Updated: Jun 1
Everyone who has a marketing degree knows how important it is for brands to differentiate themselves from other brands. The reason for its importance is also straightforward, to avoid direct competition. But, take a minute to look around. Can consumers see the difference between your brands and competitors? How can the customers not know your products are healthier or more nutritious? Well, most of them don't.
Imagine you just arrived in a foreign country. And this was your first-time travelling to this country, and you wanted to buy some groceries in the supermarket to settle down in the city. This country was so far away from your home country, and you could barely notice any familiar brands. What would you do? I assume that although you didn't know the brands, you still will be able to recognise the categories. You would pick up the items you need based on the product categories and prices. The distinction that you claim your products have is not very significant.
Unfortunately, businesses tend to exaggerate the uniqueness of their products. They added new features to the products or multiplied them by offering different sizes and flavours. Sometimes, they started a price war with their major competitors, which lost the margin for both sides by tit for tat. More importantly, consumers faced different brands but very similar products.
Competition is either good or bad in some circumstances. On the one side, competition benefits consumers with lower prices and more selection of products. On the other side, competition hinders industry innovation. By innovation, I mean developing unprecedented products or even categories.
For example, Swatch launched its first product in 1983, a slim plastic watch with only 51 components that combined top quality with a highly affordable price. It first went on sale for about $40, and demand increased dramatically. Back then, the consensus in Switzerland was that low-cost production was impossible in Western Europe, and even if possible, not desirable, because it would hurt sales of high-end watches. It looked like Switch was doing everything wrong. During that time, people thought of a Switzerland made watch as a means of showing the status quo. How could it work for a company selling Switzerland made watches at an unprecedentedly low price? We all know the end of the story. Swatch has become one of the most popular watch brands for almost decades. Other successful brands such as Google, Apple, and Mini Cooper also fall into the category.
You may point out that it is the survivorship bias all over again. Admittedly, some companies were fortunate that they gambled on the right ideas. But, there is never a right idea. The critical difference between successful innovations and those that fail is how companies approach or execute innovation ideas. The new product development process does not solely involve idea generation. Here is a guide for businesses to start.
Step 1: Design thinking (Empathise – Define – Ideate – Prototype – test)
This process provides a continuous improvement environment for ideas to survive and shine. I also added risk management tools to consummate the design thinking process in my previous blog "We need critics in design thinking".
Step 2: Premortem
What factors can cause the failure of the idea? I am not suggesting being pessimistic. However, sometimes we tend to be overconfident in our innovative ideas and blind to what may not work. Having a premortem session with the team can transform possible risks into scenarios that we are fully aware of.
Step 3: Net Present Value test
After all, NPD is a business investment decision. Therefore, value creation and positive cash flow generation are critical for successful innovation. The net present value test is the most accurate and effective tool to calculate how much value the innovation project will create.
Step 4: Equity and debt management
This is the part that most people ignore. Some startups ended up in bankruptcy even though they were profitable. For example, Nike was so close to defaulting its interest payment when it grew so fast at the beginning. Finding an optimal financial structure for your business should be a priority before launching your brand.
In the end, innovation and differentiation are never easy. It’s a process that requires both strategic thinking and creative thinking.