Innovation And The Art Of Managing Customer Adoption

Finally back home from Chicago after a busy week sitting in cafe reading the Journal. I was meeting with some MaRS people today and I was really excited be able to talk to people who really understand innovation and the art-of-start-up. I think they are offering is highly valuable for start-ups as they provide market intelligence and counselling from a team of experienced, multidisciplinary professionals. They primarily provide services to technology companies at early stages of business development.

I remember the days when I was the “Strategist in Residence” for many start-ups in California and Ontario (which I helped them to raise from $250K seed money to millions), the most difficult challenge for many of them was to show how to get customer to use their innovative products.  Early adopters of innovative products are often required to significantly modify their behavior. Consider, for example, the behavioral changes required in adopting an innovative product like an iPhone of the Nintendo Wii, both were super successful in their unique ways.  There were many that never made it to the market; the most notable one was the Palm Foleo. They announced to launch a new mini PC Foleo for people to carry in additional to their notebook earlier this year. My business partner Cheesan was quick to point out after she read the news that it was a stupid idea and won’t fly. She was right. When analysts asked the question, "Who’s going to buy the Palm Foleo?" Well, the answer was: no one. Using a mini-sized PC is a big behavior change, the device was generally considered to be an intriguing "tweener" entry between a smartphone and a laptop. Palm finally decided to cancel the product and recorded a one-time charge of about $10 million. If they’d called Cheesan (photo below) , they would have saved that money for a small fees.

Customers are seldom voluntary participants in things that signify major changes for them. Usually significant benefits entice them into adopting a new product. Current practices or routines are reluctantly changed. Habits constitute a psychological equilibrium between time-tested beliefs and devices used. Change requires a cognitive effort that the innovative products must justify.  Habits are hard to overcome and sometimes go beyond simple utility. Take biodiesel car for example, Enterprise Rent-A-Car started to offer biodiesel rentals in Portland, a move that may help boost demand for the alternative fuel. This is a pilot program to introduce five biodiesel vehicles into its Portland fleet to test customer demand for the environmentally friendly rentals. I think this is a great idea and these rental should be subsidized to encourage trial and drive adoption.

These broad symbolic needs are actually not easy to identify and certainly difficult to change. The complaints I often hear about the conservatism of consumers is mainly a reflection of their ignorance of cognitive psychology. Human beings are physiologically and psychologically limited and often have difficulty handling complexity.  They resist change. Rather than pushing against the human grain, it is better to assess such resistance and adapt a product and its marketing accordingly.

Another reason for slow adoption is many technology-based products require the meeting of some preconditions that before mass adoption really occurs. One such precondition results from the fact that products become valuable when other people own and use them if compatibility is required. Economists called this “network externalities”. For many technological products, this applies. Hence, adoption is slow until a product takes off.  Momentum accelerates the pace of adoption. The rate depends on whether there are common standards being adopted or mandated by regulatory authorities.  This creates enormous pressure on first movers to disseminate hardware in order to facilitate acceptance.

Innovative technology-based products must be correctly positioned and differentiated. The newer the technology, the better the chance to achieve first mover advantages and a higher level of differentiation. Yet this also increases the chance of having a retarded market adoption. In fact the newer the idea or the more “discontinuous” the technology, the more likely for such scenario to happen.

I am posting the second part of the Innovation Playbook deck here which deals with several innovation myths and IP issues. Hope you enjoy it and have a great weekend.

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Comments

[Rory MacDonald]

I love slide 16, pure genius.

On the topic of "network externalities", I think brand has a core role to play in this.

Becoming an early adopter is a serious risk in any technology market. The end risk is not only that the product never reaches high enough saturation as to deliver its potential utility (the compatibility issue). But also, and possibly more so, that the purchaser looks like they bought a lemon.

In the consumer market, early adopters are incredibly image conscious individuals. Imagine having been caught with the Palm Foleo (oops, I reviewed it - although I wasn't that nice and suggested that its only purpose in life was as a base for hardware hackers).

Sorry to bring them up again (the "Apple Love" on this blog is getting ridiculous), but it is true, their brand is innovation that is guaranteed to be "in", you won't be left holding a Foleo.

Likewise, this is the "you don't get fired for buying Cisco/Microsoft/Oracle/SAP/IBM" argument in the B2B sector.

What we appear to have here is a tragic dichotomy. The company's with a strong and stable brand that can most successfully bring innovation to market are all to often those whose institutional structure least conducive to innovation.

OK, so in the case of Apple, BMW, Vivienne Westwood….. being the exception that proves the rule is more of a license to print money than a tragic dichotomy.

[Anthony Weisz]

I also like slide 16. This is a great way to look at the opportunty space. I am in full agreement with Rory on the idea that 'brnad' can play a big role in driving adoption. Particualy in new and emerging markets when the role of brand plays a more important role in consumer decision on new products. I can name many examples.

[Tommi Vilkamo]

About adopting innovative new products, I love the principle made by Pip Coburn:
"Users will change their habits when the pain of their current situation is greater than their perceived pain of adopting a possible solution"
http://www.coburnventures.com/About_CHANGE/The_Change_Function.html

Regarding new products that require users to change their behavior or learn something totally new, the total (perceived) pain of adoption tends to be very high. Blaming "conservative users" doesn't really make sense, as they are just acting rationally.

[Pete Colman]

Hi Idris

I'm interested to know your thoughts on how traditional corporates are responding the innovation agenda?

Is the approach of the innovation leaders (eg Apple, Google, P&G etc) being replicated elsewhere?

For example, are you seeing design thinking etc embedding itself within the mainstream corporates thus affecting their operating models and recruitment strategies or is it more of a project based approach with external agencies /consultancies bringing those skills.

[Idris]

Hi Peter,
Good question. Will respond to that later this week. That's what I want to write about next. I have been talking to many so I have a view on how tradiitonal corporations are respondong to the innovaiton agenda. Cheers.