#Module Innovation Marketing en

Bring in the voice of the customer,
understand what your customer wants

are now common sense. How though to
find out what your customer wants when
there is no customer yet, which is the
case
in
highly
entrepreneurial
innovative cases?
Marketing
Innovation
The Innovation Challenge
Michael Ehret
Kostas Galanakis
and
Table of Contents
Table of Figures _____________________________ iv
Table of Tables ______________________________ vi
Summary __________________________________ 2
1
Introduction: Marketing-Innovation Challenge __ 3

1.1
Marketing and Innovation ______________________________________________ 4
1.2
Module Objectives ____________________________________________________ 6
Marketing Creating and Capturing Customer
Perceived Value _____________________________ 7

2.1
Market-based strategy: Using Marketing in the strategy process _____________ 13
2.2
Marketing Strategy and the Marketing Mix ______________________________ 18
2.2.1
Marketing analysis _________________________________________________________ 19
2.2.2
Marketing Planning ________________________________________________________ 20
2.2.3
Marketing Implementation __________________________________________________ 22
2.2.4
Marketing Control _________________________________________________________ 31
2.3
Marketing Instruments _______________________________________________ 32
2.3.1
Product Customer Solution _________________________________________________ 35
2.3.2
Price Customer Cost ______________________________________________________ 40
2.3.3
Place Customer Convenience _______________________________________________ 42
2.3.4
Promotion Customer Communication ________________________________________ 44
2.4
The Marketing Plan __________________________________________________ 46
Innovation-Marketing Challenge ____________ 49

3.1
Disruptive innovation and marketings innovation failure ___________________ 50
3.2
The Marketing Process and Innovation Insights from Entrepreneurship Theory

___________________________________________________________________ 56
3.3
The rise of business models as a response to the innovation challenge _________ 58
CREATIVE TRAINER module: Innovation Marketing

3.4
Marketing and business models_________________________________________ 69
Marketing in the Entrepreneurship Process____ 72

4.1
Transforming Business Models to Marketing Strategy _____________________ 75
4.1.1
Defining the Value Proposition (Product Policy in an innovative environment)__________ 75
4.1.2
Designing and quantifying revenue generation mechanisms _________________________ 80
4.1.3
Design of the Resource base and Value network__________________________________ 83
4.2
Marketing in the Exploration Phase _____________________________________ 85
4.3
Marketing in the Exploitation Phase_____________________________________ 87
Marketing Innovation Plan ________________ 92
Source directory ____________________________ 94

Internet links _____________________________ 102
Appendix A.
Mini E ________________________ 103
i.
History ______________________________________________________________ 104
ii.
Specifications _________________________________________________________ 104

Powertrain ____________________________________________________________________ 104
Charging ______________________________________________________________________ 105
Performance ___________________________________________________________________ 105
Production ____________________________________________________________________ 105
iii.
Field trial program ____________________________________________________ 106

U.S. program __________________________________________________________________ 106
European program _____________________________________________________________ 107
iv.
Field test experience ___________________________________________________ 108
v.
UC Davis study _______________________________________________________ 109

Range record __________________________________________________________________ 110
vi.
Alternative electric Mini ________________________________________________ 111
References ________________________________________________________________ 112
ii
Appendix B.
What is it like to live with an electric car?

_____________________________ 115
Bibliography ______________________________ 119
iii
Table of Figures
Figure 1. The marketing process ................................................................................................................. 8
Figure 2. The Maslows pyramids of needs ................................................................................................. 9
Figure 3. The marketing strategy process .................................................................................................. 11
Figure 4. SWOT an example ...................................................................................................................... 12
Figure 5. Strategy as an outcome of planning ........................................................................................... 13
Figure 6. The corporate strategy process .................................................................................................. 14
Figure 7. The BCG Growth-Share Matrix ................................................................................................... 16
Figure 8. The Ansoff Matrix....................................................................................................................... 18
Figure 9. The Market Mix based on 4Ps concept ....................................................................................... 21
Figure 10. The Market Mix based on 4Cs concept ..................................................................................... 22
Figure 11. Functional specialisation vs. customer orientation ................................................................... 23
Figure 12. Criteria for customer orientation.............................................................................................. 24
Figure 13. The construct of market orientation......................................................................................... 24
Figure 14. Types of Team Organisation. .................................................................................................... 26
Figure 15. Dimensions of Communication Between Upstream and Downstream Groups. ........................ 29
Figure 16. Activities under Cross-Functional Integration. .......................................................................... 30
Figure 17. The marketing control process ................................................................................................. 31
Figure 18. Product Strategy and Marketing-Mix ....................................................................................... 37
Figure 19. The Brand Prism ....................................................................................................................... 39
Figure 20. Pricing approaches ................................................................................................................... 41
Figure 21. Pricing decisions ....................................................................................................................... 41
Figure 22. Multichannel distribution system ............................................................................................. 43
Figure 23. Communication process ........................................................................................................... 45
Figure 24. The Laswell communication formula ........................................................................................ 46
Figure 25. Mobile phone market share and profit distribution over time ................................................. 53
Figure 26. Disruptive vs. Sustaining innovations ....................................................................................... 54
Figure 27. Market pro-activeness and reactiveness .................................................................................. 55
Figure 28. The value of the firm during the innovation process ................................................................ 57
Figure 29. Development Funnel Model ..................................................................................................... 59
Figure 30. Innovation based competition and the rise of open innovation models ................................... 62
Figure 31. Open Innovation Process .......................................................................................................... 63
Figure 32. Implementing adaptive marketing capabilities ......................................................................... 70
Figure 33. Marketing in an open network ................................................................................................. 72
Figure 34. Marketing Roles in the innovation process ............................................................................... 73
Figure 35. Elements of a Value Proposition ............................................................................................... 77
Figure 36. Business model and risk sharing ............................................................................................... 81
iv

Figure 37. User Base community: the case of Nike sneakers ..................................................................... 87
Figure 38. Purpose Brands vs. Endorser Brands ........................................................................................ 88
Figure 39. Adopter Categories within the Diffusion Process ...................................................................... 89
Table of Tables
Table 1. SWOT: suggestions of what to look for ........................................................................................ 11
Table 2. Team Structures .......................................................................................................................... 25
Table 3. Types of Organisational Structure ............................................................................................... 27
Table 4. Marketing objectives and control indicators (Examples) ............................................................. 32
Table 5. Marketing Instruments vs. Customer Perception......................................................................... 33
Table 6. Actions to be taken in order to Accelerate the NPDD Process ..................................................... 36
Table 7. Key intermediaries or channel members ..................................................................................... 43
Table 8. Contents of a Marketing Plan ...................................................................................................... 48
Table 9. Differences of Sustaining and Disruptive Innovations.................................................................. 55
Table 10. Sources of Information for new Ideas ........................................................................................ 60
Table 11. Sources of Opportunities for new Ideas ..................................................................................... 60
Table 12. Business model vs. product market strategy ............................................................................. 69
vi
Summary
Firms should identify the role of marketing and its distinctive tasks in the
different stages of the innovation process:
Marketing in the exploration phase: The exploration phase is

concerned with new opportunities. Here marketing is concerned with
un-addressed needs of users, user-based value of an innovation as well
as perception of an innovation. A potential challenge of established
companies is that relevant users of an innovation are not necessarily its
present customers. A challenge of customer valuation and prioritization
is to identify customers or users with potential future value.
Formulation of business models: The formulation of a
business
model is a vital step to make an innovation strategy operational. A

business model aims to direct the introduction and capitalization of a
value proposition. Thus a business model comprises: the formulation of
a value proposition; the revenue-generation mechanism that a company
intends to apply; and, the definition of the relevant resources and the
value network needed for the realization.
The exploitation phase: Here the role of marketing is focused on

generating the revenue stream. Communicating with prospective
customers, orchestrating the value network, i.e. the distribution
channel.
From this perspective it becomes clear, why incumbents tend to struggle with
disruptive innovations. While almost every company is involved in some sort of
innovation process, incumbents are primarily focusing on the exploitation
phase of that process. They relate to their most profitable customers and cater
to their highest valued needs. When the most promising future business ideas
emerge in domains that are distant from the present customer base of
company, customer-centric approaches are likely to disconnect the company
from future markets. Therefore, the exploration phase can rely only partly on
existing market information. Thus, this phase is dominated by the search of
new dimensions of Value-in-Use that are currently not served by the current
market supply.
1 Introduction: Marketing-Innovation Challenge

The management process responsible for
identifying, anticipating and satisfying
customer requirements profitably
Institute of Marketing
Marketing is concerned with all the
exhilarating big things and all the
troublesome little things that must be done in
every nook and cranny of the creative
organisation in order to achieve the corporate
purpose of attracting and holding clients
Theodore Levitt
Innovation is a risky process by definition. Presumably 2% of all product ideas
make it to the market. Many blame over-engineering approaches, where
product designers develop brilliant technologies that prove irrelevant or too
expensive for the final customer. Thus, researchers and managers call for
innovative approaches that convert to better market performance. An
imminent reaction is to consult marketing as the discipline that has made
market performance its main task. However, Steve Jobs, CEO of Apple,
currently the most valuable technology company, one of greatest marketing
talents, states: We dont do market research.
Studies
of
disruptive
innovation
provide
mixed
testimonial
on
the
performance of marketing in innovative environment. Christensen (1997)

identifies what he calls the tyranny of the served market, that ties marketers
to yesterdays products for todays customers rather than breakthrough
innovations that stay at the heart of new markets and industries. This tyranny
is especially tricky for established successful firms. Their very success holds
them back to commercialise even their most brilliant ideas, simply because
their current customers do not value their innovations. That opens up
opportunities for start-up companies operating from small, neglected niches
that provide high potential for growth. Quite frequently, these disruptors are
able to outpace incumbents and even break into their core segments.

So is there no role for marketing in innovation processes? Not for some
standard textbook versions of marketing. For most of its history, marketing
has been a function within large dominant incumbent firms. However, early on
pioneering marketers like Theodore Levitt realised that sustainable marketing
is concerned with potential rather than existing products. The marketing
discipline is undertaking significant innovations, in its values, approaches,
methods and technologies.
1.1 Marketing and Innovation

The fate of a business organisation operating in a market environment is ruled
by its customers. If customers value the goods and services more than the
costs for their creation, the business thrives, otherwise it needs external
support or goes bust. This led Peter Drucker to the conclusion: Because the
purpose of business is to create a customer, the business enterprise has two
and only two basic functions: marketing and innovation (Drucker, 1973).
By intuition, we would expect businesses that excel in marketing to thrive at
innovation. However, management research has shown that this is not
necessarily the case. The tyranny of the served market (Christensen, 1997;
Christensen and Bower, 1996) demonstrates that: market leaders can face a
systematic handicap on markets, while outsiders can innovate simply because
they can ignore established market standards.
How can we explain this counterintuitive phenomenon?
Let us first take a close look at the role of marketing and innovation in
business life. According to the American Marketing Association, Marketing is
the activity, set of institutions, and processes for creating, communicating,
delivering, and exchanging offerings that have value for customers, clients,
partners, and society at large (AMA 2007). Core activities of marketing are
market research and customer relationship management, identifying valuable
market offerings, developing a market-strategy and designing policies for
creating, delivering and communicating the value. Within the business,
marketing is responsible for sales and thereby is in charge for the top-line of
the earnings report of a business (Kotler, 2012).

Innovation on the other hand is according to Schumpeter The introduction of
new goods [], new methods of production [], the opening of new markets
[], the conquest of new sources of supply [] and the carrying out of a new
organisation of any industry (Schumpeter, 1934).
Ultimately, only new products and services that generate customer value
thrive. By the same token, marketing needs to engage in innovation,
especially in a competitive environment where companies are eager to lure
customers by offering better value or lower costs.
In practice, marketing and innovation do face conflicting goals. For example
one potential contribution of marketing in the product development process, is
to provide market research in order to identify the market value of an
innovation. We dont do market research, claims Steve Jobs, CEO of Apple
and arguable one of the best performing innovators (Morris and Levinstein,
2008). Henry Ford is famous for claiming If I had asked my customers I
would have produced a horse carriage.
Marketing activities seem to be quite well performing in producing intelligence
of present demand, but face hard times in estimating future demand. The
marketing researcher Sunil Gupta did an experiment and compared the
valuation of the Internet Auction house, ebay, in its infancy by customer
relationship managers using customer lifetime value (Gupta and Lehmann,
2004; Gupta and Mina, 2008). The marketing managers underestimated the
financial value of ebay systematically, collectively they arrived at one tenth of
the actual market valuation. Guptas analysis revealed that the marketers
systematically ignored new types of customers, for example ebay users that
started to buy on ebay, which soon started to act as sellers, thus generating
growth of commissions for ebay.
This should strike alarm clocks with businesses, as increased competition
forces them to innovate continuously almost as a routine. This leads George
Day, one of the leading researchers on marketing strategy to the conclusion
that marketing needs new skillsets and competencies in order to thrive in a
climate shaped by innovation competition (Day, 2011).

1.2 Module Objectives
In this module we are going to take a closer look at the marketing innovation
challenge. You will get an understanding of the role of marketing within the
innovation process and its implications for the selection and development of
marketing approaches, methods and techniques. You should understand the
inherent logic of disruptive innovations and its implications for innovation
strategies and their support through marketing. At the end of the module you
should be able to gather market intelligence, identify value propositions, direct
effective communication policies in the environment of incremental and
disruptive innovation. You should become sensitive towards potential pitfalls of
disruptive innovation.
Specifically the objectives of the module are to:
Understand
the
fundamentals
of
marketing,
including
marketing
concepts, marketing system, marketing research, consumer behaviour,

customer requirements etc, in the new innovation based competition
environment;
Understand the interplay of the marketing mix variables;
Appreciate how innovation and information technology can enhance

marketing;
Apply the marketing concepts to develop strategic marketing plans for

innovative business operations.
2 Marketing
Creating
and
Capturing
Customer
Perceived Value
Marketing is all around us. In economies ruled by markets, companies need to
engage with customers, identify their needs and transform them into valuable
as well as profitable offerings. Whether you wake up by clockwork radios, read
your morning newspaper, search the internet or commute to work you are
permanently running into companies that send out marketing messages,
gather data or engage in relationships with you.
In market societies, customers have the final say over the top-line of the
income-statement of a company, the sales and revenue. If they value the
results of a company higher than its costs, the company earns a profit.
Marketing has evolved from the aim of a systematic approach towards the
management of the activities that lean towards the market side and convert
what customers perceive as value.
Hence Kotler and Armstrong define marketing as the process by which
companies create value for its customers and build strong customer
relationships in order to capture value from customers in return (Kotler and
Armstrong, 2004, p.5).
A first insight is that customer value is not trivial: Telling and selling (Kotler
and Armstrong, 2004, p. 5), are important elements of marketing activities,
but run on empty if customers feel not addressed. More and more, customers
are trying to fence themselves against pointless, irrelevant marketing
messages. Sorry PR people, youre blocked, blogged Chris Anderson, editor
of the Wired magazine and started a rant among masses of like-minded
people
who
feel overwhelmed by
inappropriate
and unwanted emails
(Anderson, 2007). In the inferno of voices calling for customer attention, will
be heard only those that provide valuable offerings and messages to their
customers.
Capture
Understanding
Customers
Designing
customer
driven
strategies
Construct a
marketing
Program
that derives
value
Build profitable
relationships
and build
customer
satisfaction
value from
customers
to create
profits and
customer
equity
Figure 1. The marketing process

Source: Kotler and Armstrong (2004), p. 5
Core elements of the marketing process are (Figure 1):
Understanding the marketplace and customer needs and wants. The

basis of any marketing activity is an understanding of market reality, by
gathering data and information, conducing market research, and
systematic management of customer relationships. At the core of the
marketing concept are basic human needs (Figure 2) that exist without
the interference of marketers, like physical needs for food and energy,
social needs for participation and community or individual needs like
self-fulfilment and expression. These needs are transformed into
wants, as culture, customs and habits take form. For example the need
for nutrition can give rise to the wants of hamburgers, seaweed or
octopus in different cultures. As soon as customers use their purchasing
power to satisfy their wants, these wants become effectively market
demand (Kotler and Armstrong, p.6)
Figure 2. The Maslows pyramids of needs
Design a customer-driven marketing strategy. At the core of marketing

strategy is the definition of the relevant market for the firms offerings,
describing what customers and specific needs a company aims to
address. This entails the choice of a value proposition that relates to a
unique position of the company in the market place. Furthermore, the
company should define the type or the mix of marketing orientation of
their strategy. The production oriented strategies assume, that a
company excels with superior manufacturing or logistics capabilities.
The product oriented strategies assume that differentiated products are
crucial for a strong market position. The selling approaches embrace
that
customer
perception
is
the
crucial
condition
for
market
performance. The marketing oriented strategies prioritise on the

understanding of needs and wants of customers as the basis for
formulating marketing programs.
Finally the societal marketing ones
aim at addressing long-term welfare, like sustainable living conditions,

improving social relationships and strengthen ethnic standards in
working and living conditions (Kotler and Armstrong, 2004).
Construct a marketing program (action-plan) that delivers superior

value. Crucial elements are: the core offering (product), the price, the
distribution policy and communication.
Build profitable relationships and create superior customer satisfaction.

From a long-term perspective a company relies on valuable and
profitable customer relationships. Building blocks are the customer
perceived
value,
customer
satisfaction
and
loyalty
towards
the
company.
Capture value from customers to create profits and customer equity.

Keeping customers can be more efficient than wining new ones. This
leads companies to manage the customer lifetime value, which is the
expected discounted cash flow generated with each customer over his
or her lifetime. The lifetime value of a customer can be increased by
rising the share of a company in the customers purse, for example by
synergies, cross- or upselling. Ultimately the firm tries to maximise
customer equity, that is the lifetime value related to the entire customer
base.
To conclude, marketing is a systematic process for navigating the company

through the modern market environment (Figure 3).
10
Corporate Strategy
Industry
Analysis
Market
Target
Control
Core Strategy
Competitive Positioning
Implementation
Company
Analysis
Differential
Advantage
Organisation
Marketing Mix
Figure 3. The marketing strategy process
The marketing strategy is an outcome of planning. It requires Internal and

External analysis (Figure 5). Often the first step is to generate a SWOT
analysis (strengths, weaknesses, opportunities, threats). A SWOT analysis is
an examination of an organisations strengths and weaknesses (an evaluation
of its resources) in relation to possible opportunities and threats (an
assessment of the environment). SWOT analysis represents an evaluation of
how well the resources of an organisation match the needs of the environment
in which the firm operates and competes. Some useful questions in order to
conduct a SWOT analysis are presented on Table 1.
Table 1. SWOT: suggestions of what to look for

Strengths & Weaknesses
Opportunities & Threats
Where are the good opportunities
What
advantages
does
your
facing you?
company have?
What are the interesting trends
What do you do better than
you are aware of?
anyone else?
What obstacles do you face?
What
unique
or
lowest-cost
What is your competition doing
resources do you have access to?
that you should be worried about?
What do people in your market see
Are the required specifications for
as your strengths?
your job, products or services
What factors mean that you "get
changing?
the sale"?
What could you improve?
Is changing technology threatening
11
What
What
likely
What
should you avoid?

are people in your market
to see as weaknesses?
factors lose you sales?
your position?
Adverse demographic changes?
Do you have bad debt or cash-flow
problems?
Could any of your weaknesses
seriously threaten your business?
Useful opportunities can come from such

things as:
Changes
in
technology
and
markets on both a broad and
narrow scale.
Changes in government policy
related to your field.
Changes
in
social
patterns,
population
profiles,
lifestyle
changes.
Local events.
Figure 4. SWOT an example
12
Internal Analysis
Corporate goals and Strengths &
strategies:
Weaknesses
Production
Mission statement
capabilities
Rate of Growth
Financial sources
Profit targets
Market share
Turn over
Production lines
Image Brand
R&D capabilities
name
Customer base
Strategic plan
Customer royalty
Marketing
Management team
Operations
Human Resources
Finance
Distribution
R&D
channels
Quality
Sales and services
External Analysis
Market Analysis
Analysis of the
Total size
Environment
Size of the main
Economic factors
segments
Technology
Growth rates
factors
Position of the
Law Issues
Competitors
Demographic
Customer
issues
needs/trends
Business
Market
models/trends
development/trend
Social trends
Cost transfer
Availability of
Entry/Exit barriers
resources and
Available information
supplies
for requirements &
International
expectations
factors
Marketing Strategies
Market Selection
Segmentation and targeting
Product differentiation
Pricing approach
Promotional mix
Distributor selection and management
Logistics
Service level
Sales support
Product servicing
Figure 5. Strategy as an outcome of planning
2.1 Market-based strategy: Using Marketing in the strategy process

In a market economy, organisations need to justify their existence. If the
organisation provides levers for peoples actions they thrive, otherwise, they
vanish.
In
their
research
on
crucial
characteristics
of
outstanding
corporations, Anderson (2009) identified their ideology as a core feature. An

ideology provides a company with a true north for directing its actions. It is
also part of its personality as perceived in the marketplace and by
stakeholders of a society.
13

The secret of long-living companies is that they focus on clock-building rather
than time telling. In that analogy, working on great products and business
ideas is time-telling, while establishing values and a strong corporate culture
is clock-building. Examples for companies with strong ideologies are 3M with
its focus on innovation, Procter & Gamble with its emphasis on superior
consumer product quality or L.L. Bean with its paranoia for customer
satisfaction including a lifetime return policy. Strong values help a company to
survive hard times. In 2011 IBM is celebrating its 100 anniversary. But around
2002 it did not look like that. The company faced losses and had to make
almost 50% of its workforce redundant. But its core ideology of business
customer relationships helped IBM to stage one of the most remarkable
turnarounds of recent decades. One of its key-features was to bring in Lou
Gerstner, then CEO of IBMs client RJL Nabisco and former CEO at American
Express. As IBM customer, Gerstner had understood the future potential for
outsourcing IT services and made this part of his outstanding turnaround
strategy. In its 100 anniversary IBM again enjoys outstanding profits and
growth and is among the worlds most admired companies.
Business Unit,
Product and
market level
Corporate Level
Defining the
company mission
Setting company
objectives and goals
Designing the
business portfolio
Planning functional
strategies (e.g.
marketing, supply
chain)
Figure 6. The corporate strategy process
The mission statement is an expression of the core values a company aims to

stand for. A marketing based mission statement is broad enough to reflect
basic customer needs and focused enough to be meaningful and provide
guidance. For example We sell shoes would be a rather narrow vision for
Nike, whereas We help people experience the emotion of competition,
14

winning and crushing competitors reflects rather basic needs of customers
(Kotler and Armstrong, 2004).
Missions remain empty phrases if they are not being put into action and
people are taking responsibilities. In that regard, setting objectives at all
management levels is crucial. While missions are focusing on basic values,
objectives define concrete targets that are measurable. Important elements of
market relating objectives are market share, sales, brand value or customer
satisfaction.
Additionally, mission and objectives should direct the way an organisation
allocates its resources. A strategy process (Figure 6) indicates the business
units, products or brands
a corporation prioritises its investment. Strategic
management uses portfolio analysis to direct investments. Boston Consulting

Group developed a market based portfolio strategy, based on the relative
market share and growth rate. High growth-high market share products are
rising stars of the companys portfolio that should be nurtured with prioritised
investments. Low growth and high market share products are the cash cows.
They should be maintained, but with a prioritization of capitalizing profits. Low
growth. low market share products are dogs that should be eliminated from
the portfolio. Low growth-high market share products are question marks, that
are presumably in the early and highly uncertain stage of their life-cycle, or
the late one that although still on growth may indicate a product or paradigm
change. These portfolios should be scrutinised with the aim to identify
potential for new opportunities, re-launch or emerging pressure to establish
exit strategies and eliminate.
15
Figure 7. The BCG Growth-Share Matrix
These groups are explained below (MindTools.com):
Dogs: Low Market Share / Low Market Growth. In these areas,

your market presence is weak, so it's going to take a lot of hard work to
get noticed. You won't enjoy the scale economies of the larger players,
so it's going to be difficult to make a profit. And because market growth
is low, it's going to take a lot of hard work to improve the situation.
Cash Cows: High Market Share / Low Market Growth. Here, you're
well-established, so it's easier to get attention and exploit new
opportunities. However it's only worth expending a certain amount of
effort, because the market isn't growing, and your opportunities are
limited.
Stars: High Market Share / High Market Growth. Here you're wellestablished, and growth is exciting! There should be some strong
opportunities here, and you should work hard to realize them.
Question Marks (Problem Child): Low Market Share / High

Market Growth. These are the opportunities no one knows what to do
with. They aren't generating much revenue right now because you don't
have a large market share. But, they are in high growth markets so the
potential to make money is there.
Question Marks might become Stars and eventual Cash Cows, but they
could just as easily absorb effort with little return. These opportunities
need serious thought as to whether increased investment is warranted.
16

The aim of using the matrix is to determine what you will do with each
product/product line. There are typically four different strategies to apply:
Build Market Share: Make further investments (for example, to maintain

Star status, or to turn a Question Mark into a Star).
Hold: Maintain the status quo (do nothing).
Harvest: Reduce the investment (enjoy positive cash flow and maximize
profits from a Star or a Cash Cow).
Divest: For example, get rid of the Dogs, and use the capital you
receive to invest in Stars and Question Marks.
To portray alternative corporate growth strategies though, Igor Ansoff

presented a matrix that focused on the firm's present and potential products
and markets (customers). By considering ways to grow via existing products
and new products, and in existing markets and new markets, there are four
possible product-market combinations (Figure 8):
Market Penetration - the firm seeks to achieve growth with existing

products in their current market segments, aiming to increase its
market share. This is the least risky since it leverages many of the
firm's existing resources and capabilities. In a growing market, simply
maintaining market share will result in growth, and there may exist
opportunities to increase market share if competitors reach capacity
limits. However, market penetration has limits, and once the market
approaches saturation another strategy must be pursued if the firm is to
continue to grow.
Market Development - the firm seeks growth by targeting its existing

products to new market segments. This options include the pursuit of
additional market segments or geographical regions. The development
of new markets for the product may be a good strategy if the firm's
core competencies are related more to the specific product than to its
experience with a specific market segment. Because the firm is
expanding into a new market, a market development strategy typically
has more risk than a market penetration strategy.
Product Development - the firms develops new products targeted to

its existing market segments. This strategy may be appropriate if the
firm's strengths are related to its specific customers rather than to the
17

specific product itself. In this situation, it can leverage its strengths by
developing a new product targeted to its existing customers. Similar to
the case of new market development, new product development carries
more risk than simply attempting to increase market share.
Diversification - the firm grows by diversifying into new businesses by

developing new products for new markets. This is the most risky of the
four growth strategies since it requires both product and market
development and may be outside the core competencies of the firm. In
fact, this quadrant of the matrix has been referred to by some as the
suicide cell. However, diversification may be a reasonable choice if the
high risk is compensated by the chance of a high rate of return. Other
advantages of diversification include the potential to gain a foothold in
an attractive industry and the
education of overall business portfolio
risk.
Figure 8. The Ansoff Matrix
2.2 Marketing Strategy and the Marketing Mix

Marketing managers contribute to identifying the market conditions and
manage the marketing operations of the business. The marketing strategy
18

converts corporate strategy into action at the business unit and the functional
level. As a function, marketing is responsible for the top-line of the incomestatement the sales generated with customers. The main responsibility is to
manage for profitable customer relationships.
The
marketing
management
process
consists
of:
marketing
analysis;
marketing planning; marketing implementation; and, marketing control.

2.2.1 Marketing analysis
Key activities in the marketing analysis process are market segmentation,
target marketing and market positioning.
Market segmentation: At the core of marketing strategies stands the

customer. In theory this would mean to focus on individual customers.
In reality this implies complexity and costs. In addition, costs affect
directly the potential of a company to offer competitive prices and
ultimately customer perceived value. As soon as groups of customers
show similar patterns of demand, marketing investments can be spread
and opportunities of scope can be reached. Therefore, the purpose of
market segmentation is: To identify groups of customers who respond
similarly to the companys marketing program. The bigger a segment,
the more efficient a marketing budget can be applied. In general
marketing segmentation faces the trade-off to arrive at economic viable
segments vs. employing meaningful approaches of buyer segmentation.
Target Marketing: Setting the market segments, marketers need to

think how to prioritize their marketing investments. Target marketing
implies prioritising on the most promising segments. In its extreme
form, target marketing addresses small niches within a huge market.
Germanys hidden champions have thrived by targeting extremely
specialized segments on a global level. These family businesses offer
highly specialised machines, industrial components or specialised
chemicals on a global scale at outstanding profits. Their focus on
business customers and their gained reputation helped them to quickly
recover from the economic crises and arrive at outstanding growth
figures.
19
Market Positioning: The crucial force determining marketing reality is

the mind-set of the customer. Thus, any marketing strategy runs on
empty if it does not capture attention in the customers mind. However,
this is only effective as it is grounded on a differentiated market offering
that stands out in customers minds compared to those of the
competition. Thus, would be buyers of automobiles might want to
choose between das Auto signifying German engineering culture of
Volkswagen, a lifetime of fresh air with every purchase by Toyotas
hybrid cars, or French design savvy by the createur dautomobile
(Citroen).
2.2.2 Marketing Planning

Marketing planning translates the marketing strategy into an actionable
program. Developing the marketing mix is the art and science to arrive at a
coherent set of marketing actions for the set of the four core parameters of
marketing called the 4Ps product, price, place and promotion (Figure 9).
Product is the core offering consisting of bundles of goods, services and rights
that provides the basis of the companys value proposition. Price is the
decisive parameter for both, customer value as well as the share of value
captured by the company. Place refers to the delivery and distribution of
value,
whereas
promotion
relates
to
communication
and
customer
perceptions. Customers though, value products as solutions; perceived price

as a cost; gained convenience from a well performing delivery system; and,
communication with meaningful and customer relevant promotion campaign
(Figure 10).
20
Figure 9. The Market Mix based on 4Ps concept

Source: www.smartdraw.com
21
Figure 10. The Market Mix based on 4Cs concept

Source: www.smartdraw.com
2.2.3 Marketing Implementation

All good strategy intentions run into nowhere without execution. Marketing
takes a two-fold role in implementation:
As the value proposition is the result of the joint effort of the different
members of a company, marketing plays the role in orchestrating and
controlling all relevant activities in the company in line with customer
expectations, perceptions and needs. On the company-wide level
marketing has the task to ensure the market orientation of the company
(Kohli and Jaworski, 1995).
22
In a more narrow sense, marketing implementation is concerned with

the organisation and control of the marketing function, like the structure
of the marketing unit, incentives for the marketing employees and the
support
by
external
marketing
services
like
market
research
consultants, advertising agencies or franchising partners.

In firms with a manufacturing tradition, a core challenge derives from the
organising principle of functional specialisation that obstruct a market
orientation.
In functional specialisation, the firm aims to optimize an activity or operation
in order to reach economies of scale, ensure the adherence of standards and
maintain efficiency (Figure 11). While a functional specialised firm starts with
the definition of the output in order to optimise its activities, a customer
oriented firm aims to develop specifications from the perspective of customer
perception. From the moment that a firm aims to cater the needs of an
individual or diversified its offer according to an extended and differentiated
set of customers needs, functional orientation stands as a barrier.
Organisation
Principle of
Customer
Integration
Customer
Customer
Customer
Group 1
Group 2
Group 3
Organisation
Principle of
Functional
Specialisation
Supply
Operations
Sales
Figure 11. Functional specialisation vs. customer orientation
The key task then of marketing is to create intelligence with regard to

customer
requirements,
disseminate
23
this
in
the
organisation
and

systematically track the companys performance from the perspective of the
customer (Kohli and Jaworski, 1990, Figure 12 and Figure 13).
Figure 12. Criteria for customer orientation

Source: Kohli and Jaworski, 1990
EMPLOYEES
TOP MANAGEMENT
Emphasis
Risk Aversion
INTERDEPARTMENTAL
DYNAMICS
Conflict
Connectedness
ENVIRONMENT
MARKET ORIENTATION
Intelligence Generation
Intelligence
Dissemination
Responsiveness
Organisational
Commitment
Esprit de Corps
Market Turbulence
Competitive
Intensity
Technological
Turbulence
ORGANISATIONAL
SYSTEMS
BUSINESS
PERFORMANCE
Formalisation
Centralisation
Departmentalisation
Reward Systems
Figure 13. The construct of market orientation

Source: Kohli and Jaworski, 1990
24

When a company is faced with a small set of powerful customers, it is advised
to adopt key-account-management. At the extreme, all employees are
organised within Autonomous Key-Account teams and take joint responsibility
on gathering intelligence of customer needs and the development and
implementation of customer driven programs (Figure 14).
These facts and the observation of how successful firms were organised
brought about the concept of team organisation as early as the 1960s
especially multi-functional teams to create the right mix and increase the
performance of a entrepreneurial firm (see for example: Barczak and
Wilemon, 1989; Peters, 1988; Wheelwright and Clark, 1992; Clark and
Fujimoto, 1991; Galbraith, 1973).
Clark and Fujimoto (1991) identify the basic structure of four types of teams
used in the NPDD process (the authors summarises them in Table 2). Their
study took place in the automotive industry, but the basic idea applies to
industries in general (Figure 14).
Table 2. Team Structures

Team Structure
Characteristics
Functional team
structure
Functional organisation by disciplinary functions;

Specialised function manager; Sequential mode of
project running from one group to the other
Lightweight team
structure
Functional organisation with one representative on a

project co-ordinating committee; Lightweight project
manager to co-ordinate the activities of different
functions; No power to project manager on resources
and peoples tasks
Heavyweight team
structure
Usually senior managers or function managers act as

project managers with direct access and control of
resources and people; Dedication of the core people
from each function to the project; Relocation of people
around the heavyweight manager
Autonomous team
structure
Tiger teams; Dedicated people assigned from each

function and co-located to complete the project;
Heavyweight manager; Each team has its own rules,
structure, project evaluation criteria and decision
making responsibility
25
2. Lightweight Structure
1. Functional Structure
FM
FM
FM
FM
DES ENG
Function
Manager
(FM)
FIN
FM
FM
DES
MFG MKG
ENG
FM
FM
FM
FIN
MFG MKG
PMs
Assistants
Project
Manager
(PM)
Working
Level
Area of Strong
PM Influence
3. Heavyweight Structure
FM
FM
4. Autonomous Structure
FM
FM
FM
Liaison (L)
FM
FM
FM
FM
FM
Market
DES
ENG
FIN
MFG MKG
DES
ENG
FIN
MFG MKG
Concept
L
Market
PM
DES: Design
ENG: Engineering
FIN: Finance
MFG: Manufacturing
MKG: Marketing
Concept
PM
Figure 14. Types of Team Organisation.

Source: Hayes et al., 1988 p320 (with modifications)
In many cases, companies implement combinations of customer centric or

functional specialised organisations. For example they can install key-accountmanagers as equivalent to staff-organisation, who advices the otherwise
functionally specialised departments on customer-specific issues. Matrix-
26

organisations would provide almost equal powers of key account and
functional managers, that may result in conflicts.
This need of customer centric organisations require a overall consideration of a
firms structure. Burnes and Stalkers (1961) research developed a basis for
studying the structure of an organisation. They described two idealistic types
of organisation:
Mechanistic, which is hierarchical, prescribed and demanding of

obedience; and,
Organic, which avoids precise job descriptions, seeks flexibility and

initiative and encourages commitment to the overall goals of the
organisation.
They suggest that when the environment of an organisation changes rapidly

and a high degree of innovation is required to follow the changes, the organic
type of structure is the better choice.
Henry Mintzberg (1995) identifies seven possible types of organisational
structure that fit between the above two and the author summarises them in
Table 3. Mintzberg (1995) points out that the above types of organisational
structure are idealistic and they do not represent any real organisation even
though some firms come remarkably close. However, most organisations seem
to reflect combinations, with the first five being the most common forms of
organisational structure.
Table 3. Types of Organisational Structure

Type of Organisation
Characteristics
1. The Entrepreneurial
Few top managers; Informal organisation; Minimum
Organisation
or absent middle managers and support staff; Small
start-ups; Dependence on few Individuals and their
decisions; Limited available capital and human
resources
2. The Machine Organisation
Large hierarchy with many middle managers; Highly
specialised and standardised jobs; Stability but slow
response to rapid environmental changes
3. The Professional
Highly trained autonomous professionals; Highly
Organisation
decentralised horizontally; Hospitals, consultancies
or legal firms
4. The Diversified
Independent entities with their own internal
Organisation
structure and loose central administration; Spread
in market segments and product diversity; Often
competition between the different entities
5. The Innovative
Organic type; Market based project teams with
27

Organisation (or Adhocracy
Organisation)
6. The Missionary
Organisation
7. The Political Organisation
highly trained and specialised experts;

Decentralised decisions to project teams; No formal
rules and standards; No central control
An ideology unifies the whole structure by a
common aim; Shared values; Freedom of decision
making as long as it is within the values of the firm;
continuous improvement
Temporary organisation structure, usually between
changes from one type of strategy or structure to
another; Conflicts are not solved but transferred to
the future type of organisation
Several studies have shown that a loose-tight structure is necessary for

successful management of innovation (see for example: Tushman and
Anderson, 1997). The loose-tight structure, although it is based on the
adhocracy organisation (Mintzberg, 1995) which supports the decentralisation
of decision making, is built on cross functional integration and initiates some
bureaucracy to gain a degree of control that provides both the freedom to
create and the discipline to turn creativity into real innovation. Additionally, it
introduces
multifunctional
project-teams
that
are
responsible
for
the
development of the new projects (Fairtlough, 1994). The structure inside the
organisation is clear to everybody and each employee knows his/her role and
responsibilities inside the group and the whole firm and so conflicts and
meaningless debates are avoided. In addition, the innovative firms have a
dominant ideology (culture) that is spread throughout the whole organisation;
is supported by the top managements vision, and is based on the belief in
continuous improvement and continuous change according to the new
business environment (Schoonhoven and Jelinek, 1997).
Cross-functional integration changes the nature of the different functions and,
when and how they get the work done (Wheelwright and Clark, 1992). Figure
16 shows an example of the role of the functions in the development stage of
the NPDD process. The figure shows three of the major functions, engineering,
marketing and manufacturing, and their major activities. The key milestones
and decisions that should be taken as the development proceeds are set in
advance.
In contrast to the sequential type of process, where engineering will complete
its work before passing it to marketing or manufacturing in each activity, in
the integrated type of process, the different functions work together in order
28

to achieve the milestones and take the required decisions. This affects the
timing of when each activity takes place and in effect could reduce the whole
development time (Wheelwright and Clark, 1992).
Cross-functional integration rests on tight linkages in communication between
individuals and groups working on related problems. The type of linkage
however, is a choice that a firm makes either consciously or unconsciously
(Clark and Fujimoto, 1991). The interaction between a project group that
executes an early task (upstream group) and the project group that continues
at a later stage (downstream group) is distinguished according to richness,
frequency, direction and timing.
Wheelwright and Clark (1992) illustrate the extreme levels from a sparse,
infrequent, one way and late pattern of communication, to a rich, frequent,
reciprocal and early pattern (Figure 15).
Dimensions of Communication
Range of Choice
Richness of
Media
Sparse:
documents,
computer
network
Rich:
face-to-face,
models
Frequency
Low:
one-shot, batch
High:
piece-by-piece,
on-line,
intensive
Direction
One-way:
monologue
Two-way:
dialogue
Timing
Late:
completed work,
ends the process
Early:
preliminary,
begins the
process
Figure 15. Dimensions

Downstream Groups.
of
Communication
Source: Wheelwright and Clark, 1992 p177
29
Between
Upstream
and
Functional
Activities
Phases of Development
Concept
Development
Propose new
technologies;
develop
product
ideas; build
models;
conduct
simulations
Engineering
Provide
market-based
input;
propose and
investigate
product
concepts
Marketing
Manufacturing
Key Milestones
Propose and
investigate
process
concepts
Concept
for product
and process
defined
Product Planning
Choose
components and
interact with
suppliers; build
early systems
prototypes;
define product
architecture
Define targets
customers
parameters;
develop
estimates of sales
and margins;
conduct early
interaction with
customers
Develop cost
estimates; define
process
architecture;
conduct process
simulation;
validate suppliers
Establish
product and
process
architecture
Define
program
parameters
Detailed Design and Development

Phase I
Phase II
Do detail
Refine details of
design of
product design;
product and
participate in
building secondinteract with
process;
phase prototypes
build fullscale
prototypes;
conduct
prototype
testing
Conduct
Conduct secondcustomer
phase customer
tests of
tests; evaluate
prototypes;
prototypes; plan
participate in
marketing
prototyping
rollouts; establish
evaluation
distribution plan
Do detailed
design of
process;
design and
develop
tooling and
equipment;
participate in
building fullscale
prototypes
Build
and test
complete
prototype
Verify
product
design
Test and try out

tooling and
equipment; built
second-phase
prototypes; install
equipment and
bring up new
procedures
Commercial
Preparation
Evaluate and
test pilot units;
solve problems
Market
Introduction
Evaluate
field
experience
with product
Prepare for
market rollout;
train sales
force and field
service
personnel;
prepare order
entry/process
system
Build pilot
units in
commercial
process; refine
process based
on pilot
experience;
train personnel
and verify
supply channel
Fill
distribution
channels; sell
and promote;
interact with
key
customers
Build
and refine
2nd phase
prototype
Verify
process tools
and design
JOINT
Key Decisions
CONCEPT
APROVAL
PROGRAM
APROVAL
DETAILED
DESIGN
APROVAL
Ramp up
to volume
production
Meet
initial
commercial
objectives
FULL
PRODUCT
FOR FIRST
COMMERCIAL
AND
COMMERCIAL
APROVAL
PROCESS
SALES
Figure 16. Activities under Cross-Functional Integration.
30
Product
pilot units
Operate
and test
complete
commercial
system
APROVAL
APROVAL
Ramp up
plant to
volume
targets; meet
targets for
quality, yield
and cost.
2.2.4 Marketing Control

The marketing management controls the implementation process on the basis
of its objectives and management needs indicators that are able to show if the
company is on the right track. From a business perspective the crucial
indicator of marketing performance is customer equity. Customer equity is the
net present value of all future cash-flows of the firm generated with its total
customer base (Rust et al. 1995)
The core figure of marketing performance is customer equity. From a financial
perspective, customer specific cash-flow is one core variable. However, many
marketing objectives might be of a non-financial nature like customer
satisfaction, market share or brand value. The marketing controlling process is
built around a set of key indicators that signify performance of marketing
programs. In the controlling process, management evaluates if marketing is
on track and explores corrective measures as needed.
Marketing Objectives
Performance
Standards
Compare results
against standards
Corrections and
alterations
Figure 17. The marketing control process
31

While the ultimate goal of marketing is rooted in customer equity, this is not
easy to operationalize. Depending on the outcome of customer intelligence,
market research or customer satisfaction, other marketing goals become more
important and need other controlling measures. For example, the customer
value of a new transmission system for mobile-telecommunications increases
exponentially with the communication options. Thus, in the early stage of the
product life-cycle, reaching a dominant market share is a precondition for an
eventual generation of cash-flows.
Table 4. Marketing objectives and control indicators (Examples)

Marketing objective
Control indicator
Establish Market Standard
Market Share
Increase Brand Awareness
Brand Recall
Increase overall customer profitability
Average cash-flow per customer
Customer satisfaction with services
Service Quality
These indicators are useful to identify if performance is in line with the

strategy and to what extent programs or their implementation need to be
adapted (Figure 17).
2.3 Marketing Instruments

As all other activities of a company, the marketing instruments are exposed to
marketing myopia in the sense that even well-intended marketing planning
potentially falls short of capturing the customer dimension of marketing
activities. A helpful reminder is to realise that all instruments relate to a
meaningful customer dimension (Table 5).
32
Table 5. Marketing Instruments vs. Customer Perception

4 Cs
4 Ps
Source: www.learnmarketing.net
Source: grey-matter.org
Product
Customer Solution/Value
How will you design, package and add

value
to
the
product. When
an
organisation introduces a product into a
market they must ask themselves a
number of questions.
You can't develop products and then try

to sell them to a mass market. You have
to study consumer wants and needs and
then attract consumers one by one with
something each one wants.
1. Who is the product aimed at?

2. What benefit will
customers
expect?
3. How
does
the
firm
plan
to position the product within the
market?
4. What differential advantage will
the product offer over their
competitors?
Price
Customer Cost to satisfy
What pricing strategy is appropriate to

use. Pricing is one of the most important
elements of the marketing mix, as it is
the only mix, which generates a turnover
for the organisation. The remaining 3ps
are the variable cost for the organisation.
You have to realise that price - what you

sell the product for - is only one part of
the cost to satisfy. If you sell meals, for
example, you have to consider the cost of
driving to your restaurant - what if you
provided a delivery service? Pricing is one
of the most difficult decisions to make selling at the lowest price is not always
the best option. If you rely strictly on
price to compete you are more vulnerable
to competition.
Pricing is difficult and must reflect supply

and demand relationship. Pricing a
product too high or too low could mean a
loss of sales for the organisation. Pricing
should take into account the following
factors:
1.
2.
3.
4.
5.
Fixed and variable costs.

Competition
Company objectives
Proposed positioning strategies.
Target group and willingness to
pay.
At the end of the day you should ask:

What my customer is prepared to pay?
Place
Convenience to buy
Where will the firm locate? This refers to

how an organisation will distribute the
product or service they are offering to the
You must think of convenience to buy

instead of place. You have to know how
each subset of the market prefers to buy
33

end user at the right place at the right
time.
Two types of channel of distribution
methods
are
available.
Indirect
distribution involves distributing your
product by the use of an intermediary for
example a manufacturer selling to a
wholesaler and then on to the retailer..
Direct distribution involves distributing
direct from a manufacturer to the
consumer
- on the Internet, from a catalogue, on

the phone, using credit cards, etc.
Amazon Books and Dell Computers are
just a few businesses who do very well
over the Internet.
Common distribution strategies are:

1. Intensive
distribution: Used
commonly to distribute low priced
or impulse purchase products e.g.
chocolates, soft drinks.
2. Exclusive distribution: Involves
limiting distribution to a single
outlet. The product is usually
highly priced, and requires the
intermediary to place much detail
in its sell.
3. Selective Distribution: A small
number of retail outlets are chosen
to distribute the product. Selective
distribution
is
common
with
products such as computers,
televisions household appliances,
where consumers are willing to
shop
around
and
where
manufacturers
want
a
large
geographical spread.
Promotion
Communication
How will the firm promote its product? A

successful product or service means
nothing unless the benefit of such a
service can be communicated clearly to
the target market.
You have to consider communication

instead of promotion. Promotion is
manipulative - its a statement from the
seller. Communication requires a give and
take between the buyer and seller - This
is much more subtle. Be creative and you
can make any advertising "interactive".
Use phone numbers, your web site
address, etc. to help here. And listen to
your customers when they are "with" you.
34
2.3.1 Product Customer Solution

The differences that make one product succeed and another fail have been
studied in several surveys, which targeted different industries and countries as
early as the 1970s (see for example: Rothwell et al., 1974; Rothwell, 1992;
Calatone and Cooper, 1979; Cooper, 1980; Maidique and Zirger, 1984; Link,
1987; Booz-Allen and Hamilton, 1982). Most of these studies turn the
attention of the industrialists to the study of market needs and customer
wants, as well as the importance of offering a unique benefit to the customer.
In Coopers survey 203 projects that were launched on the market from 125
industries and either succeeded or failed, have been studied. Eight key factors
that separate success from failure were identified and listed in order of
importance (Cooper, 1999):
1. A superior product that delivered unique benefits to the user and was
innovative.
2. A well-defined and justified product prior to the development
phase.
3. High quality of execution of technological activities.
4. Strong technological synergy between the technological strategy of
the firm, its technology competencies and its production resources and
skills.
5. High quality of execution of predevelopment activities.
6. Strong marketing synergy between the needs of the project and the
firms sales force and distribution system, its advertising resources and
skills, its marketing research and its customer service capabilities.
7. High quality of execution of marketing activities.
8. Market attractiveness determined by the size and growth rate.
Two more factors, the competitive situation and the top management support,
although they were originally believed to be important were found to make
little difference between success and failure. The message was that top
management often supports the wrong projects and that products that offer
high value and unique benefits to the customer are not significantly affected
by competition. The creative factory model uses the above list of success
35

factors to identify how close the new products that a firm develops come to
these requirements and thus what are their prospects of success.
The unique benefits that a new product may offer to customers, which is the
most important factor of success, may be eliminated because, during the
months or years that are required to develop a product and launch it on the
market, the customers and their needs may change or a rival product may
appear providing these benefits (Stalk and Hout, 1990). Several suggestions,
which have been presented in the literature, can be used in the whole NPDD
process in order to reduce the development time. A summary of them is
presented in Table 6.
Table 6. Actions to be taken in order to Accelerate the NPDD Process

Suggested Actions
Characteristic Literature
Do it right the first time
Homework
and
Cooper, 1993; Cooper, 1999
definition,
or
in
Smith and Reinertsen, 1997
other words, control the fuzzy front

end of the design process
Build in the voice of the customer
Patterson, 1993; Smith and Reinertsen,
as early in the process as possible
1997
Organise around a multifunctional
Stalk and Hout, 1990; Patterson, 1993;
team
Cooper, 1999; Wheelwright and Clark,
parallel
with
empowerment
processing
of
and
different
1992
stages
Prioritise and focus to the most
Cooper, 1993; Cooper, 1999
important projects
The product, from a firms perspective, is the core offering providing the key
benefits sought after by the customer. From a customer perspective, on the
other hand, it provides a solution. In early stages of industrial societies
products used to be almost exclusively standardised material goods, mass
produced and delivered to consumers. In developed societies, customers have
become more demanding and companies have to offer more in order to
capture demand. This has given rise to the mandate for services. In reality,
almost every good is offered with a sort of guarantee, return policy,
maintenance offerings, which are in fact services.
36

Services however, have become a category of offerings on their own, with a
share of 60-80% of the total value of the gross domestic product in developed
economies. More sophisticated needs though are hardly addressed with the
delivery of a material good or a simple service. Food can be delivered as a
standardised mass product to be processed in the microwave or as part of a
unique experience in a three Michelin stars restaurant (Chesbrough 2011). As
a
tendency
contemporary
offerings
need
to
be
goods-service
bundle
propositions to fulfil a customer need.
Augmented Product
Actual Product
Delivery
Brand
name
Features
Core
benefit
Quality
level
After
sale
service
Design
Packaging
Installation
Warranty
Figure 18. Product Strategy and Marketing-Mix

Source: Kotler and Armstrong, p.234
useful
way
to
identify
and
design
valuable
goods-service
bundle
propositions, is to think in three different levels:
The core benefit: this can be a pure tangible good, like chocolate bar,
cereal or sugar, or a pure service like consultancy report or music
event.
The
actual
product:
The
more
goods
and
services
have
been
commoditized, the more companies try to attract customers with

additional features and services. For example, the camcorder of Sony
37

comprises a brand name, styling, features and components, packaging
and other attributes that makes it a coherent offering.
The augmented product: In order to attract customers, Sony might

even offer additional services to its camcorders, like a warranty,
financing, delivery and after-sales service.
The rise of services is partly caused by the increased interactivity of

modern business life. As businesses try harder to cater to customers
needs they are more eager to enter a dialogue and give customers a
say in the value creation process.
Industrial goods are more and more becoming platforms for service-delivery.
For example, if you enter an airplane these days, chances are high that the
airline does not own the airplane engine you are flying with. Engine
manufacturers
like
Rolls-Royce
have
introduced
power-by-the-hour
offerings, where they remain owners of the engine and only earn revenues on
the hours the airplane is effectively in operation. This provides an incentive for
Rolls-Royce to excel in maintenance services, with real-time monitoring of the
engine performance and eventual contingencies like bird crashes. What used
to be a goods-business has been transformed into service business (Wirtz and
Ehret, 2009).
A crucial element of an offering is the brand. The brand refers to the customer
perception of a product/service. The purpose of product policy is to occupy the
centre-stage of the evoked-set of a customer when looking for a solution.
Brands contain crucial information for customers, like price or quality range,
personality and relation to a social status or brand community. A good brand
has the following qualities (Crane, 2010):
1. Effectively communicates the distinctive value you wish to offer the
customer;
2. Is relevant to the customer;
3. Resonates with the customer;
4. Reinforces the companys intended positioning in the marketplace;
5. Is consistent and unifying;
6. Serves as an umbrella for current/future brands in the companys
portfolio;
38

7. Allows for the building of strong brand equity (i.e. the value added to
the product by the brand);
8. Enables you to command premium pricing;
9. Is easily understood by your customers and your employees;
Culture
Relationship
10.Can be sustained over time.
Figure 19. The Brand Prism

Source: Kapferer, 1997
Building brand equity is not automatic. A firms should consider the offering as
a personality further to its physical aspects (Kapferer, 1997), crafting the
brand prism (Figure 19):
Physique: The key physical qualities, product and brand attributes that
make the brand recognisable;
Personality: The way in which the brand speaks of its products. The
kind of person it would be if it were human;
Culture: A brand has its own set of values;
Relationship: A brand is often at the heart of transactions and

exchanges between people;
39
Reflection: The desired image of the brand user, the consumers

outward mirror;
Self-image:
The
consumers
internal
mirror,
how
people
see
themselves when consuming the brand.

Forging a strong emotional connection between the brand and the consumer
can lead to brand differentiation, strong customer loyalty and evangelical
promotion of the brand.
2.3.2 Price Customer Cost

From the firms perspective price is the key-determinant of the firms
revenues. From the customer perspective it has a direct effect on the
customers cots. The price effectively determines the value created is shared
between customer and company.
A crucial determinant of the price is the positioning strategy. For example a
high price is an important element of the credibility of luxury brands, whereas
cost leaders need to support their credibility with low-band prices.
Prices are also a competitive weapon. Cost leaders can raise barriers of market
entry by setting low prices. By the same token, high prices may enable reinvestments in augmenting offerings strengthening the companys competitive
position. In addition, prices are affected by additional factors like taxes or
third-party service charges.
In the long run, the cost of a firms operations are the low boundary to
determine prices as permanently loss-making companies are likely to go out
of business. Therefore, the simplest approach to pricing strategy is cost-plus
pricing. It rests on the projection and calculation of costs that identifies the
lower limit of the price-band. Managers set a mark-up for example reflecting
the minimal internal interest on company capital in order to arrive at the final
price.
This method has two major drawbacks:
It may deter effective demand of customers with a lower willingness-topay and price the company out of the market;
A company might miss on profit potential when the willingness to pay is

higher than the actual cost-plus-price.
40

The alternative is to apply value-based pricing. In this case, customerperceived value marks the upper limit of any price customers might
reasonably accept, as otherwise they are losing by trading with the company
(Figure 20). Therefore, the question is what the customer is prepared to pay
for the offering. Under this perspective the firm should adopt its operations to
deliver the product/services efficiently in order to achieve an adequate profit
margin.
Cost-plus pricing
Value based pricing

Figure 20. Pricing approaches
Source: Kotler and Armstrong, 2004, p. 322
Hence, the pricing strategy should consider both sides internal and external
in parallel (Figure 21).
Internal Factors
External Factors
Marketing Objectives
Marketing mix strategy
Costs
Organisational
considerations
Nature of the market

and demand
Competition
Other environmental
factors (economy,
resellers, government)
Pricing
Decisions
Figure 21. Pricing decisions

Source: Kotler and Armstrong, 2004, p. 309
41
2.3.3 Place Customer Convenience

The evolution of marketing channels is one of the signature developments of
the marketing system. Marketing intermediaries play an important role in
orchestrating supply and demand in a market system. One of the key-role of
intermediaries,
like
wholesalers
or
retailers,
is
to
transform
supplier
assortments into those wanted by buyers.

Marketing channel providers perform many additional crucial services that add
value (Kotler and Armstrong, p. 364):
Information:
Gathering
and
distributing
marketing
research
and
intelligence information about actors and forces in the marketing

environment needed for planning and aiding exchange.
Promotion: Developing and spreading persuasive communications about

an offer.
Contact: Finding and communicating with prospective buyers.
Matching: Shaping and fitting the offer to the buyers needs, including
activities such as manufacturing, grading, assembling and packaging.
Negotiation: Reaching an agreement on price and other terms of the

offer so that ownership or possession can be transferred.
Physical distribution: transporting and storing goods.
Financing: Acquiring and using funds to cover the costs of the channel
operations.
Risk taking: Assuming the risks of carrying out the channel operations.
42
Producer
Direct to
Concumer
Retailers
Direct to
Business
Distributors
Sales
Force
Catalogues,
telephone,
Internet
Dealers
Consumer
segment 1
Consumer
segment 2
Business
segment 1
Business
segment 2
Figure 22. Multichannel distribution system

Crucial decisions of channel design are to identify who is in the best position to
perform these activities and which channels are most appropriate for each
customer type convenience from the customers perspective.
Table 7. Key intermediaries or channel members

Channel members/
Characteristics
Intermediaries
Agent
Intermediary or channel member who markets a

product/service for a fee. Sometimes called manufacturers
agents or selling agents depending on the industry
Broker
Intermediary or channel member who brings buyers and

sellers together to negotiate purchases. Does not take title to
or possession of products and has limited authority regarding
prices and terms of sales. Often used on a onetime or asneeded basis.
Dealer
Not a precise term; can mean the same as a distributor,

wholesaler, or retailer.
Distributor
Usually used to describe an intermediary or channel member

who performs a variety of distribution functions, including
maintaining inventory, marketing, etc.
Wholesaler
Intermediary or channel member who sells to other
43

intermediaries or channel members, usually retailers. Takes
possession of products and then markets them. Common in
consumer markets.
Retailer
An intermediary or channel member that sells directly to

customers, ultimate consumers and business customers.
Source: Crane, 2010
The different routes to your target customer should consider the following:
1. Effectiveness. How well does the channel strategy meet customers
needs/requirements?
2. Market coverage. Can the customer find and appreciate the value of
your ventures offerings?
3. Cost-efficiency/profitability. Can the venture gain access to customers in
a cost-efficient way and achieve profitability?
4. Adaptability.
Can
the
channel
handle
new
product/services
and
incorporate emergent channel forms?
2.3.4 Promotion Customer Communication

The customer perception is the crucial determinant of the value of the
companys marketing offering. Thus, any good intentions of managers in
offering, pricing delivering are lost, if customers do not perceive them
favourably. Marketing managers try to address this by conveying consistent
marketing messages.
Marketing communications employs a set of tools, like (Kotler and Armstrong,
p. 427):
Advertising: any paid form of non-personal presentation and promotion

of ideas, goods or services by an identified sponsor.
Sales promotion: Short-term incentives to encourage purchase or sale

of a product or service.
Public relations: Building good relations with the companys various

communities and stakeholders, by obtaining favourable publicity,
building up a good corporate image, and handling or heading off
unfavourable rumours, stories and events.
44
Personal selling: Personal presentation by the firms sales force for the
purpose of making sales and building customer relationships.
Direct
marketing:
Direct
communication
with
carefully
targeted
individual consumers to both obtain an immediate response and

cultivate lasting customer relationships the use of telephone, mail,
fax, e-mail, the Internet, and other tools to communicate directly with
specific consumers.
A crucial development of todays marketing system is that communication
channels have been multiplying. In addition to the already complex system of
mass media like radio, television, newspaper or magazines, a myriad of
channels evolved like data-base-mailings, telemarketing, e-mails or the use of
virtual social networks. Thus a key challenge for marketing managers is to
select and orchestrate communication channels in line with the desired market
positioning.
This
has
resonated
in
the
rise
of
Integrated
Marketing
Communications.
Figure 23. Communication process

The Laswell-formula (Figure 24) describes the communication process from a

mass-media perspective: Who says what in which channel to whom with
what effect?
45
Who?
Says what?
Communicator
In which
channel?
Message
Control
Research
To whom?
Channel
Content
Research
Medium
Research
Receiver
Audience
Research
With what
effect?
Effect
Effects
Research
The Laswell formula

Figure 24. The Laswell communication formula
According
to
this
model,
key
activities
of
integrated
marketing
communications are:
Creating the message: At the core of the message is its content, related
to the core benefits of an offering or the desired market position of a
marketer. It conveys a rhetoric structure, for example providing a
question for the audience. Not least, the message is delivered in a
format of texts, pictures, graphical design, audio or video that provides
an aesthetic appeal.
Communication channels: Crucial criteria for channel choice are their

costs and their specific capabilities. Personal selling is a comparatively
high-cost channel predominantly used for key accounts, while massmedia allow to spread budgets over big audiences.
Feedback: Marketers must collect feedback and research effect of its

communication on audiences. Ideally marketers would like to know the
effect of a campaign on actual sales. However, as many other factors
like logistics performance, weather or budgeting affect actual sales,
they might use qualitative measures of communication indicators like
brand perception, attitudes or images.
2.4 The Marketing Plan

The marketing plan specifies the marketing strategy and action plan of a
company. It is part of the strategic planning process. It is built upon a review
of the current marketing situation and an estimation of current opportunities
46

and threats. It expresses the marketing strategy the company aims to pursue
over the mid-range future. It provides a clear action plan, that translates the
strategy into actionable program, like the design of the marketing instruments
or investments into customer relationships. It specifies responsibilities and the
budget allocated for the implementation of the marketing activities.
The most critical questions the marketing plan must address are (Crane,
2010):
1. Is there a viable marketing opportunity?
2. Is there something unique and different about the opportunity that
differentiates the venture from the competitors?
3. Is there a well-defined target market that has expressed an interest in
what you intend to market?
4. Are the revenue/sales and expenses realistic, and is there a healthy
profit picture?
5. Is there a management team with the capabilities and experience to
execute the plan?
6. Does the plan show how those investing in the venture will get their
money back and make a return on their investment?
47

Table 8. Contents of a Marketing Plan
Section
Purpose
Executive
Summary
Presents a brief summary of the main goals and recommendations

of the plan for management review, helping top management to
find the plan's major points quickly
Current
Marketing
Situation
Describes the target market and the company's situation in it,

including information about the market, product performance,
competition and distribution. The section includes:
A market description that defines the market and its major

segments, then reviews customer needs and factors in the
marketing environment that may affect customer
purchasing.
A product review, that shows sales, prices, and gross

margins of the major products in the product line.
A reassessed view of competition, which identifies major

competitors and assesses their market positions and
strategies for product quality, pricing, distribution and
promotion.
A review of distribution, which evaluates recent sales trends and

other developments in major distribution channels.
Threats and
Opportunities
Analysis
Assesses major threats and opportunities the product might face.
Action Programs
Spells out how marketing strategies will be turned into specific

action programs that answer the following questions: What will be
done? When will it be done? Where will it be done? How much will
it cost?
Marketing
Budget/Financials
Details a supporting marketing budget that is essentially a

projected profit-and-loss-statement. It shows expected revenues
and expected costs.
Marketing team
Who is responsible for doing it?
Evaluation and
Controls
Outlines the controls that will be used to monitor progress and

allow higher management to review implementation results and
spot products that are meeting their goals.
Source Kotler and Armstrong (2004), p. 52
48
3 Innovation-Marketing Challenge
The task for marketing is to ensure the market orientation of a company, to
strengthen the position of its businesses in product markets and to apply
effective programs for the creation of revenues. So, marketing appears like
the first point of call to ensure the market performance of an innovation. But
the relationship between innovation and marketing is more complex than
initial intuition suggests.
Innovation is concerned with new ideas, concepts or technologies with the
potential to enhance value creation. In market economies all value is derived
from
the
customers
perception.
On
that
grounds,
meeting
customer
requirements is an imperative for effective innovation activities. In this

perspective, marketing has the role to amplify the voice of the customer in
order to direct effective innovation activities.
Furthermore, a common experience is that even valuable technology does not
sell itself. Since the start of the 19th century companies have started to
systematically
drive
innovation
processes
by
investing
in
Research
&
Development (R&D).
Take the example of Xerox, that first developed and commercialized the
photo-copy machine (Chesbrough and Rosenbloom, 2002). The photocopy
machine held substantial advantages over the then dominant wet photography
or low quality dry-thermal processes. From a business perspective, it had a
main disadvantage compared to established technologies: it imposed a
substantial higher upfront-investment on companies who want to use it
compared to established copy techniques used .
The path-breaking solution conceived by Xerox was to install the machines at
offices free of charge and earn revenues exclusively based on copies made by
office workers. This took the initial risk from customers. It also directed
subsequent product development by Xerox into improved usability and
efficiency of copying, as higher copy volumes directly translated into additional
revenues (Chesbrough and Rosenbloom, 2002).
The case of Xerox highlights a core challenge for technology-based innovation
management: technological potential needs to be translated into a value
49

proposition for potential customers and a profitable revenue stream for the
company. This is the function of a business model, that describes a value
proposition for the customer, a value capturing mechanism for the supplying
firms and a configuration of the organisational network (Amit and Zott, 2007,
Chesbrough, 2006).
Marketing plays a vital role in the design of effective business models.
Identifying value propositions and translating them into revenues, eventually
with the support of communication or distribution networks, seems like the
generic core of marketing activity. Not surprisingly, market driven activities
are key elements of every innovation strategies. Innovation managers are
embracing market-driven concepts like that of lead user innovation (Von
Hippel, 1986). However, under certain conditions, customer orientation can
stand in the way of innovation and market-based approaches may lead to
spectacular innovation failures.
In this chapter we will first explore the complex relationship between
marketing and innovation, use entrepreneurship theory to elucidate their
relation, and will introduce the concept of business models as an approach for
aligning marketing and innovation activities.
3.1 Disruptive innovation and marketings innovation failure

In market economies, the performance of an innovation is driven by its
customer perceived value. The imminent intuition is to start the innovation
process with customer valuation, analysis and market research. Counter to the
expectation, customer orientation can severely impede the effectiveness of
innovation programs of a company.
Clayton Christensen was one of the first researchers to identify customers as a
potential
impediment
of
effective
innovation
management
of
firm
(Christensen 1997; Christensen and Bower, 1996). Christensen identified this

phenomenon first when he studied the solid-state disk drive industry. In the
hard-disk-drive industry, every new product generation bread a new market
leader. Why where incumbents not successful introducing new product
generations? You would assume that they did under-invest in R&D, had
50

incompetent product managers or were simply over-confident to rely on their
cash-cow products. However, all incumbents had technically feasible designs
of next product generations in their development pipeline. Their main problem
was to identify a sustainable customer base to make establish the business
case for their innovation. Being close to the market actually prevented leading
firms to thrive in innovation. Christensen named this phenomenon the
tyranny of the served market (Christensen, 1997).
As Christensen showed, this phenomenon prevails most likely under conditions
of disruptive innovation, where new product architectures emerge in initially
unattractive market niches. In the case of hard disks, the Personal Computer
fundamentally changed design parameters for hard disks. Catering to the then
dominant mainframe computer architecture, companies prioritized on storage
space and performance, but did not have to care for disk-size. In contrast,
disk-Suppliers for Personal Computers had to compromise on performance and
storage capacity simply in order to be able to fit disks into desktop computers.
The Personal Computer initially appeared as a negligible niche market.
However, the explosive growth of the PC market increased profits of the
innovators, allowing them to re-invest into R&D and subsequently enhance
performance to levels on former mainstream markets.
In the case of the hard-disk industry, listening to the customer prevented
leading
suppliers
to
mainframe-computer
manufacturer
prevent
from
allocating resources for keeping a foothold in the emerging PC market.

Eventually, start-up companies, often times founded by employees of the
leading firms, filled the gap. Innovators were able to enter the learning curve
and soon could offer hard-disks that beat the critical performance threshold of
mainframe-hard disks and thereby even break into the incumbent market.
This pattern of disruption can be found in many markets. Initially a new
technology underperforms on parameters that are crucial in the established
mainstream market, provides valuable in a seemingly negligible niche. The
niche develops unexpected growth potential. Scale economies in the growing
mass market generate profits that are re-invested in improved performance.
Eventually the innovation can beat established technologies in the mainstream
market. For example CDs have replaced Floppy Disks, Flash-storage is
replacing CDs.
51

The mobile-phone market provides a recent intriguing example: Nokia used to
be the dominating company in terms of volumes and sales and for a long time
held a leading position in many segments as well as quality leadership for
many functions, for example mobile photography. Its strategy is based on a
wide range of affordable, high-quality products covering almost any market
segment, from simple user to advanced professional. Its emphasis was on the
design of handsets were it succeeded to integrate an ever growing range of
technical functionality, including USB-connections, FM radio and high-quality
cameras.
For a long time the smart-phone market appeared to be a small high-end
niche for technology-savvy and sophisticated business users. The entrance of
Apple re-defined the smartphone, by moving the focus from handset-features
to the user-interface. While Apple started to cater to the smartphone niche, it
improved
usability
by
simplifying
user
interfaces,
attracting
software
developers eventually driving the growth of the application. The focus on

usability, intuitive design-interface as well as the omission of features in
favour of simplicity helped to transform the smartphone from a niche to a
mass-consumer
product that now is re-defining the mobile phone industry.
Curiously, Apple can pocket-in more than 50% of the industrys profits with
the tiny share of sales of around 2% (Figure 19). This follows the classic
pattern of disruption, where innovation starts in a seemingly negligible niche
that eventually transforms the mainstream market.
52
Figure 25. Mobile phone market share and profit distribution over time
Disruptive innovations follow a common, general pattern (Figure 20):
The market leaders have a broad range of innovation projects in the

pipeline but are forced to prioritize on innovations that appeal to their
present customers.
Their pressure to serve their existing customer base forces incumbents

to move attention from emerging market niches, even in cases where
they perceive an emerging opportunity.
New entrants focus on the niche and realise its growth potential. Fast
growing markets allow for re-investment and a fast running through the
learning curve.
Ultimately, new entrants are able to provide performance that matches

the requirements of established markets. They are able to break into
the domain of existing market leaders and disrupt their existing
business.
53
Figure 26. Disruptive vs. Sustaining innovations

Source: Christensen et al, 2005
Thus companies need to understand if they operate under the condition of a

sustaining or a disruptive innovation. Sustaining innovations are rather
incremental and refer to the established pattern of demand. Under such
conditions, the existing customer base is a valuable source of ideas for product
improvements, additional features or small clever tweaks.
In the context of disruptive innovations, customer information can be
misleading. Most importantly, disruptive innovations cater to market niches
that are not representative for the mainstream market, like for example
personal computers or smart-phones in their nascent stages. Disruptive
innovations under-perform on many criteria that are highly valued in the
mainstream market. As a consequence, mainstream customers do perceive
disruptive innovations rather as a backward step.
Under the conditions of sustaining innovation, present customers are a
valuable source of intelligence. Ultimately the introduction of a new feature
needs to stand the test of the existing customer base. In disruptive innovation
though, future customers are substantially different from present customers of
an incumbent. Thus, the existing customer base can prove misleading under
conditions of disruptive innovation (Table 9). Therefore, firms should use their
54

customers and at the same time be proactive and brave, disturbing their
beliefs and habits (Figure 27).
Table 9. Differences of Sustaining and Disruptive Innovations
Figure 27. Market pro-activeness and reactiveness

Source: Sandberg, 2008
55
3.2 The Marketing Process and Innovation Insights from

Entrepreneurship Theory
How can customers provide a dysfunctional role in the market environment?
How
can
companies
lose
track
by
following
customer
preferences?
Entrepreneurship theory of the Austrian School of Economics provides a viable

explanation of this curious phenomenon (Shane and Venkataraman, 2000;
Kirzner, 1973, 1997). Hayek (1945) and Von Mises (2006) argue, that the
main contribution of markets in society is to signal the present opportunity
costs of resources (Keizer, 1989). Opportunity costs reflect the next best
valued use of a resource (Rothbard, 2006). Thus, Austrian economists present
a picture of the market that differs fundamentally from the mainstream. In
mainstream economics the market price is the result of given preferences and
production conditions. Under certain conditions, a market clearing equilibrium
arises. In contrast, for Austrian economists, the market is an entrepreneurial
bargaining process, where entrepreneurs speculate about the highest valued
use of a resource (Shane and Venkataraman, 2000; Kirzner, 1997; Von Mises,
2007; Lachmann, 1956). More importantly, entrepreneurs bid for resources
with the expectation of future profit potential for example as part of an
innovation process (Lachmann, 1956). The market price of a resource
indicates what entrepreneurs have to offer to resource owners in order to
unlock resources from their present uses and use them for higher valued
business projects (Foss et al. 2007; Lewin, 1999; Lachmann, 1956).
Von Mises and Hayek argue that this entrepreneurial market process enables
societies to put resources to their highest valued use and enter growth paths
driving innovation and prosperity (Von Mises, 2007; Hayek, 1945; Keizer,
1989). Socialist calculation by a centralised bureaucracy is dysfunctional in
that regard, as it does not allow for entrepreneurial valuation of resources.
This explanation of market-based valuation bears a crucial implication for the
valuation of an innovation. Market prices indicate the valuation of resources in
their present uses, the value that any innovative use has to beat (Foss et al.,
2007; Von Mises, 2007; Lachmann, 1956). But it provides no valid information
56

on the future value of resources, beyond the fact that a bidder shows an
expectation for a higher value potential.
As a managerial implication, real market prices are good indicators for the
present value of resources, but do not express future value of products.
Kirzner (1973 and 1997) highlights that entrepreneurs are systematically
challenging market conditions by spotting and exploiting opportunities that
buyers
and
sellers
have
missed
(Shane
and
Venkataraman,
2000).
Entrepreneurs are agile actors who are eager to spot opportunities that others
missed and direct business ventures for their exploitation.
More importantly, levels of business opportunities can differ. The simplest
form of business opportunity is arbitrage, where some buyers are offering too
high prices, some sellers charging to low prices, so that entrepreneurs can
simply profit by buying low and selling dear. However, these low-hanging
fruits of innovation are easily competed away. Higher profit opportunities lie
in more complex forms of innovation, for example the integration of hitherto
disconnected markets, the implementation of new manufacturing methods or
the exploitation of valuable knowledge revealed by Research and Development
(R&D) activities.
Figure 28. The value of the firm during the innovation process
According to entrepreneurship theory, this is the essence of business the

systematic attempt to identify, explore and exploit opportunities for higher
57

valued use of resources (Shane and Venkataraman, 2000; Kirzner, 1973,
1997). In an early stage this is likely to be speculative in nature. If successful,
products of entrepreneurship will be higher valued than resources in their
present uses.
This has important implications for marketing in an innovative environment.
As part of the innovation process, the relevant question of marketing is related
to future potential for value creation and the valuation of future products. This
implies a pro-active market approach, directed towards future needs, latent
needs and unrealised potential. In contrast, once the potential of an
innovation has become apparent and well understood, marketing focus is on
exploitation of the known opportunities with a re-active approach (Sandberg,
2008).
3.3 The rise of business models as a response to the innovation

challenge
Following the entrepreneurship theory and the Austrian School of Economics,
the major function of business organisation is the systematic exploration and
exploitation of business opportunities (Shane and Venkatarman, 2000).
In
principle,
there
is
no
limitation
of
potential
sources
of
business
opportunities. However, one result of the continuous quest for opportunities

has been the systematic investment by businesses into R&D (Box 1).
Industries like pharmaceuticals, chemical or electronics have thrived by
investing in the acquisition of new knowledge as a basis for new differentiated
products, that provide added value to customers and profits to companies
(Chesbrough, 2006, Arora et al. 2000). Pioneers of R&D-based businesses
have been enjoying differentiated positions and juicy profits from monopolylike positions in cases of valid patents even legally protected.
58
Screen 1
Screen 2
Ship
Phase One
Product/Process idea
generation and concept
development
Phase Two
Detailing of proposed
project bounds and
required knowledge
Phase Three
Rapid, focused
development projects
of multiple types
Figure 29. Development Funnel Model

Box 1. Traditional sources of New Ideas
New ideas for industrial research may be derived from the correct use of the
information available to a firm. The information and the sources for new
opportunities, theoretically, are available to any firm. Differences between
firms occur because of different levels of preparedness of the firm to interpret
this information (Wheelwright and Clark, 1992). Information may be available
from a firms internal or external sources. Tidd, et al. (1997), Cooper (1993)
and Himmelfarb (1992) identify several sources of information that are
summarised by the author in Table 10.
The search for new opportunities that appear in the marketplace is one more
source of product ideas. Robert (1995) and Afuah (1998) refer to several
indicators of opportunities that major innovative firms monitor in order to
identify them and transform them to new products. These sources are
summarised by the author in Table 11.
59
Table 10. Sources of Information for new Ideas

Source of Information
Characteristics
Managers
Entrepreneurs; Start-up firms
Customers
Needs and Wants
Suppliers
Own research; Co-operation
Production, Engineering & Quality
Problems; Bottlenecks; Quality
Departments
problems
Individual Inventors
Inventions; Idea Brokers
Patents & Other Publications
New Developments in the market
Rival Products
Learn from the rivals successes and

failures
Ideas held in an Idea Tank
Old ideas; Matured markets and

technology
Outsiders
Different sector; Converging

technologies
Table 11. Sources of Opportunities for new Ideas

Source of Opportunities
Characteristics
Unexpected Successes
Changing patterns of customer behaviour
Unexpected Failures
End of life cycle; New Strategies are required
Unexpected External Events
Social life of people, health, security or

environmental disasters
Process Weaknesses
Bottlenecks; Production Process problems; Supply

Chain
Industry/Market Structure
New Regulation/Standards
Change
High-Growth Areas
Gross Domestic Product or Population increases
Converging Technologies
New technologies and markets
Demographic Change
Income, age, education and mix
Perception Change
New customer needs and wants; directions from

Advertisement
New Knowledge
Research activity
Selection criteria have been proposed in order to standardise the process of

selecting
an
idea
and
proceed
with
60
its
development
(Cooper,
1993;

Himmelfarb, 1992; Roussel et al., 1991):
The unique benefit that the new product will offer to the
customers. The new features that the product will include, i.e. the valuefor-money, or the customer needs that have been identified and covered
by this product, should be clear and compared with the competition. This
element has been identified as the number one factor for the success of a
new product (see Section 4.2) and should be reflected in the evaluation
criteria.
The fundamental fit of the idea with the strategy of the firm.
Additionally, the level of risk that a new idea involves should be compatible
with the risk policy of a firm.
The feasibility of the ideas against the technical, marketing and
production capabilities of the firm. Shortage of capabilities that have not
been considered will become apparent during the development or the
production phases where capital and resources have already been spent
and wasted.
Market attractiveness. The market target, market size and target price
need to be identified. This creates a framework for identifying the payback
period and whether the project is economically worthwhile for the firms
investment. This information will be tracked in more detail in the next
stages, but a first evaluation often identifies the non-feasible ideas.
Legal, health, environmental and ethical standards. Potential changes
in legislation or even new technologies that emerge and may be dominant
at the time that the product will be launched on the market need to be
considered.
A low score on any of these criteria should be considered as a kill sign for the
project. The easiest points of the NPDD process at which to kill a project are
the early stages of conceptualisation and design, where resources have not
yet been committed and people do not yet feel a strong ownership for the
particular project (Cooper, 1993). The ability of the firm to kill a project is
influenced by factors that attempt to overtake the firms official policy.
While R&D based business appeared as a comparatively sure bet on profit

opportunities, its blueprint process (Figure 29) is coming under pressure.
61

Initially, businesses like IBM, Pfizer or Xerox, invested in laboratories, that
directed research with the aim to use finding for the development and
commercialisation of differentiated products.
One consequence of the profitability of R&D, was the attraction of imitators
and increased competition that now has been almost routinizing innovation
activity (Baumol, 2010, 2002). Upstream, competitive investment into R&D
raises the bar for valuable findings in R&D. A prominent example is the
struggle of the pharmaceutical industry to refill its research pipeline.
Downstream, the growing range and speed of innovation activities reduces the
time a company is able to recoup its R&D investments (Chesbrough, 2006).
Rising costs and pressure on revenues are forcing companies to open up their
innovation process. The imminent response is to broaden the revenue base for
exploiting the innovation and while drawing on a broader stream of ideas in
the exploitation phase (Figure 30).
Figure 30. Innovation based competition and the rise of open innovation
models
Sources: Chesbrough 2006
62

This acceleration of innovation based competition forces companies to re-think
their approach to organisation. Traditionally innovation theory regarded
organisation as devices for creative destruction (Schumpeter, 1934) and
therefore as the primary tool for an entrepreneur to implement an innovation
and exploit its value.
Rising costs and decreasing revenues enforce a response, increasing the share
of external sources of innovation. Collaboration with external suppliers,
inventors, universities and research labs shows the potential of decreasing
costs and leverage internal innovation activities. Companies in industries as
diverse as consumer goods (for example Procter & Gamble, Box 2) or
microprocessors
(Intel,
see
Chesbrough,
2006)
are
using
external
collaborators in order to drive down costs and increase performance of

innovation activities.
Figure 31. Open Innovation Process

Source: adapted from Chesbrough, 2003
63
Box 2. Procter & Gamble connect and develop for improved innovation
performance
At the end of millennium, Procter&Gamble started to experience a familiar

pressure of commoditization of its product portfolio. Market power of
retailers like Wal-Mart drove down margins and forced redundancies. P&G
managers realized that simply innovating was not enough to match the
bargaining power residing in distribution channels. Its management came with
its connect & develop program as a result. At the heart was the aim to
attract a broad range of around 2000 external suppliers and 7000 inventing
partners for increasing the product and brand-portfolio. Collaborators were
established companies, like German chemical giant BASF, but also Italian pizza
bakers and individual inventors. This open innovation initiative led P&G back
on the path to profitability.
64
Source: Houston and Bakkab, 2006
65
Opening-up the organisation can also unlock potential on the revenue-side.

When a company struggles to develop its idea into a product or service, it
might support others that do not have the relevant knowledge and insights but
have the resources and capabilities to implement the innovation. Thus, instead
of selling products and services to consumers, companies can offer their
innovations to collaborating firms and recoup their innovation investments
through licenses or profits from joint ventures with partnering firms.
IBM has created an additional annual revenue of US$ 1bn simply by installing
a department that systematically filed IP and looked for ways to commercialise
ideas that laid idle in the firm and were not used for anything. Another
remarkable example is Qualcomm that succeeded using an IP-licensing for
establishing its CDMA standard for mobile-networks that proved extremely
profitable (Box 3).
Box 3. Qualcomm - using networks for speed and profits
Qualcomms core technology is around mobile signal transmission. When its

engineers invented a standard for digital mobile communication, management
realised that time is almost up, as the competing GSM standard was close to
worldwide market dominance. Initially Qualcomm built all elements of a
mobile-network, antennas, network computers and even handsets. However,
time pressure demanded that Qualcomm needed to find a quick way to the
market in order not to be driven out by competing mobile systems. The
response was to license out the technology to manufacturers of networks and
handsets. Open innovation helped not only Qualcomm to speed up its access
to markets like South Korea and the USA, but also rendered it into one of the
most profitable technology businesses with margins at around 30% and
revenues of US$ 7.5bn.
66
Source: Mock, 2005
This opening up of the innovation has transformed the way technology

managers think about organisation. As a consequence, researchers and
managers are broadening their view from the focal organisation towards its
network of suppliers, distribution partners, inventors, partners and other
stakeholders. This open approach to organisation is behind the evolving
concept of the business models. Coming from a technology management
perspective Chesbrough and Rosenbloom define the function of a business
model as (Chesbrough and Rosenbloom, 2002, p. 533):
to articulate the value proposition, i.e. the value created for users by
the offering based on the technology;
to identify a market segment, i.e. the users to whom the technology is

useful and for what purpose, and specify the revenue generation
mechanism(s) for the firm;
to define the structure of the value chain within the firm required to
create and distribute the offering, and determine the complementary
assets needed to support the firms position in this chain;
to estimate the cost structure and profit potential of producing the

offering, given the value proposition and value chain structure chosen.
Business models are also a response to the increased options for connecting
different legally independent organisations, by the means of information
67

technology and new types of contracts. Virtualisation enabled decoupling
information from physical activities, thereby enabling new connections
between activities, resources and management-governance (Zott and Amit,
2002).
A crucial element of e-Business is the re-configuration of business
activities with the help of information infrastructure. In that regard, the

business model provided a conceptual focus that captured the re-configuration
of factor- and product markets with stakeholder activities, as reflected in Amit
and Zotts definition:
A business model depicts the content, structure, and governance of
transactions designed so as to create value through the exploitation of
business opportunities. This provided opportunities for new entrants. For
example online shops are able dis-intermediate stages in the physical
distribution network, by collecting orders online and use them to direct supply,
manufacturing and distribution operations (Amit and Zott, 2001, p. 511).
Ultimately, e-business is just an indicator of an increased flexible approach to
organisation, with the aim to synchronize organisational structures with
emerging business opportunities. Ultimately, business models are at the heart
of strategies aiming to succeed with a focus on emerging potential for value
creation and furnished by a flexible approach to organisation (2010, p. 3):
The business model is a structural template of how a focal firm transacts with
customers, partners, and vendors; that is, how it chooses to connect with
factor and product markets. It refers to the overall gestalt of these possibly
interlinked boundary-spanning transactions.
Thus business models are a strategic response to the challenge to align
structures and strategies in innovation process.
Or in other words they are the design of organisational structures to enact a
commercial opportunity (George and Bock, 2011). Business models are
devices to navigate a company towards its most promising business
opportunities.
68

3.4 Marketing and business models
Marketing seems a natural ally of business model thinking. Customer value is
its ultimate ratio, value chain thinking is at the heart of marketing-channel
design and pricing policy is related to the core question of value capturing by
the firm. However, experience of disruptive innovation show, that marketing
and business models can be out of synch. A first step to resolve this paradox
is to understand that business modelling and marketing refer to different
audience.
At the core of marketing is the positioning of the companys offering on the
product markets (product understood here in the broader sense as demand
for goods, services and solutions). The focus of product market strategy is the
uniqueness of the firms offering, i.e. providing unique benefits, low costs or
serving needs of niche segments. The ultimate purpose of business modelling
is the same provide the firm with a unique value proposition. While the
product market strategy however, focuses on the design of marketing
programs that in turn need to be implemented by the organisation, the
business model approach builds upon the orchestration of its activities within
the larger network of the firm (Table 12). In contrast a product market
strategy targets the position in the market.
Table 12. Business model vs. product market strategy
Business Model
Product market strategy
Definition
A structural template of how a focal rm

transacts with customers, partners, and
vendors. It captures the pattern of the
rms boundary spanning connections
with factor and product markets.
Main
questions
addressed
How to connect with factor and

product markets
Which parties to bring together to
exploit a business opportunity, and
how to link them to the focal rm to
enable
transactions
(i.e.,
what
exchange mechanisms to adopt?)
What
information
or
goods
to
exchange among the parties, and
what resources and capabilities to
deploy to enable
How to control the transactions
Pattern of managerial actions

that explains how a rm
achieves
and
maintains
competitive
advantage through positioning
in product
markets
What positioning to adopt
against rivals
What kind of generic strategy
to adopt (i.e. cost leadership
and/or differentiation)?
the exchanges?
When to enter the market?
What products to sell?
What customers to serve?
Which geographic markets to
address?
69
Unit of
analysis
Focus
between the parties, and what

incentives to adopt for the parties?
Focal rm and its exchange partners
Externally oriented: focus on rms
exchanges with others
Firm
Internally/externally oriented:
focus on rms activities and
actions in light of competition
Source: Amit and Zott (2008), p. 5
Product marketing strategies are closely related to a phenomenon that Day

diagnosed as the Marketing Capabilities Gap (Day, 2011). Marketing is
experiencing the pressure of similar forces at work in technology management
and e-business. Marketers experience the rapidly explosive environment with
an
exploding
proliferation
information
of
overload,
micro-segments
as
fragmentation
well
as
an
of
markets,
explosive
growth
the
of
communication and distribution channels (Day, 2011; Hagel et al. 2008).

This increasing complexity forces marketers rethink their role in organisations.
Micro-segments, fragmentation and marketing programs aiming at product
market position are becoming increasingly obsolete. A viable response points
towards the same direction as the evolution of business modelling towards
adaptive capabilities of the firm (Figure 32).
Adaptive Marketing
Capabilities
Vigilant market learning
Adaptive market experimentation
Open marketing
Organisation
Aligned with
Market
Metrics
Structure
Market
orientation
Adaptive Business Models
Adaptive Implementation
Activities
Marketing-mix choices
Brand asset management
Customer asset management
Figure 32. Implementing adaptive marketing capabilities

Source: Day (2011), p. 191
70
Vigilant
Leadership

In the strategic perspective, marketing needs to develop adaptive marketing
capabilities that support the company in its pursuit of creating open business
models (Day, 2011). Important elements are:
Vigilant market learning: Elements are a strategic focus with a

perspective beyond the immediate. In that regards, managers need to
be more open, search for diverse inputs and foster wide-ranging
professional and social networks.
Strategic foresight: This entails a longer time horizon and a more

flexible approach to strategy formulation.
Adaptive market experimentation: This requires a culture of

exploration and experimentation. Important elements are supporting
employees with providing unstructured time for exploration activities,
support a culture of risk-taking, curiosity and exploration.
71
4 Marketing in the Entrepreneurship Process

Marketing has a vital role to play in the entrepreneurship process. Ultimately,
the value of products offered on customer markets needs to exceed the value
of resources needed for their offering. So marketing looks like the first point of
call, when managers need an idea of customer valuation.
Why then incumbent firms failing so often to provide appropriate valuations of
innovations?
As Day (2011) points out, marketing is facing a capabilities gap in the face of
increased
innovation
based
competition.
The
explosive
dynamics
and
complexity has undermined the viability of the strategic marketing planning

process.
crucial
step
for
marketing
is
to
embrace
the
increasing
interconnectivity of businesses channels and build capabilities and structures

that support the design of adaptive business models (Figure 33).
Figure 33. Marketing in an open network

Source: Day, 2011, p. 190
72
Marketing in the
Exploration Phase
Marketing Strategy and

Business Model Design
Marketing in the
Exploitation Phase
Identifying Sources of
Innvoation
Connecting with Innovative
Users
Building Value-in- Use Models
Define the Value Proposition

Define the Revenue Generating
Mechanism
Design Resource Base and
Value Network
Understanding Diffusion of
Innovations
Communication in the Diffusion
Process
Figure 34. Marketing Roles in the innovation process
Furthermore, firms should identify the role of marketing and its distinctive
tasks in the different stages of the innovation process (Figure 34):
Marketing in the exploration phase: The exploration phase is

concerned with new opportunities. Here marketing is concerned with
un-addressed needs of users, user-based value of an innovation as well
as perception of an innovation. A potential challenge of established
companies is that relevant users of an innovation are not necessarily its
present customers. A challenge of customer valuation and prioritization
is to identify customers or users with potential future value.
Formulation of business models: The formulation of a
business
model is a vital step to make an innovation strategy operational. A

business model aims to direct the introduction and capitalization of a
value proposition. Thus a business model comprises: the formulation of
a value proposition; the revenue-generation mechanism that a company
intends to apply; and, the definition of the relevant resources and the
value network needed for the realization.
The exploitation phase: Here the role of marketing is focused on

generating the revenue stream. Communicating with prospective
customers, orchestrating the value network, i.e. the distribution
channel.
73

From the perspective of this model it becomes clear, why incumbents tend to
struggle with disruptive innovations. While almost every company is involved
in some sort of innovation process, incumbents are primarily focusing on the
exploitation phase of that process. They relate to their most profitable
customers and cater to their highest valued needs. When the most promising
future business ideas emerge in domains that are distant from the present
customer base of company, customer-centric approaches are likely to
disconnect the company from future markets. Therefore, the exploration
phase can rely only partly on existing market information. Thus, this phase is
dominated by the search of new dimensions of Value-in-Use that are
currently not served by the current market supply.
A first observation is that marketers of established companies are rather
concerned with exploitation activities realising sales of products and services
where both customers and companies have gained a good understanding of
their valuation. Once the dominant design of a product category is
established, marketers can rely on macro-data to direct their market activities.
The position of the offering in the market place entails information for pricing,
indicators for segmentation like demographics have become apparent, efficient
channels have been identified and established. In such environments,
marketers can use a set of market indicators for the efficient management of
their activities. Furthermore, marketing is related to resource allocation. In
market based economies, companies need to allocate resources to generate
sales. This nurtures innovations that fit into the pattern of demand by present
customers.
In the nascent stages of an innovation, the situation is fundamentally
different. Radical innovations, that draw on new types of users, new
paradigms, usage patterns and different evaluation frameworks, present a
deviation from existing customer-company relationships. To start with, there is
no valid market information about customer valuation of the innovation. How
much the customers are willing to pay will be revealed in the market process.
Current market data might provide some benchmarks or orientation points for
innovations, but they provide no direct valuation. But innovators have an
alternative. Instead of relying on market data, they can rely on the value-inuse of an innovation. A value-in-use analysis reveals the cost and benefit
74

implications of an innovation for its users. Value-in-use expresses the value of
an innovation from the perspective of the user. All benefits of an innovation,
like improved quality, enabling of more efficient processes, ethical values or
social status, as well as user-cost reductions, are potential sources of value-inuse.
4.1 Transforming Business Models to Marketing Strategy

From a business perspective the vital task of strategy is to translate
opportunities into actionable project that ultimately converts into profits. At
the core of the strategy stands the business model, where a company defines
its value proposition (the innovative offering), the mechanism for revenue
generation and the architecture of its value creation network.
As discussed in Section 3.3, the business model approach differs substantially
from product oriented marketing strategy. Product oriented strategy starts
with an analysis of the company, its specific strengths and weaknesses and
continues with its position within an industry in order to identify generic
strategies. Like product differentiation, cost leadership or the focus on a
profitable niche-segment.
Business model philosophy starts with the identification of the business
opportunity, and seeks the formulation of value propositions, revenue
mechanisms and the design of the value network.
The value proposition describes a value generating offering. The revenue
mechanism describes how the innovating company intends to recover its
investments in innovation. The design of the value network describes what
organization design the company implies for the
exploitation of the
opportunity and how potential partner, complementors and suppliers are

involved in the exploitation of the innovation.
4.1.1 Defining the
Value
Proposition (Product Policy
in
an
innovative
environment)
Business model thinking starts with the identification of an opportunity as
starting point for the definition of value propositions. While value propositions
75

are the basis for the definitions of innovative products, they precede the
definition of innovative products or service offerings.
The starting point is a rather general idea, like a new technology, a more
efficient process or a new design. The crucial step towards a value proposition
is to identify the relevant customers for its markets. A successful innovation
should either offer more value for end-consumers or reduce the costs for value
creation. However, in a complex 'networked economy, many individuals and
organizations are involved in the value creation process. Innovators need to
understand, how their invention is implemented in the value-stream from idea
creation towards the end-consumer. In many cases, the end-consumer is not
necessarily the crucial client, but firms within the value network. Take a look
at the case of Qualcomm, described in chapter 3.3. Qualcomm had developed
a potential valuable technology for digital mobile telecommunication.
Initially, Qualcomm produced all elements that are needed for such a network,
like the network infrastructure, antennas and the mobile phones. The crucial
decision for Qualcomms success was to refrain from offering the complete
system. Instead they exclusively rely on licensing the technology to companys
producing telecommunication equipment or consumer handsets. Instead of
focusing on the consumer market, Qualcomm focused on the business market,
offering companies in the telecommunication business opportunities for
differentiation by digital mobile communication, or cost reductions in the
operation of a mobile communication network. This step provided the following
crucial advantages:
1. Time advantage: As licensor of its technology, Qualcomm did not need
to take heavy investments into transmission equipment, network
infrastructure or handset development. This time advantage helped its
CDMA standard to be considered as an alternative to the GSM status.
2. Differentiation advantage: As an engineering company, Qualcomm
lacked
the
crucial
competencies
for
differentiation
on
consumer
markets, like product design, branding or the offering of value added

services. Offering its technology to handset-manufacturers provided
them with a valuable opportunity for the differentiation or their product
portfolio.
76

3. Profitability: focusing on business rather than consumer markets helped
Qualcomm to leverage on complementary investments by industry
players.
This
translated
into
an
extremely
profitable
business
proposition.
Identifying value propositions have substantial implications for eventual
product and service-design. In the case of Qualcomm, its first definition to
provide an integrated network for the network operator, required the design of
a systems architecture and the production of a wide set of at times complex
component. In contrast, as a licensor, Qualcomm has almost completely
refrained from product design. Handsets using Qualcomm standards get a the
computer processor that directs connection and communication.
In short, the crucial redefinition of the value proposition, was to substitute
consumers
with
equipment
and
handset
manufacturers
as
the
main
addressees of the value proposition.
Identification
of Value
Potential
Determining
key Addresses
of Value
Proposition
Value Proposition
Figure 35. Elements of a Value Proposition
77
Implications
for Product
and Service
Design

Box 4.Better Place: Value propositions for electric cars
The electric car holds many promises, like reducing gas and noise emission,
enhancing driving comfort and performance. To date all these benefits come at
the trade-offs of short mileages per full battery charge and long recharging
times. Better Place develops a value proposition to deal with this problem:
Offering the switching of charged for empty batteries as a service.
Car drivers do not get the battery as part of the car, but just rent one fully
charged battery. As soon as they run out of power they drive to a battery
switch station and switch a battery for a fully charged one. While technically
the battery charging process takes intolerable time for long-range journeys,
switching batteries is only marginally different from gas-refuelling.
From a business perspective, value propositions need to be quantified for

designing and directing business projects. A starting point for quantifying the
value proposition is to identify the net value of its implementation, balancing
all benefits and costs and contrasting with the next best alternative in the
market. This is the basis for the following formula (see Anderson et al. 2006):
Vs-Ps>Va-Pa
Where Vs is the value of the suppliers offering, Ps its price, Va the value of
the best alternative and Pa the price of the next best alternative.
78

This
simple
formula gives
the
first
insights
that are
useful for the
determination of value propositions. Basically it indicates that the net-value of

an innovation must exceed the net value of the next best alternative.
Two sources of value propositions strike at first sight:
Innovators can arrive at a superior overall proposition by providing

higher value for the same price as the next best alternative. The crucial
information for these types of value proposition are insights from the
value-in-use study of users. All sorts of benefits are potential elements
of this value, for example: better performance, reduction of costs,
simpler operation, higher quality, higher level of reliability, increase of
revenues, enlarging of brand value or strengthening of reputation.
Innovators can arrive at superior overall propositions by introducing

innovations that allow the provision of equal value at lower prices. This
type of innovations has gained ground by the rise of emerging
economies, that grow by frugal innovations that are driven by lower
cost. Fast growing developing economies call for innovations that cater
to the bottom of the pyramid. There, the main challenge is not for
performance barriers, but to provide affordable solutions that work in
the context of underdeveloped infrastructures. One major success, for
example, of General Electrics was the development of a mobile cardiometer, that is mobile enough for physicians caring for huge rural areas
and affordable at the same time.
Furthermore the value proposition should look at the types of alternatives,

which may not confined to products and services available on the market, but
self-production
and
self-service
of
potential
customers.
For
example
alternative value proposition may be gained not by offering a product or

service but by convincing the customer to produce the product/service and
consume it directly. The firm on such cases gains by saving the operational
costs of delivering such products/services. Such examples are the internet
banking services, the ATM based services or the booking and self-check in
services by the airlines.
79

4.1.2 Designing and quantifying revenue generation mechanisms
Even if a start-up company may incur losses over years with the support of
external investors, the ultimate business test of an innovation is if it can
recoup its investments. Thus, determined innovators need to care about
revenue generating mechanisms.
The challenge rises from the need to balance customer risk with the need of
the supplier for a basis for value capturing. In the pioneering days of Internetbusiness, most business plans prioritised on maximising the user base of a
service, mostly by offering internet-services for free. While this most probably
drove the tremendous speed of Internet-adoption, still today profit-searching
companies try to use mobile-services where payment mechanisms are
established and accepted in favour of the free-wheeling web-culture.
From a customer perspective, innovation revenue is one substantial element of
the costs of innovation, in addition to costs related to implementation, the lifecycle costs and effects on the cost structure of the users process.
Business models help to share risks between suppliers and customers. From a
business model perspective, products and services are alternative means for
exchange of value for revenues. Take the case of Rolls Royce Airplane
engines. Airlines can buy an aircraft, including its engine. In that case they are
responsible for all costs, recurring to maintenance and repairs over the lifecycle of the airplane. Alternatively, Rolls-Royce offers maintenance and repairservices for a service fee. In that case, Rolls-Royce takes responsibility for a
basic functionality of the airplane engine. The most extreme form is a
performance contract. In its power-by-the-hour contracts, Rolls-Royce is
only compensated for the hours the airplane is effectively in operation. This
makes Rolls-Royce effectively part of the flight operation, and incurs
substantial business risks of flight operations. From the perspective of the
airline, this shifts part of the risk of flight operation to the engine
manufacturer (See Wirtz and Ehret 2009; Ehret and Wirtz 2010).
80
Supplier
Customer
Service based
Business Models
(Supplier and
Customer share
Risks)
Performance
based Business
Models (Supplier
takes Risk)
Product based
Business Models
(Customer takes
Risks)
Figure 36. Business model and risk sharing

Box 5. Examples of funding mechanisms
Charge the customer in a palatable
Have the customer do the work. One
way. The classic approach to funding
other type of funding mechanism for
something of value is simply to have the
enhanced service puts the cost back in
customer pay for it, but often it is
the customers court, but in the form of
possible to make the form that payment
labor. Offering self-service, from pump-
takes less objectionable to customers.
your-own
gas
Rarely is that done with la carte
brokerage
accounts,
pricing for the niceties. A large part of
established way to keep costs low. If
Starbuckss appeal is that a customer
the goal is service excellence, though,
can
you must create a situation in which the
unthinkable
customer will prefer the do-it-yourself
that Starbucks would place meters next
capability over a readily available full-
to its overstuffed chairs; a better way to
service
fund the atmosphere is to charge more
achieved this, at last, with flight check-
for the coffee. Commerce Bank is open
in kiosks, although the value proposition
late and on weekends earning it high
they initially presented was dubious. At
marks on extended hours and it pays
first, passengers felt compelled to use
for
half
the relatively unappealing kiosks only
percentage point less in interest on
because carriers had allowed the lines in
deposits. Could it fund the extra labor
front
hours by charging
intolerable.
linger
almost
coffeehouse
that
indefinitely
setting.
service
Its
by
for
giving
in
evening
and
of
to
alternative.
manned
self-managed
is
Airlines
desks
to
well-
have
become
weekend visits? Perhaps, but a slightly
Today, however, frequent fliers prefer
lower interest rate is more palatable.
the kiosks because they provide readier
Management in any setting would do
access to useful tools like seat maps.
well to creatively consider what feels
Businesses looking to achieve service
81

fair to its customers. Often, the least
excellence in other settings should not
creative solution is to charge more for
take such an indirect route. They should
the particular service feature you are
set themselves the challenge of creating
funding.
self-service capabilities that customers

will welcome. Indeed, if a self-service
option is truly preferable, customers
should be willing to take on the work for
nothing or even pay for the privilege.
When managers designing self-service
solutions are not permitted to add the
inducement of price discounts, they are
forced
to
focus
on
improving
the
customer experience.
Whatever funding mechanism is used to cover the costs of excellence, it is best
thought out as thoroughly as possible prior to the launch of a new service, rather than
amended in light of experience afterward. When a service thats been perceived as
free
suddenly
has
fees
associated
with
it,
customers
tend
to
react
with
disproportionate displeasure. And since companies cannot thrive by offering service

gratis, it is vital that they not set expectations that cant be sustained. With careful
analysis and design, a company can offer and fund a better service experience than its
customers would enjoy elsewhere.
Source: Frei, 2008
The supplier challenge in revenue generation is mostly incurred into a

mechanism for capturing value of an innovation. This resides with the
challenge
of
entrepreneurial
imitation
(Kirzner,
1997).
Profit
indicates
opportunities and attracts imitators who want to capture a share of the pie,
including the customers using an innovation.
The core condition of an innovation is its appropriation regime, that is the way
a regime is protecting an innovator from imitation (Teece and Pisano, 2007).
According to Teece and Pisano (2007) strong appropriability regime is one
where the innovation is hard to imitate, either because of strong legal
protection, for example by patents, copyrights or trademarks, or, because a
technology is difficult to imitate. For example, standards of international
telecommunication are worldwide codified and enforced. This provides a strong
82

appropriability regime for Qualcomm. In contrast, despite music distribution is
in theory partly protected by copyrights, it is hard to enforce in internet
services (Chesbrough, 2006). Thus, the music industry has started lately to
move into mobile platforms, like itunes; to alternative revenue streams
including subscription services like Spotify; or, the value capturing of live
events.
The case of live events is just one example of how services can provide strong
appropriation regimes. A crucial element of services is customer interaction.
To the extent that services entail specific elements for a customer, like
personal training, or to a group, like an event, they provide a strong
appropriation regime. Bhide (2008) goes as far to state, that complex services
provide developed economies with a strong competitive advantage over
emerging economies trying to compete by the means of imitative competition.
Many innovators combine customer risk and appropriation regimes when
designing their revenue stream mechanisms. Take the example of open
software, like the Linux operating system. This takes part of the customer risk,
as customers do not need to invest financially into the operating system.
However, open-source software providers use value added services in order to
re-coup software development costs. IBM backs up the Linux system with a
range of software patents for free use, and therefore can use a platform for
IT-services that is independent from competitors like Microsoft. IBM recoups
by the means of its service offerings (Chesbrough, 2006).
4.1.3 Design of the Resource base and Value network
A crucial question of a business is the definition of its scope. Management fads
of recent decades have approached this with outsourcing or make-or-buy
decisions. But in fact, every business needs an idea of what activities are part
of its operations and which are not. Thus, traditional manufacturers used to
outsource downstream activities to distribution channels. But decisions of
scope refer to insourcing as well. Take Nike for example, which has a
reputation for a low-level of vertical integration. While this is true in a general
sense, Nike controls activities on every stage of the value creation process.
Upstream, it holds firms that develop and manufacture special high-value
materials. Downstream it operates Nike town-shops, where its products are
presented in an exclusive appealing environment.
83

The philosophy behind this is to orchestrate a value network, that converts
into a premium experience for the customer.
Companies play different roles within value networks. At the core, operationnetwork-architects provide a core entrepreneurial vision for the network, own
the brand, signifying its identity, and are in the position of an orchestrator.
Famous network orchestrators are companies like Nike in sports, Apple in
electronics or big automotive companies like Toyota, Ford or Volkswagen.
Frequently these architects find themselves in favourable positions, as they
control access to the network, contribute the basic philosophy and govern the
critical rules of the network. This puts network architects in the position to
shape core activities, philosophy and rules and thereby also get a substantial
share of profits generated from innovation.
Complementing firms however, operate around the core, have opportunities
too. With such a network they find the infrastructure that may provide a fast
avenue for their innovations. Consider for example the Apple application store,
where Apple acts as the network architect for an ecosystem of small to
medium software engineering companies and mobile service providers. Apple
finds itself in a favourable position, enabling it to claim 30% of all revenues
generated on its app-store for videos, music, books and apps. But it can be
profitable for complementing firms too. Roxio for example, a small gaming
studio that used to make its living with programming jobs for big gaming
studios. The company was close to bankruptcy when it developed Angry
birds an addictive game that proved as the most popular application on the
Apple app-store. The Apple application store worked for Roxio as the fast lane
to success and a valuable alternative to other congested channels. Ultimately,
it saved the company and paved the wave for an astonishing growth story.
As a conclusion, value network design entails the following crucial steps:
Based
on
the
value
proposition,
the
description
of
all
critical
components and activities that are crucial for value delivering and
revenue generation.
An account of organizations and persons who are capable to offer the

critical elements.
84
An analysis of the competencies, strengths and
limitations of the
customer.
Framework of risk-sharing
entrepreneurial
in the
responsibilities
in
value
line
network, that
with
profit
allocates
incentives
and
customer value.
4.2 Marketing in the Exploration Phase

Where do innovations come from? In a market context, by definition they
might come from almost anywhere. An efficient market is built upon the free
flow of information about available products and services as well as their
prices. Thus innovation policies of companies have to target opportunities that
have not yet been reflected in market prices.
A prominent case is the consumer goods company Procter & Gamble that
found itself squeezed by powerful retailers. In the face of massive losses and
the prospect of redundancies the company decided to open up its innovation
process with its connect and develop initiative. The program initiated 2000
innovation projects with suppliers and other external companies. It proved a
massive success, re-strengthening the brand equity of Procter & Gamble and
reinforcing its clout in negotiating with retailers .
A lesson that many companies have learned through the recent decades is
that there are many more valuable sources of innovation further to the R&D
department. These can be suppliers working on improvements of components,
external Research organisations like university-labs, partnering companies or
customers.
Marketing plays a key role in this process, as customers are a potential viable
source of innovation and have the decisive say in the verdict over an
innovation.
One surprising outcome of innovation activities often is that users have
already developed the next successful innovation. Eric von Hippel (1988) first
spotted the phenomenon in the market for medical instruments. Leading
laboratories are actively tweaking, crafting and adapting their instruments.
Medical systems companies learned soon that these clients are a valuable
85

source of innovation. In these cases the crucial step was to translate these
innovations into mass-market designs. The bulk of the R&D had already been
provided by the users.
For many reasons users are a valuable source of innovation. First, they are
perceiving challenges first hand. To the extent that they actively deal with
these challenges, often they are pioneers in that field. In many instances their
user-based-knowledge, which is an implicit type of knowledge that is not easy
to communicate, provides them with relevant expertise for developing an
innovative product or services.
Therefore, an important task of marketing in the exploration phase is to
connect with users and attract them as co-designers for a company. For
examples, Nike was successful by attracting a community of basketballplayers as co-designers of a basketball sneaker. The players were well aware
of major requirements, e.g. reducing pressure on knees and bones. This
awareness in combination with an advanced virtual design package enabled
them to transform implicit knowledge in a productive way.
In several cases however the user is not necessarily identical with the buyer.
For example,
business companies have established large procurement
departments that direct the buying process. While they control the spending
budget, users may have a substantial influence through their valuation and
initiative in the buying process. Similarly on consumer markets, users are not
necessarily identical with buyers, e.g. toys for kids are often bought by their
parents. At any case in order for the users to play this crucial role in
innovation, or to press their procurement actors to such direction, is to
perceive the new offer as a considerable added value.
86
Figure 37. User Base community: the case of Nike sneakers

Source: Fller et al, 2007
4.3 Marketing in the Exploitation Phase

A crucial element of branding innovations is to communicate their value in use.
The most convincing position of a brand is when it is associated with a
valuable everyday activity, i.e. becoming a verb. Google as one of the most
valuable brands has reached that status, as to Google is the equivalent word
for internet search, or in UK to hoover is the equivalent of vacuum cleaning.
Many service companies have been successful in establishing purpose brands.
87

In the US, office worker use to Xerox, if they need copies of documents, or to
Fedex, if they want to send them from coast to coast.
Figure 38. Purpose Brands vs. Endorser Brands

Source: Christensen et al., 2005
Moreover for an innovation to raise to its full potential it is necessary to

capture a promising market position. At this point communicating the value
proposition and convincing customers is the crucial task. Demographic
segmentation, practiced in traditional marketing, is almost useless in that
regard. Innovation research reveals that users show specific behaviour
towards innovation. While innovative users are appreciating innovations for
the sake of newness, conservatives need to be coerced in order to accept new
products or services.
Rogers (1995) provided a series of studies on the diffusion of innovations. He
was able to identify significantly different innovation behaviour of users. He
claims that, users can be segmented along a normal distribution over time
(Figure 39).
88
Figure 39. Adopter Categories within the Diffusion Process

Source: Rogers, 1995
Depending on the variance of their time of adoption, he claims five categories

of adopters:
Innovators are risk taking users, that experience benefits simply by

experimenting with new products and services. For them, tangible value
is not relevant. Simply trying out new things is part of their life driven
by curiosity and experimentation.
Early adopters are rather innovation agents of a social systems. They

try to spot promising innovations and gain from acting as pioneers.
The early majority are taking a rational approach towards innovation

and tend to adopt them as soon as it has proven its value propositions.
Often
times
they
act
as
opinion
leaders
who
influence
more
conservative adopters.
Around the average point of adoption are the late majority. They
represent moderate risk-taking or risk-aversion attitudes towards an
innovation.
Laggards are conservatives who show a negative attitude towards

innovation. They will only adopt it when it has been proved risk free and
has become a commodity.
The major implication for innovating companies is to address and convince the
innovative segments of user, like the innovators, early adopters and early
majority. These are likely to take risk and work as multipliers in the course of
the innovation process. They are also valuable targets of viral marketing
strategies, that predominantly try to stimulate communication within the
market place, than overwhelming the market with advertising messages.
89

Viral marketing is a rather recent marketing approach. It bases on the insight
that users demonstrate different adoption behaviour, from experimental
innovation,
towards
stubborn
conservatism.
In
addition,
users
seek
experiences of peer users as a credible information about the benefits and

risks of an innovation. The core idea of viral marketing is to tap into the
communication process among users, rather than spreading messages to an
anonymous audience. Crucial elements of a viral marketing strategy are:
Identification of the social network relevant for the adoption of an

innovation. For many product and service categories there are easily
identifiable self-organising user groups, like biker clubs for motor cycles,
user groups for software and games or self-help groups for specific
health topics.
Identification of communication relationships and key influencers in the

network. At this point it is crucial to address the key influencers within
the network.
Identification of viral instruments. Early attempts of viral strategies

where the automated or personalised recommendation systems, as the
one still used by amazon.com. More active strategies are blogs, where
innovation prone users generate content and initiate debate of
innovation. In consumer electronics, blogs like engadget or gizmodo
have recently become influential. A more active approach is to make the
product itself viral, by making it part of a communication network, as
part of virtual social networks like facebook. A crucial part is a network
presence including a share button. In categories like movies, adoption
rates could be boosted by the factor 400 (Zsolt et al. 2011).
To conclude, the diffusion of innovations is driven by communication among

users. Viral marketing strategies try to stimulate such communication
processes, by tapping into social networks and nurturing communication.
90

Box 6. The 4 things a service business must get right
Diagnosing Service Design
The success or failure of a service business comes down to whether it gets four
things right or wrong and whether it balances them effectively. Here are some
questions that will sharpen managers thinking along each dimension and help
companies gauge how well their service models are integrated.
1. The Offering
Which service attributes (convenience? friendliness?) does the firm target
for excellence?
Which ones does it compromise in order to achieve excellence in other
areas?
How do its service attributes match up with targeted customers priorities?
2. The Funding Mechanism
Are customers paying as palatably as possible?
Can operational benefits be reaped from service features?
Are there longer-term benefits to current service features?
Are customers happily choosing to perform work (without the lure of a
discount) or just trying to avoid more-miserable alternatives?
3. The Employee Management System
What makes employees reasonably able to produce excellence?
What makes them reasonably motivated to produce excellence?
Have jobs been designed realistically, given employee selection, training,
and motivation challenges?
4. The Customer Management System
Which customers are you incorporating into your operations?
What is their job design?
What have you done to ensure they have the skills to do the job?
What have you done to ensure they want to do the job?
How will you manage any gaps in their performance?
The Whole Service Model
Are the decisions you make in one dimension supported by those youve made in the
others?
Does the service model create long-term value for customers, employees, and
shareholders?
How well do extensions to your core business fit with your existing service model?
Are you trying to be all things to all people or specific things to specific people?
Source: Frei, 2008
91
5 Marketing Innovation Plan

The
automobiles
market
is
currently
experiencing
boom
of
new
opportunities, like new power sources, materials and approaches to design.

Your task is, using the info from Appendix A and B, to set-up an exploration
project for spotting valuable ideas for innovating the automobile industry.
Provide an overview of potential sources of innovation. Develop an idea to
bring in the user perspective and design contributions to market that project!
Task 1. The New Offering
Try to identify and characterise customer types: innovators, early adopters
and laggards of the product.
Using the Marketing Instruments (section 2.3) identify your Value Offering
from your firms point of view and the customers point of view (4Ps/4Cs).
Task 2. Market/Offer Organisation
Briefly review of key concepts of marketing in innovative environments (Figure
34) with reference to the new offering.
Map out how you think your potential customer goes about making a potential
purchase decision for the product. What are the key internal influences (e.g.
motivation) and external influences (e.g. personal influences) that affect their
decision to buy?
Point out how you might be able to influence their decision
with your
marketing programme.
Which are the implications into your business model, e.g. transactions with
customers, partners, and vendors.
Task 3. Market Exploration
Using the concept from the previous task, translate this into a value
proposition. Identify the most direct competitors and record the prices they
charge. Apply the value-proposition formula and explain and validate your
proposition (section 4.1).
Identify the revenue stream for your innovation.
92

Design the value network for your innovation. Do you aim for the role of the
architect or of that of the complementor?
Task 4. Diffusion (communication)
Design a communication strategy (Messages, segments, channels)
introduction to the product in the market using the
for the
Laswell communication
formula (Figure 24).

Develop a purpose brand for the product.
Task 5. Strategic Implementation and Control
What are the most important tasks that you must complete to exploit this
opportunity?
An outline of key indicators for controlling the marketing innovation process.
Task 6. Conclusion
Using the information from the above tasks create a comprehensive Marketing
Plan.
93
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102
blocked!
Appendix A. Mini E
Source: Wikipedia, the free encyclopaedia, August 2011
The Mini E is a demonstration

Mini E
electric car developed by BMW as a

conversion of its Mini Cooper car.
The MINI E was developed for field
trials
and
countries,
States,
Japan
deployed
including
Germany,
in
several
the
United
UK,
China.[1]
and
France,
The
field
testing of the Mini E is part of BMW

Project i, which will be followed in
Manufacturer
BMW
Production
2009-
Assembly
Oxford, England
Class
Small family car
Body style
3-door hatchback
Layout
FF layout
mid 2011 by a similar trial with

the BMW Active E, and the last
phase
of
project
is
the
development of the BMW i3 urban

electric car, that is expected to go
into
mass
production
between
2013 and 2015.[2][3]

The first trial was launched in the
Electric motor
150 kW (200 hp) asynchronous
U.S. in June 2009 and the Mini E
motor
was available through leasing to

Transmission
1-speed helical
Battery
35 kilowatt-hours
(130 MJ) lithium ion battery
private users in Los Angeles and

the New York/New Jersey area.[4]
Another field test was launched in
the U.K. in December 2009, where
Range
100 mi (160 km)
Wheelbase
97.1 in (2,466 mm)
Length
146.2 in (3,713 mm)
more than forty Mini E cars were

handed to private users for a two
consecutive six-month field trial
Width
66.3 in (1,684 mm)
Height
55.4 in (1,407 mm)
periods.[5]
This
trial
program
allowed the BMW Group to become

the
world's
first
major
car
manufacturer to deploy a fleet of

103

more than 500 all-electric vehicles for private use.[6]
i.
History
The Mini E was unveiled at the 2008 Los Angeles Auto Show.[7] BMW is
using its Mini brand to test the market with its electric powertrain
technology but the vehicle was also developed in order to meet new
California regulations that require carmakers to offer zero emission
vehicles.[8]
ii.
Specifications
Powertrain
The Mini E is powered by an asynchronous electric motor that is mounted
in the former engine bay and is rated at 204 PS (150 kW) and 220 Nm
(160 ftlbf) of torque. Drive is sent to the front wheels. The Mini E
employs a lithium-ion battery pack with an overall capacity of a 35
kilowatt-hours (130 MJ). The batteries weigh 572 pounds (259 kg) and
replace the back seat.[9] Top speed is electronically limited to 95 mph (153
km/h). The cars range is 156 miles (251 km) on a single charge under
optimal conditions. Estimates of normal driving conditions put ranges at
109 miles (175 km) city and 96 miles (154 km) highway.[10]
Mini E under the hood

AC Propulsion issued a news release on November 19, 2008, stating that
AC Propulsion is a supplier for Mini E.[11] The news release states that AC
Propulsion supplies a specially developed version of its proprietary tzero, a
registered
trademark,
technology,
including
104
air-cooled
copper-rotor

induction motor and Li ion battery on the Mini E. It is characterized by
high performance, high efficiency, and fast charging.
Charging
The Mini E can be charged through 120-volt (at 12 amp) and 240-volt (at
32 or 48 amp) power sources, and correspondingly, charging times are 20
hours and 3.5 hours (fast-charge system).[12] The user must set the
correct charge rate using the instrument panel before beginning charging.
Detailed instructions are in the user's manual.
The 240-volt 32-amp home "wall box" charging stations for the USA trial
were made by Clipper Creek,[13] with a proprietary electrical connector to
the car made by ODU.[14]
Performance
The acceleration is via drive-by-wire technology. A software mediated
delay makes the vehicle hesitate a little when the acceleration pedal is
first pressed. This artificially
limits
the
electric
motor's response,
preventing burnout from a standstill. After this initial delay, response goes
back to normal, making the Mini E a peppy little car.
The Mini E regenerative braking is designed to capture as much kinetic
energy as possible giving the Mini E a distinct driving characteristic. Once
the driver's right foot leaves the acceleration pedal, the Mini E starts full
regenerative braking. The vehicle slows down significantly as if the brake
pedal were pressed and the brake lights will turn on. On level surfaces
Mini E stops completely and the brake lights will turn off. To slow down,
one may just back off the acceleration pedal a little. Use of the brake
pedal may be reserved for emergencies and quick stops.
Production
The Mini factory located in Oxford, England, supplies vehicle gliders (cars
without powertrains) to a team located in Munich, Germany, which then
adds the electric running gear.[8]
105
iii.
Field trial program
Rear view of the Mini E.
The Mini E trial will be followed by the field testing of the BMW Active E in
2011.
The field testing of the Mini E is part of BMW Project i, which will be
followed in mid 2011 by a similar trial with the BMW Active E all-electric
vehicle which will accommodate seats for four adults and cargo. The
Active E is based on the BMW 1 Series Coupe and will be built based on
the lessons learned from the Mini E field testing. The last phase of "Project
i" is the development of the Mega City Vehicle (MCV) urban electric car
(renamed BMW i3), which will be part of a new brand that will be sold
separately from BMW or Mini, and is expected to go into mass production
between 2013 and 2015.[2][3][15][16] The field testing of the Active E will
include fewer than 1000 cars and will be conducted in Los Angeles and
New York, but BMW is also considering expansion to other areas.[2][3]
U.S. program
In the U.S. a total of 9,500 people signed up to lease the MINI E for the
450 cars available.[17][18] In June 2009, Mini started the program by
106

leasing 250 units in Los Angeles area and 200 in the New York/New Jersey
area.[2] The leasing price was set at US$850 (approx. 600) a month for
one year and included collision coverage, maintenance costs, and home
installation of the charging station.[3] Residents of New Jersey did not pay
sales tax on their lease due to the existing state exemption for battery
electric vehicles.[19]
In May 2010 BMW announced that leasing could be renewed for another
year at a lower price of US$600 a month.[15][20] This renewal was offered
to all individuals who currently have a Mini E but fleet customers are
excluded, and according to BMW half of all current lessees agreed to the
extension.[15][20]
European program
France
Field testing in Paris was scheduled to begin in 2010.[21][22]
Germany
A total of 100 trial vehicles were assigned to Germany.[2] Field testing was
schedule to begin in Munich in September 2010, for a leasing fee of 400
(approx. US$517) per month.[23][24]
United Kingdom
Testing in the U.K. began in December 2009 with more than 40 Mini E
cars handed to private users for a two consecutive six-month field trial
periods.[5] The leasing price was set at GB330 (approx. US$536) per
month, which includes VAT, insurance, service and maintenance.[5] In
addition, one MINI E was delivered to the Government car pool in
Downing Street to be tested by ministers in an urban environment on
their official business around London.[25]
The UK trial is a partnership between BMW Group UK, Scottish and
Southern Energy, the South East England Development Agency (SEEDA),
107

Oxford City Council and Oxfordshire County Council. Data collection and
research will be conducted by Oxford Brookes Universitys Sustainable
Vehicle Engineering Centre throughout the UK project. Funding support is
provided by the Technology Strategy Board and the Department for
Transport (DFT) as part of a UK-wide program involving trials of 340
ultra-low carbon vehicles from several carmakers.[5][25] The selected test
area is roughly a triangle contained within the M40 motorway between the
M25 motorway and Oxford, the A34 south to the M3 motorway, and the
M3 back to the M25.[26]
China
Field testing in Beijing started on February 22, 2011.[27]
iv.
Field test experience
The main concerns reported by some of the users participating in the U.S.
during the first year trial were range anxiety and lack of public charging
infrastructure, as the country had only 734 public charging stations, and
most of them were located in California.[6][12][28] Another concern reported
is that the already restrictive 100-mile (160 km) range on a fully charged
battery reduces to between 80 to 90 miles (140 km) during very cold
weather.[6][28] In the UK, an abnormally harsh winter also showed how
very low temperatures diminishes power output until the battery is
warmed-up once in use.[21] There was even one report of the range
dropping below 40 miles (64 km) in sub-zero weather.[29] There have also
been issues with exterior charging points as winter temperatures drop
dramatically.[21]
Other complaints in the U.S. related to the lack of space in the car as the
battery pack eliminates the Minis back seat and most of its cargo
area,[28][30] and the difficulties found in practice to install the charging
equipment in homes, which took longer than anticipated, as just getting
the installation permit in the U.S., including site visits and inspections
took up to a month.[30][31]
108

BMW
According
to
the
BMW
team
of
engineers
responsible
for
the
demonstration program, the following are facts and key lessons learned
during the Mini E first year trial:[32]
Most of the Mini E applicants were well-educated and well-off males
over 35, with an affinity for new technology, willing to experience a

new and clean technology, and for them the lower vehicle running
costs were not very important.
Most drivers used the Mini E as a second vehicle and for the daily
commute.
Longest trip in a Mini E to date was 158 kilometres (98 mi)
In the Berlin trial, the average Mini E remained stationary for over five
hours in 80% of the cases while being charged and most of the
customers only charged their vehicles only two or three times a week.
U.S. participants were more likely to charge up every night.
Before the test, drivers said they expected range and charging time
limitations to be a problem, however, during the actual trials these

issues were only felt to be limitations in very few specific cases.
In the Berlin test, BMW decided to compare how people drive an
electric car to how they drive a more traditional model. For this
purpose they identified willing applicants who had either a BMW 116i
or a Mini Cooper and put data loggers in those vehicles. The results
showed that vehicle usage of the Mini E only differs marginally from
that of comparable Mini Cooper and BMW 116i trips.
v.
UC Davis study
In May 2011 the Plugin Hybrid & Electric Vehicle (PH&EV) Research
Centre at the University of California, Davis published the results of a
consumer study of the U.S. Mini E field trial. The study is based on
surveys and interviews conducted with more than 120 families who leased
109

the electric car for the period of June 2009 to June 2010.[1][33] Some of the
key findings of the consumer study are the following:[1][33][34]
95% of the respondents drove fewer than 80 miles (130 km) a day;
and 71% drove fewer than 40 miles (64 km).
The study shows that households adapted their driving around the
capabilities of the electric car, and respondents said the MINI E met
90% of their daily driving needs.
Many drivers found that having limited cargo space and only two seats
was more restrictive than the limited range.
Cold weather had a significant impact on drivers in the New York and
New Jersey areas, which suffered a particularly harsh winter during the
study period. These drivers discovered an unacceptable drop in the
vehicles' range when using the heater.
In California, though infrequent, hot weather during August 2009

resulted in range loss and battery thermal management problems that
required attention from BMW.
Most drivers reported initial difficulties in mastering the MINI E

aggressive regenerative braking system which is integrated into the
accelerator pedal. However, all drivers said that once they learned to
like the system, they discovered that they could travel more smoothly,
and learned to control almost all acceleration and braking events with
one pedal. They also discovered, thanks to the display panel
information, that they recovered energy proportional to their expertise
with the single pedal.
99% of respondents found home charging easy to use.
71% of respondents said they were more likely now to purchase an

electric vehicle than they were a year ago, and only 9% said they are
less likely.
88% of respondents said they are interested in buying a battery

electric vehicle or plug-in hybrid electric vehicle in the next five years.
Range record
110

As part of the 21st Century Automotive Challenge held at Penn State
University on May 23, 2010, the Mini E #466 achieved the longest trip in
such electric car to date, achieving 147.3 miles (237.1 km).[citation
needed]
The Mini E went on to win the competition in efficiency. The competition

traversed three mountain ranges in the rain.[citation
needed]
The Mini E was
followed by a Tesla Roadster.[dubious discuss]
vi.
Alternative electric Mini
Nevadas Hybrid Technologies has started production of its electricpowered BMW Mini Cooper all-lithium model. The new electric Mini uses
Hybrid Techs own proprietary advanced lithium management and batterybalancing system. Top speed is only around 80 mph (130 km/h) but
driving at a slower speed preserves battery-life and means owners will be
able to travel up to 120 miles (190 km) on a single charge.[35]
EVTV.ME has published a free "how-to" series of videos documenting their
conversion of a 2009 Mini Cooper Clubman to electric drive.[36] The
project uses a more powerful AC induction motor from MES-DEA and
TIMS600 controller to provide 177 lbft (240 Nm) of torque. It uses 112
readily available Sky Energy 100Ah LiFePO4 cells to provide an energy
storage of 40.3 kWh and a range of 125 miles (201 km). Top speed of 120
mph (190 km/h). This is an open source project using parts readily
available to anyone from existing suppliers and intended for those inclined
to do their own conversion of an existing 2009 Mini Cooper Clubman.
111

References
1. ^
a b c
Turrentine, Thomas S., Dahlia Garas, Andy Lentz, Justin
Woodjack (2011). "The UC Davis MINI E Consumer Study".

Institute of Transportation Studies,University of California, Davis.
Retrieved 2011-06-14.Research Report UCD-ITS-RR-11-05
2. ^
a b c d e
Tom Murphy (2010-05-19). "Mini E Only Beginning of
BMW EV Strategy". Wards Auto. Retrieved 2010-06-13.

3. ^
a b c d
Joe Lorio (May 2010). "Green: Rich Steinberg Interview".
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4. ^ "BMW and UC Davis Partner on MINI E Study". Green Car
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a b c d
"BMW Delivers 40 Electric MINI E Cars for UK Trial". Green
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6. ^
Peter Whoriskey (2009-12-24). "Recharging and other
concerns keep electric cars far from mainstream". Washington

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7. ^ Abuelsamid, Sam (2008-10-18). "LA Preview: Officially, official:
the MINI E!". Autobloggreen.com. Retrieved 2010-12-30.
8. ^
a b
Alex Kaufmann. "Technical details for Mini E electric vehicle".
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9. ^ Taylor III, Alex (March 30, 2009). "Bavaria's Next Top Model".
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10.^ "MINI USA: MINI E spec sheet (PDF)" (PDF). Retrieved 2010-1230.
11.^ Press release from AC Propulsion[dead link]
12.^
a b
John O'Dell (September 2009). "BMW Learing Lessons From
Mini E Tes". Edmunds. Retrieved 2009-09-25.

13.^ Richard Steinberg (2009-09-21). "Mini Priority 1 Slides". Mini
USA. Retrieved 2010-06-22.
112

14.^ Edgju (2009-07-25). "ODU's connector for MINI E - is this a
robust design?". Retrieved 2010-06-22.
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a b c
"Mini Says Half of Last Year's Mini E Lessees Renewed for
Another Year". Edmunds.com. 2010-05-12. Retrieved 2010-06-12.

16.^ Phil Patton (2010-07-03). "Envisioning a Small Electric BMW for
the Worlds Very Big Cities". New York Times. Retrieved 2010-0703.
17.^ Abuelsamid, Sam (2008-11-06). "MINI E will reportedly cost
$850/month
for
one-year
lease
Autoblog
Green".
Autobloggreen.com. Retrieved 2009-10-17.

18.^ "creative projects, competitions, events, thoughts and ideas, by
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19.^ "State and Federal Incentives for EVs, PHEVs and Charge
Stations". Plug In America. Retrieved 2010-05-29.
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a b
"Half of Mini E lessees renew for another year, price dropped
to $600/month". AutoblogGreen. 2010-05-14. Retrieved 2010-0612.

21.^
Chris Wright (2010-06-03). "UK: Harsh winter provides
valuable Mini EV feedback". Just Auto. Retrieved 2010-06-13.

22.^ Jim Motavalli (2010-05-19). "BMWs Hybrid Future May Include 3
Series". New York Times. Retrieved 2010-06-13.
23.^ "BMW Group Taking Applications for MINI-E Trial Drivers in
Munich". Green Car Congress. 2010-05-10. Retrieved 2010-06-12.
24.^ Zaher Karp (May 2010). "Upcoming Munich MIni E Trial".
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25.^
"Prime Minister backs MINI E trials". Oxford Brookes
University. 2009-12-16. Retrieved 2010-06-18.

26.^ Anthony ffrench-Constant (2009-10-29). "MINI E review: The
all-electric version of the MINI is being trialled in Britain". The Daily
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113

28.^
Lawrence Ulrich (2010-03-25). "Gas-Pump Freedom
(Restrictions Apply)". New York Times. Retrieved 2010-04-10.

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electric car?". BBC News. Retrieved 2010-06-18.
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Stephen
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(2010-03-19).
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Costs Will Vary". New York Times. Retrieved 2010-04-10.
32.^ Sebastian Blanco (2010-07-02). "In depth: BMW Megacity
Vehicle and Project I". AutoblogGreen. Retrieved 2010-07-31.
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"UC Davis study highlights results of MINI E field trial in US;
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2011-06-13. Retrieved 2011-06-14.
34.^ Christine Tierney (2011-06-14). "Quake's effects may delay
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114
videos".
Web.me.com.
Appendix B. What is it like to live with an electric

car?
By Jorn Madslien Business reporter, BBC News, Oxford,
4 June 2010
Ever more mainstream carmakers are planning to make electric

cars for sale to ordinary drivers, though none of them has done so
yet.
But
there
are
trial
cars
out
there,
and
Oxford-based
businessman David Beesley has been driving one for six months.
And Mr Beesley is not a happy man. Another week or so and that is it. He
has to hand the car back.
"I am livid," the 60-something head of business supplies company B-line
says.
For Mr Beesley, the journey began about a year ago, when he first learnt
that Mini was building an electric car in its Cowley factory on the edge of
Oxford.
At the time, he was in a very different mood.
"I heard about it through my son whose best friend works in the plant,"
he says, and being the sort of guy who enjoys messing abount in batterypowered boats or racing electric buggies around the garden, Mr Beesley
knew he had to get involved.
"If you want something, you'll go for it, don't you?" he grins.
Different experience
Mr Beesley took delivery of his Mini-E in December 2009 as one of the socalled "pioneers" who pay just over 300 per month to take part in BMW
Group's electric motoring trial.
And it has not been an entirely smooth experience.
115

During sub-zero temperatures, the battery capacity dropped to a range of
just 40 miles, compared with almost 100 miles during summer, he recalls.
And, well, that's it. Beyond such teething problems, which BMW insists will
be overcome before it starts selling electric cars to consumers, he has not
had any problems whatsoever.
In short, Mr Beesley says, the experience has given him an insatiable
thirst for more. These days, he rarely drives anything other than the Mini
E.
"It is a totally different experience to anything I've driven before and
probably anything I'll be driving in the future," says Mr Beesley, a
petrolhead whose other cars include three large Lexus saloons, a Chrysler
Voyager, a Smart car and an enormous Winnebago mobile home.
"Yes, I like big cars," he says. "But I have begun to question whether big
cars is the way forward."
Never empty
So Mr Beesley is far from livid about the electric Mini's shortcomings.
Rather, he is furious because he will have to hand it back when the first
part of the Mini-E trial comes to an end next week, on 11 June.
As yet, the BMW Group has not got a production model for sale, so Mr
Beesley has been driving a prototype.
"I cannot fault the thing, even in its present form," he says.
"People say it does only this many miles or that many miles or that it
takes so-and-so long to charge it.
"Meanwhile, I go past the petrol stations and laugh at the silly sods
wasting time and money filling up fuel."
116

The Mini-E is clearly very cheap to use, though Mr Beesley has no idea
exactly how much it costs him.
"I'm told it's about 3 for a full charge, but it never is a full charge
because the battery is never actually empty," he says.
No problems
The realities of living with an electric car are very different from what
most people would expect, Mr Beesley explains.
"I never used to consider how far my journey would be," he says. "I now
reckon my average journey is five to 10 miles. I guess people think they
drive more miles than they actually do.
"Clearly, if you do 90 miles per day, then this is probably not the car for
you, but how often do you drive more than 90 miles in one stretch? And
how often do you have sub-zero temperatures in Britain?"
Mr Beesley is even taking issue with the supposed need to roll out public
charging points to molify people's range anxiety.
On most journeys, there is no need to top up the batteries to get home,
Mr Beesley insists.
"And if I go to see a client in High Wycombe or my auntie in
Southampton, it is not a problem if I want to plug into their socket while
I'm there. It's just a bit of fun."
BMW says it takes about three hours to charge the battery with a 30-amp
fast-charger, which uses the same type of electric cable that electric
cookers use, or eight hours when using an ordinary 13-amp socket.
But again, Mr Beesley insists that once you get used to electric motoring,
even this seems irrelevant.
"I come home, I get out of the car and I plug it straight in. It takes about
two or three seconds and it charges on low tariffs overnight," he says.
117

"All this stuff about range and charge time amounts to scepticism and
objection.
"Why do you want to keep objecting about something that is fantastic?"
118
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Bring in the voice of the customer,

understand what your customer wants

Introduction: Marketing-Innovation Challenge __ 3

Marketing and Innovation ______________________________________________ 4

Module Objectives ____________________________________________________ 6

Marketing Creating and Capturing Customer

Perceived Value _____________________________ 7

Market-based strategy: Using Marketing in the strategy process _____________ 13

Marketing Strategy and the Marketing Mix ______________________________ 18

Marketing analysis _________________________________________________________ 19

Marketing Planning ________________________________________________________ 20

Marketing Implementation __________________________________________________ 22

Marketing Control _________________________________________________________ 31

Marketing Instruments _______________________________________________ 32

Product Customer Solution _________________________________________________ 35

Price Customer Cost ______________________________________________________ 40

Place Customer Convenience _______________________________________________ 42

Promotion Customer Communication ________________________________________ 44

The Marketing Plan __________________________________________________ 46

Innovation-Marketing Challenge ____________ 49

Disruptive innovation and marketings innovation failure ___________________ 50

The Marketing Process and Innovation Insights from Entrepreneurship Theory

The rise of business models as a response to the innovation challenge _________ 58

CREATIVE TRAINER module: Innovation Marketing

Marketing and business models_________________________________________ 69

Marketing in the Entrepreneurship Process____ 72

Transforming Business Models to Marketing Strategy _____________________ 75

Defining the Value Proposition (Product Policy in an innovative environment)__________ 75

Designing and quantifying revenue generation mechanisms _________________________ 80

Design of the Resource base and Value network__________________________________ 83

Marketing in the Exploration Phase _____________________________________ 85

Marketing in the Exploitation Phase_____________________________________ 87

Marketing Innovation Plan ________________ 92

Source directory ____________________________ 94

Mini E ________________________ 103

History ______________________________________________________________ 104

Specifications _________________________________________________________ 104

Field trial program ____________________________________________________ 106

Field test experience ___________________________________________________ 108

UC Davis study _______________________________________________________ 109

Alternative electric Mini ________________________________________________ 111

References ________________________________________________________________ 112

CREATIVE TRAINER module: Innovation Marketing

What is it like to live with an electric car?

Bibliography ______________________________ 119

CREATIVE TRAINER module: Innovation Marketing

CREATIVE TRAINER module: Innovation Marketing

CREATIVE TRAINER module: Innovation Marketing

CREATIVE TRAINER module: Innovation Marketing

Marketing in the exploration phase: The exploration phase is

Formulation of business models: The formulation of a

model is a vital step to make an innovation strategy operational. A

The exploitation phase: Here the role of marketing is focused on

CREATIVE TRAINER module: Innovation Marketing

1 Introduction: Marketing-Innovation Challenge

performance of marketing in innovative environment. Christensen (1997)

CREATIVE TRAINER module: Innovation Marketing

1.1 Marketing and Innovation

CREATIVE TRAINER module: Innovation Marketing

CREATIVE TRAINER module: Innovation Marketing

concepts, marketing system, marketing research, consumer behaviour,

Understand the interplay of the marketing mix variables;

Appreciate how innovation and information technology can enhance