Competing through Innovation

Prof. Ricardo Godinho Bilro (Ph.D.)

DMOGG - IBS

2024/2025

INNOVATIONS

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 Innovations

Self-driving cars . . . 3-D printing . . . the Internet of Things . . . the Apple

Watch . . . legal marijuana . . . plants that glow in the dark to replace street
lights . . . up-market office supplies for addicts . . . printable make-up
. . . mobile light switches for the home . . . a vegan condom . . . a vacuum
cleaner that uses ultraviolet rays to kill bacteria in carpets . . . light-producing
walls to replace light bulbs . . . sensors in floors to measure gait and diagnose
health problems . . . health spas for 5-year-olds . . . printable electronics to
produce Harry Potter-style live newspapers . . .

The world is full of novelties and new products

Prof. Ricardo Godinho Bilro (Ph.D.) 3

Developing an Innovative Offering

is Critical for Many Firms

• GE is pursuing 100 “imagination breakthrough” projects to drive

growth
• “Innovation is the only way that Microsoft can keep customers
happy and competition apart” (Ballmer)
• Today, innovation is the number one strategic priority at 40% of
companies versus 19% in 2005 (BCG)
• 86% of senior managers believe that “innovation is more
important than cost reduction for long-term success” (Bain)

However: short-term business pressures often undermines

innovation
• CEOs want returns from marketing in 6-12 months
• Resources taken from long-term initiatives to hit short-term
targets
• Accounting practices for market-based assets impact decisions
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 Innovation Offering

• Innovative new offerings help firms build and maintain

competitive advantage and barriers to the competitive
attacks that arise because competitors continually react
to a firm’s success

• Offering is a purposely broad term that captures both

tangible products and intangible services provided by
firms

• Most offerings must be augmented by and linked to

brands and relationships to ensure the firm’s competitive
advantage, because it generally is relatively easy for
competitors to copy offerings, given enough time and
money

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Example: Dell

• Dell operates in a technology space, but perhaps its most

compelling innovation has been the ordering and logistics
processes that it introduced in the market

• Building-to-order “semi-custom” computer products and selling

them directly to consumers online was radical when it first
appeared

• Dell’s competitive advantage did not depend on its design or

manufacturing competencies; Dell even outsourced the
manufacturing. Rather, the competitive advantage came from
an offering in which it built computers to order, sold them
online, and significantly cut costs by avoiding the
expenditures associated with maintaining storefronts
and inventory or suffering obsoletion costs

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 What Is Innovation?

• Innovation is the “creation of substantial new value

for customers and the firm by creatively changing
one or more dimensions of the business”

• Key Aspects of Innovation

• Broader than product or technology innovation
• Must generate new value for customer and
seller
• Involves change leading to differentiation and
competitive advantage

How did Starbucks, Dell, and IPod create value and

competitive advantage?

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Benefits of Innovation and Offering’s Equity

By building offering equity, an innovative firm can make it more difficult for competitors to conquer
its business.

Offering equity refers to the core value that the performance of the product or service offers the
customer, absent any brand or relationship equity effects.

New offerings often motivate customers to switch from competitors to the innovative firm, to gain
access to the new product.

New offerings also can help the firm acquire new customers or enter new markets when they offer
similar performance but at a lower price.

Offering new and innovative products tends to enrich the brand, even if customers do not buy the
new offering.

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 Garmin: From GPS Pioneer to Diversified Tech Leader

Garmin initially focused on GPS devices for aviation and marine sectors. They have expanded
into automotive GPS navigation, becoming a market leader with products like the Nüvi series.

Around 2010s, they have faced challenges as smartphones with GPS capabilities disrupted the
personal navigation device market.

Diversification Strategy:
• Wearable Technology: Entered the fitness wearables market, catering to athletes and
health-conscious consumers.
• Outdoor Recreation: Developed rugged handheld GPS devices, appealing to hikers, cyclists,
and outdoor enthusiasts.

Recent Developments: Garmin introduced the Lily 2 Active watch (2024), featuring built-in
GPS and enhanced sports-oriented functionalities; Launched Garmin Connect Plus (2025), a
premium app tier offering AI-powered insights and personalized health data.

Financial Performance: 23% year-over-year revenue increase in 2024 to $1.82 billion in Q4

(with significant growth in fitness and outdoor). Projects revenues of $6.8 billion for 2025.

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Many Aspects of the Offering Can be

Innovated

There are many different ways a firm can innovate; it helps define the
innovation space according to what, who, how, and where aspects:

• Change what the firm offers, in line with a traditional view of

new product or service innovation
• Changing who the customer is represents another route that
involves innovations related to customers, experiences, and value
capture
• Changing how you sell to customers pertains to the processes,
organizations, and supply chains that a firm uses
• Changing where to sell to customers comprises presence,
networking, and brand innovations

Innovation Radar
Captures many different ways a firm can innovate; helps define the
innovation space according to what, who, how, and where
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 Innovation Radar
Changing Brand
where to sell Offering Changing
Leverage Develop what the firm
to customers
the brand new offers
Networking into new products or Platform
markets services Use
Interconnectio
interchangeabl
ns as a strength
e designs

Presence Solutions
Change where Provide a total
products are sold solution

Organization Value capture

Change firm Change how
structure customers pay

Experience
Supply chain Change Changing
Change supply customer who the
Changing Customer
chain Processes interactions customer is
how to sell Change
to customers Change
operating customers
processes to target

Adapted from Sawhney, M., Wolcott, R.C., & Arroniz, I. (2006),

“The 12 Different Ways for Companies to Innovate,” MIT Sloan
Management Review, Vol. 47 (3), p. 75.
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Starbucks

Offering
Brand
(WHAT) Platform

Networking Solution

Presence Customers
(WHERE) (WHO)

Supply Chain Customer Experience

Organization Value Capture

Process
(HOW)

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 Walmart

Offering
(WHAT)
Brand Platform

Networking Solution

Presence Customers
(WHERE) (WHO)

Supply Chain Customer Experience

Organization Value Capture

Process
(HOW)

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Innovation Radar

1. Offering: Develop new products or new services (Apple IPOD)

2. Platform: Design modular platforms and strategic control points (Amazon)
3. Solution: Solve end-to-end customer problems (John Deere)
4. Customer: Discover unmet customer needs or underserved segments (Johnson & Johnson
Covid vacine)
5. Experience: Rethink how customers interface with you (IKEA)
6. Value Capture: Redefine how you get paid (Google)
7. Processes: Innovate in your core operating processes (Progressive Insurance Company)
8. Organization: Change form, function or scope (IBM)
9. Supply chain: Rethink sources (Dell)
10. Presence: Innovative points of presences (Starbucks at airport)
11. Networking: Integrated offering, leverage others (Otis elevator, Siemens)
12. Brand: Leverage the brand into new domains (Virgin, Uber)

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 Innovation Radar Exercise: Take a Few Minutes
and Develop Innovative Ideas
Group exercise

Think of ways to innovate using the Innovation Radar.

Apply it using one of the below companies:

• Your mobile company service provider

• Portuguese Pingo Doce food retailer
• Microsoft
• British Airways
• El Corte Inglês
• CTT (Correios de Portugal / National Post Office)

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INNOVATION STRATEGIES AND

OFFERING

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 Innovation Strategies and Offering

Marketing contributes to and defines Innovation Strategies and Offering in distinct ways:

1. By helping the firm to develop innovative offerings, collecting customers inputs and
forecasting customers and market trends (so that the firm can understand the trade-offs
among potential product attributes)
2. As the responsible for launching the new offering to customers to generate sales with
acceptable profit levels

Many good products fail to achieve their financial goals due to poor product launches.

Extensive efforts go into testing and understanding the factors that will influence whether
customers adopt a new offering and increase the likelihood of a successful launch.

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Stage-Gate Process

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 Developing Innovative Offerings

Most companies rely on a Stage-Gate development

Process to increase the speed of their offering
development and enhance their likelihood of success, while
also reducing development costs.

A stage-gate model divides the development process into a

series of steps or stages.

Each project gets evaluated, on multiple dimensions, by

independent evaluators in each stage.

This method helps ensure effective development

approaches throughout distinct phases.

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Stage-Gate Process

The concept was introduced by Robert G. Cooper in the 1960’s.

Stage-Gate is a value-creating business process that, when applied effectively,

drives the development and launch of a steady stream of successful new
products.

It is considered the ‘industry standard’ and is the world’s most widely

benchmarked, referenced and implemented innovation management model.

Its adoption across numerous industries and by companies of all sizes has
resulted in one of the world’s largest product innovation knowledge tool.

It comprises phases (with inputs and outputs specified beforehand) named

gates, in which the gatekeepers decide about the continuation of the process.

Activities are standardized and the indicators of the process performance

significantly improved.

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 Stage-Gate Process as an evaluation tool

The Stage-Gate Process should be an Operational, Realistic and Differentiating tool.

Can help: to divest from projects that tend to underperform, as quickly as possible

Should help: to prioritize projects, to support the portfolio management

Must help: to manage Strategic buckets (resources allocation for the different strategic goals)

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Stage-Gate Process: Project feasibility

The stage-gate process divides the innovation process into five stages with gates, in which
evaluators decide if to continue or kill the project.

Each phase has its cost, duration and probability of success. Usually only the last stage
generate profits.

To justify the project development cost, we should prove at the very beginning its feasibility.
Traditionally we have to show that the project net present value is greater than zero, i.e., that
the whole project, taking into account the time value of the money, will generate profit.

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 Stage-Gate Process

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Innovation Example

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 Innovation Example: Pfizer’s Viagra

Viagra is now one of the most recognised brands in

the world.

It’s a social icon with revenues of tens of billions

USD$ since its debut in 1998.

The product have transformed Pfizer from a

medium-size pharmaceutical firm into the world’s
leader.

It is true that was something of an accidental

discovery. Scientists were testing as angine drug
when discover a side effect.

Viagra was almost dismissed during clinical trials as (Statista, 2024)

it was clinically interesting, but not financially * 2017 Pfizer launch the ED generic Sildenafil
** In 2018, Pfizer lost the patente protection
significant.

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The Journey and the Challenge

Many stories emmerged during time concerning the launch of Pfizer’s Viagra.

One the most common is that Viagra was the result of luck.

In fact, Viagra was the result of a long 13-year journey from laboratory to the marketplace.

Some of the key challenges faced by Pfizer during this journey:

Project evaluation The available market research evidence suggests a small

considerations: market for the product.

Erectile Dysfunction (ED) appear as an unpopular topic that

Product launch
was almost impossible to advertise or refer to it without
considerations:
alienating the consumers the company wants to reach.

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 Product and market evaluation

Following sucessful clinical trials, Pfizer obtained patent protection and they should decide whether to proceed with an
huge investment and advance to the market.

But many uncertains remain:

• What is the size of the market? (surveys indicate at the time that 1 in 20 million men suffer from ED)

• Could the market be larger?

• Can Pfizer make the market larger?

• The market is not developed; can it be developed? and how?

• It is a growing market?

• Is there an existing consumer base (i.e., actual buyers?)

• Is the market potential large enough to justify the investment?

• Does it support Pfizer short term and long-term strategy and business model?

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From angina to Viagra

It took 13 years (1985-1998) to bring

Viagra from concept to production.

Clinical researchers started by trying to

understand the side effect process.

Marketing researchers started by trying

to understand the market (size,
consumers profile, willingness to
purchase).

It is estimated that Pfizer spent around

£600 millions developing this drug.

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 Conclusion

By all measures, this product has been an universal

sucess for Pfizer, transforming the company from a mid-
size to one of the world’s leading pharmaceutical
companies.

The actual market for this type of drug is now know to

be far greater than the original market research data
had revealed.

Global ED drugs market is expected to generate revenue

of around USD 7,10 billion by end of 2024.

This exemple represents the need to sometimes

encourage innovation and to support scientific freedom
in the face of evidence to stop the project.

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REPOSITIONING STRATEGIES

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 Repositioning Strategies

An innovative offering can result from dramatically

repositioning an existing offering, such as removing some
features or adding others, so that the total offering appeals to
a different customer segment with a “new” value proposition.

The advantage of this strategy is that it generally does not

require a new technology or invention, and marketers thus
can take the lead in these efforts.

Red Ocean markets – Named to reflect the metaphor of

blood in the water (very competitive and populated by
“sharks” fighting over the same customers).

To pursue more disruptive repositioning strategies, firms can

seek to find their Blue Ocean markets, a metaphor
reflecting the blue of the deep ocean waters that are far from
land.

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Red vs. Blue Ocean Innovation

Approach

• The classic STP focuses on red ocean strategies and

incremental innovation
• Known market space, competitive rules, and industry
boundaries (lifecycle mindset)
• Product mature and become commodities
• Can be managed, tested, and analyzed

• Disruptive positioning focuses on the blue ocean

• Market space does not exist (unknown boundaries)
• Demand is created rather than disputed (often no
direct competition)
• Hard to test, often requires intuition, high risk

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 Example: Cirque du Soleil

• Cirque du Soleil removed two familiar features associated

with traditional circuses: large animals (e.g., elephants,
lions) and big-name stars.

• Then, they added theater-like productions, each with a

different theme and original music.

• Cirque du Soleil raised prices and redefined their target

market. Rather than children and families, it sought to
appeal to adults, couples, and business clientele.

• In sum, Cirque du Soleil removed substantial cost from

the innovative offering, added new and unexpected
features, and developed a new target market.

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Strategies based on Innovation

A technological innovation can undermine a firm’s leadership position in a market,

even if that firm is doing their business properly.

To describe the process and ultimate outcomes of innovative technologies, we can

highlight two main categories of these innovation technologies:

•Sustaining technologies are well understood and typically exploited by market

leaders, which produce continuous, incremental improvements over time.

•Disruptive technologies, accordingly, offers relevant different pricing and/or

distinct performance characteristics and/or distinct value propositions.

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Sustaining Versus Disruptive

Technological Innovation
Companies doing everything well can lose their leadership position due
to failing to manage disruptive innovations.
(e.g., Kodak, BlockBuster)

Sustaining technologies improve performance of established

products along dimensions valued by mainstream customers in major
markets:
• Products often go beyond customer needs
• Processes usually support incremental product improvements (lower
risk)

Disruptive technologies usually result in ‘less’ product

performance (at least in the short term):
• Brings to market a different value proposition than available
previously
• Underperforms established products in mainstream markets
• Typically, cheaper, simpler, smaller, or more convenient to use

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Sustaining Versus Disrupting Technical Innovations

Disruptive technology
With its very different Sustaining technology
price and performance This well-understood
characteristics this technology will lead to
technology often improves continuous, incremental
Performance Features

very quickly. improvements over time.

Incremental
enhancement High-End Customers

Incremental
enhancement
Low-End Customers

Time

Adapted from Christensen, C.M. (1997), The Innovator's Dilemma:

When New Technologies Cause Great Firms to Fail. (Boston, Mass.:
Harvard Business School Press)
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 Why do Market Leaders Fall into This Trap?

Companies find it difficult to invest in disruptive innovations: lower-margin opportunities they believe their
customers are nor interessed

Revenue growth goals leads companies toward larger markets

Markets for disruptive innovations are hard to be quantified, which biases marketers' decision making

Competition results in oversupplying performance relative to what customers desire

Solution: set up autonomous units inside the organization tasked with building an independent business around
disruptive innovations (e.g., Google; Apple)

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LAUNCHING AND DIFFUSING

INNOVATION STRATEGIES

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 75% of Products
Launched End Up Failing
to Reach the Goals
• Failure to provide large enough perceived benefit
(poor development)

• No differential advantage (BenGay Aspirin)

• Price versus performance (Apple Newton)

• Poor product launch (slow diffusion)

• Poor targeting of new product (Earring Ken)

• Poor positioning of new product (Breakfast Mates,

with warm milk and spoon)

• Competitive response (Betamax v.s. VHS)

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Example:
Kellogg’s Breakfast Mates

• Kellogs have launched Breakfast Mates – a single

serving of breakfast cereal, a spoon, and a serving
of pasteurized milk that did not require refrigeration.

• Kellogg’s positioned the innovation as a solution for

harried parents who wanted to give their children
breakfast in the morning but were often rushing out
the door to make it to school on time.

• Positioning was ineffective, because Kellogg’s failed

to realize that parents hated the idea of giving their
children a product that would enable them to spill
milk all over the back seat of the car.

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 Consumers Psychology
Adoption Behaviour

• Social proof: looking at others is a way we determine what

to do (testimonials)
• More people → larger belief it is correct
• More similar people → larger impact on behaviour

• Authority: we have a deep sense of respect for authority and

status (e.g., celebrity endorsement; influencer marketing)

• Scarcity: things seem more valuable when their availability

is limited

• Prospect theory: describes person’s perceived value for an

objective gain or lost

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Launching and Diffusing Innovative Offerings

To explain new offerings’ diffusion rates, it can be informative to classify

consumers into groups, according to their propensity to adopt new products
and which persuasive arguments will prompt them to adopt

The adoption lifecycle of an innovative offering suggests five groups of

potential users:

• Innovators are the first to adopt, often before the new offering even is
officially launched
• Early adopters see the benefits of the new technology and are willing to
adopt it after just a few references
• The early majority consists of much more pragmatic consumers, who need
to be convinced that the new product really works
• Both of the last two groups, late majority and laggards, also want more
evidence, and they are especially hard to persuade

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 Crossing the Adoption Lifecycle Gap

Crossing the Gap:

New product launches
will fail if the firm has
not prepared to sell to
early majority
customers by the time it
runs out of early
adopters.

Early Majority
Early Adopters Crossing Late Majority
Categories of Innovators More Laggards
Perceive the the Demands even
Product First to adopt pragmatic, Need the most
benefits of the Gap more evidence
Adopters a new offering; such that they evidence to persuade
new technology between of the
actively seek must be
and are willing early product’s
new convinced that
to buy with just adopters functionality
technologies the new
a few and early and are harder
product really
references majority to persuade
works

Adapted from Moore, G.A. (2006), Crossing the Chasm: Marketing

and Selling Disruptive Products to Mainstream Customers, 1st rev.
ed., (New York: Collins Business Essentials)

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Why companies fail to ‘Cross The Gap’?

Companies failing to ‘Cross the Gap’ is a common barrier to successful

innovations.

Companies take on their hands more innovations than they can handle (i.e., they
cannot take on more custom projects, but no pragmatism is putted into practice)

Early market becomes saturated, and revenue growth stop or declines:

• Key employees become disappointed
• Financial support starts to disappear from the project and moving to a
different/new/more appealing project

Marketing strategies that lead to success in selling to innovators and early adopters
are being used to other type of adopters (i.e., the initial marketing strategies success
is obstructing the continued adoption success)

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 Product-Based Factors that Influence Innovation
Diffusion

A long stream of research, starting with Everett Rogers (1962), shows that product-
specific factors can capture 40% to 80% of the variation in the speed at which
offerings are diffused.

Changing each of the following five factors can change the rate of product diffusion
(all else being equal):

1. Relative advantage
2. Compatibility
3. Complexity
4. Testability
5. Observable

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40% to 80% of the Variance in the Rate of Adoption

is Explained by 5 Factors

1. Relative Advantage: degree to which an offering is

perceived as being better than the ideas it replaces
• Economic (cost, price);
• Status, prestige, etc;
• Necessary but not sufficient (e.g., new keyboard type);

2. Compatibility: degree to which an offering is perceived as

consistent with existing values and experiences
• Often need to break habits, perceptions, and beliefs (e.g.,
plastic wine corks);

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40% to 80% of the Variance in the Rate of Adoption

is Explained by 5 Factors

3. Complexity: degree to which an offering is

perceived as relatively difficult to understand/use
• Educate the consumer is sometimes needed (e.g., online banking; e-
commerce);

4. Testability: degree to which an offering may be

experienced on a limited basis
• Free samples, demo versions, test drive (very relevant for high-cost
products, or risky products);

5. Observable: degree to which the results of a

product adoption are visible to others
• Very relevant for status products

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STP Strategies Should be Adaptative

Segmenting and Targeting Strategies

• Focus on vertical markets, intra-segment communication, large relative advantage
• Find new markets for disruptive innovations
• Target compacted market segment of ideal target customers for a new product
• Select segments where the 5 factors are better

Positioning Strategies
• Make offering compatible to existing offering
• Simplicity (and/or education) is a key relevant part of adoption
• Offer free samples, warranties and trial periods
• Enhance visibility of users (using testimonials or others)

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 Being first is not a guarantee of life-longing success

What company
Quotations from Business Publications and Newspapers
in early 2000’s
is this?

“The largest mobile phone company in terms of

volume, sales, market share and profit,…”

“[#firm] dominated the smartphone market, mainly

due to the [#name] operating system, and
with the introduction of the [#model] in the market”

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Being first is not a guarantee of life-longing success

65-year of historical studies on impact of market entry have

shown that:

• Failure rate of pioneers is around 47%

• Pioneers are ultimate leaders in only 11% of categories (after
10 years)

First mover advantage is outperformed by followers who are

better: Best beats first.

Companies need to be pioneers and also have the basis for

sustainable competitive advantage.

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 Steps to Building Offering Value
Building offering value involves three main steps:

1. The firm must develop an offering or offering portfolio that provides customers with the
largest relative advantage among all competitors in the market

2. Offering value requires a company/brand to segment, target, and position the new
offering in a way that takes into account people (i.e., customers, users, etc.)

3. Companies need to manage the customer migrations from innovators and early adopters to
the early majority stages

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Innovation and Creativity in Marketing

Prof. Ricardo Godinho Bilro (Ph.D.)

DMOGG - IBS

2024/2025

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