advanced and proven method” that combines several survey and evaluation methods into a single, coherent whole.

In the later stages of the process, design solutions or ideas are presented to “pilot customers” or “beta users” for their reactions and insights. In addition, the systematic analysis of feedback or complaints from existing customers provides important input for the innovation process.

3. Building with customers. Businesses invite customers to participate in the actual design or development of a product or service, often with tools provided by the company. Customers are empowered to design their own solutions via idea contests, consumer opinion platforms, toolkits for user innovation, mass customization toolkits, and communities for customer co-creation.

For instance, on American computer tech company Dell’s Ideastorm website, an online community allows customers to share their ideas. Site participants vote on ideas, with the most popular receiving the highest scores. This lets Dell see what’s most important to their customers. Dell has realized 500 ideas from Ideastorm to date.

A potential fourth mode of connection is worth noting: independent, customer-led innovation, where consumers make creative use of existing products to solve problems for which there is yet no market-ready option. Among the most verbal and visible is the DIY Artificial Pancreas Movement, whose activities have prompted the U.S. Food and Drug Administration to work with the industry toward an expedited, safety tested solution.

Methods of gathering customer wants and needs was discussed in our focus groups in China. As one participant explained:

“We have two steps. First, we invite our customers to spell out their goals for us. Sometimes customers speak in vague terms about the goal or set their goals too high to reach. We have all of our team members attend so they can understand what our customers want, what is currently beyond our capability, or what might be ineffective for the current situation. Second, we immediately offer some ideas for the customer to consider. If they agree with them, we’d have them recorded.”

Anticipating customer needs – or responding appropriately to help resolve a consumer problem – requires two things: a willingness to take risks and an understanding of the consumer that goes beyond simple demographics. 

According to George S. Yip, professor of Strategy at the China Europe International Business School in Shanghai and co-author with Bruce McKern of China’s Next Strategic Advantage: From Imitation to Innovation, businesses in China are learning to meet the specific demands of their growing middle class after a period of simply copying Western products.

“The Chinese aren’t afraid of making mistakes and their willingness to take risks is what’s driving many new initiatives,” Professor Yip explained.

In describing how companies in China are making an impact with innovative products geared toward the local customer, he points to a dual screen television developed by appliance manufacturer TCL Corporation that allows two people to watch different shows full screen on the same TV. Professor Yip says that getting this unique television right required a significant trial-and-error period.

“Making products that are ‘good enough,’ but not sophisticated, has long been the approach across most Chinese manufacturers. However, Chinese consumers understand this trial and error approach to innovation and are more forgiving of failures than customers in the West,” he says.

Companies pouring resources into ways to learn more about their customers in order to drive business would be wise to remember that it is not a one-way street. With the growing number of devices, platforms, and even ways of interacting and searching, customers have unprecedented access to unfiltered information about companies and their products and services. They have the ultimate decision-making power – or as the China focus group participant put it, “Clients are the god. It’s the undeniable fact.”

Find the full report here.