When To Believe Promises of Innovation

You can find wisdom in the old mechanic’s saying: “You can have it quick, cheap, or good. Pick two out of three.”

A company’s innovation will only result in success—be it a small-business owner opening a new restaurant or an international conglomerate spending millions and millions on a new product launch—if it can deliver something to the consumer better, faster, or cheaper than the prevailing status quo.

I used this framework when I analyzed Anheuser-Busch Inbev’s roll-out of Lime-A-Rita several years ago.

When the product entered the marketplace a few years ago, a friend asked me: “So, should I buy Anheuser-Busch stock now?”

Instead of answering that question, I broadly discussed the likely effect of this product launch.

First, Lime-A-Rita would not improve the customer’s access to beer (this wasn’t a home delivery service innovation). Second, it wasn’t any going to cost less than its main competitors. And third, taste tests indicated that customers were largely indifferent to it. Only 8% “loved it”, and among those that loved it, less than a tenth indicated that they would purchase it on a monthly basis. And usually, participants in market research overstate their future commitment to a product line, so these anemic results would need to be discounted even more.

Essentially, the brand would only exist to the extent that it was marketed. Such marketing efforts come with a tight lid on future potential because advertising can only result in significant sales growth when it brings a product or service that satisfies part of the above criteria to the attention of the customer. Otherwise, the efforts will result in the minimal amount of sales that you get just by occupying shelf space, and the product launch does not convert into the creation of a sustainable product.

If you are a business owner, and you are trying to figure out what to hatch a plan for the next few years: (1) Determine whether speed, quality, or cost is your strength, and then (2) examine options that can notably improve in one of those three areas. If you are an investor, and the investee is trying to convince you that the next year is going to be great and all these new things will be happening, inquire into whether the purchaser of the product or service will be getting it faster, better, or of higher quality.

When a new product line, or modification to an existing product line, does not fill one of these three criteria, it will be difficult to find success. People’s routine decisions are the result of habits previously formed–the same things often get purchased again and again. How do you disrupt that? By clearly offering a cheaper, faster, or better option. The success of any innovation attempt relies on whether any of these ends are better served.

Originally posted 2017-12-03 01:20:24.

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