In today’s retail and wholesale markets, differentiating ourselves is a major challenge. The big box stores look alike and feel alike. The same can be said for the small-time merchants. They are filled with new and innovative products; some are beautifully designed. But new products or old, they have the same problem: commoditization and squeezed margins. Commoditization refers to products being sold for what they cost rather than for what their value to their end-user is.
No sooner than a new innovative product comes out, we find many copycat products follow in just a few months if not a few weeks. This is because in our Internet-connected “global village” this knowledge, information and technology are widely and speedily distributed. Manufacturing and business process knowledge spreads through an industry almost instantly. Reverse engineered and copycat products are often better than the original innovation. It’s hard to charge a premium for “new” or “improved” when today’s savvy consumers know if they wait just a little while they will have something similar or better and possibly cheaper. It appears new product offerings are doubling every two years!
Yet product focused companies are caught in a commodity trap. What we need to understand as merchants is that our opportunity to increase our margins comes from “service innovation”. The service sector as compared to the manufacturing sector comprises more than 80% of today’s GDP (our nation’s Gross Domestic Product). It’s no longer the product but the way the consumer experiences the product that drives the market. The race to sustain profits and expand margins will be won by those retailers who can attract the most user support and offer the best experiences for their customers; wholesalers or retailers who solely focus on the cool handsomely designed new products are going to lose.
The “Customer-Adventure-Cycle” is a model that maps the complete set of experiences that a user goes through with any product from beginning to end. It examines the quality of the experience at each step of the cycle. By quality we mean the emotions of frustration and discovery, the hopes and fears, perceptions of simplicity and complexity, confidence and avoidance, as well as every other emotion that is usually encountered.
The Customer-Adventure-Cycle begins with a problem or desire, often an unarticulated or unintelligible gut level urge. Next comes awareness followed by potential solutions in the form of product, people or both. The next step is expansion (also known as divergence) and exploration of the possibilities, which is followed by evaluation (also known as convergence) and assessment of the most emotionally appealing solutions. Next steps could be: decision-making, transportation of the purchase, unpacking, installing or implementing, initial learning, becoming an expert user, new need discovery, dissatisfaction, abandonment, disposal and finally the start of a new cycle.
Looking at the client or purchaser in light of the Customer-Adventure-Cycle sets the foundation for service innovation. Important insights become apparent in ways, that compared to past methods of looking at the customer, were simply not conceivable. Deep insight to the unexpressed gut level desires of the user is where true innovation begins. We call it Innovation GoLD (G=gut, L=level, D=desires). These insights are made not just by senior management or the marketing department but by employees at all levels of the company, by partners and suppliers, outside-of-industry advisors, and most importantly by listening to the users. The analogy of many blind men feeling different parts of the elephant applies here. Useful innovation is a result of developing deep insights… which can be generated by ordinary and average people who have been taught to express their observations of the obvious. Innovative companies are able to systematically gather this intelligence. To do so a firm must create a happy, fun protected space, a “zone” where ideas can bubble up, percolate around, get recorded and classified, then receive a fair and appreciative hearing.
SUGGESTED INNOVATION EXERCISE: Map out your best-selling, most-profitable product. Use the Customer-Adventure-Cycle model in as much detail as you can manage paying particular attention to the emotional components. Now go visit an IKEA store, an Apple Store, and two or three other retailers outside of your industry that you admire. Pay particular attention to how they create personalized customer experiences. Innovation is about altering the conditions in a user’s life and creating possibilities that they never dreamed of before. Innovators are always in the process of building new dreams. Map out what you think their models are – - it doesn’t matter what they really are; what matters is what you observe. Now compare these models to yours. Write down in as much detail as you can your critical insights. You’re beginning to build a service innovation model.