Joseph Schumpeter coined the phrase in the 1930s. He distinguished innovation from invention: The core of an innovation is the commercial use of an invention. Hence, adding the word commercial to innovation may sound like a tautology. However, it underlines the fact that the core concept of innovation is about new ways of bringing existing products & services to the market.
GPS navigation technology was invented in the 1970s. The use of this technology in civil cars started in the late 1990s. Originally a military invention, it became an innovation for civil cars decades later.
This exemplifies the fact that many innovations are the result of existing products, or emerge almost accidentally as by-products . They go back to fundamental inventions which influenced every business sector. True inventions are rare.
Is this a paradox Though companies are striving hard to invent new products, customers complain that their needs are not taken seriously. There is a certain irony in the fact that companies constantly endeavor to invent and launch innovative business products, while customers bemoan unmet needs.
The crux of innovation is about fulfilling customer needs. Whether customers are aware of their needs or whether they are created: Commercial innovation is an approach which does not wait decades for a new invention.
It is about identifying existing customer needs and willingness to pay (WTP) in areas where existing products, services, or concepts do not fully fit to these needs. It is the opposite of bringing new products to new markets. It is essentially a fast, market-oriented approach of creating growth potential in existing markets.
Understanding commercial innovation
The term commercial innovation is currently not broadly used. Neither Marketing Science nor Google offer a widely accepted definition or approach. It is therefore understandable that misinterpretations are widespread.
Often, commercial innovations are falsely thought of as fake innovations. And, in fact, some companies are indeed guilty of faking innovations. A common marketing trick is to simply rename a product, leaving everything else unchanged, as has occurred in the past when Twix replaced Raider in the supermarkets. The same product got a new name and marketing strategists, anticipating the critical customer feedback, created an ironic story about the innovation fake.
Marketing Science has a name for such procedures: Product re-launch. There is nothing wrong with this practice per se, unless the re-launch implies to consumers that they are being handed a groundbreaking new product or a real innovation. In fact, sometimes pharmaceutical companies get suspect of such behaviour and this is sometimes linked to commercial innovation.
Although re-launches are often used to prolong product life-cycles, they dont count as commercial innovations in the strict sense of the word. A commercial innovation is a genuinely new way of bringing products to the market, although it may well be accompanied by a re-launch. But re-launches or fake innovations are not at the core of the commercial innovation concept, even if Google hits may lead one to believe otherwise.
How to implement commercial innovation
It is evident that commercial innovation is a far cry from fake innovation. The following recommendations can be given to companies that are considering the active pursuit of commercial innovation:
- If a commercial innovation initiative is planned, keep the idea secret. Commercial innovation is like peeling an onion, from the marketability to the core of the product benefits. This will have an effect on the whole organization.
- Designate a separate task force to work on these ideas. They should report to a level above the current market organization. Existing managers may perceive the new ideas as disruptive and try to sabotage them.
- Shift R&D budget to the commercial innovation task force. If you see this initiative as a low-budget task for some intern, youll hardly get results that justify being called innovations.
- Just Do It! If you dont show the initiative, some competitor, channel partner or a new entrant may turn the logic of your business model around. With an existing product or service. But in another company.
Imagine you still own a video rental shop in an age where people rent movies at home over the internet – you will lose 80% of your customers. Unless you change.
Dr. Michael Scholl is managing director at Homburg & Partner