Innovating for business growth

19 May 2014 15:56

(updated: 18 December 2016 15:57)

Innovating for business growth

There is a quote I keep telling my marketing students. It is from the late marketing Guru and Harvard Business School-professor Ted Levitt. “Marketing is about attracting and keeping the right profitable customers”. I spend the rest of the semester discussing how to achieve this goal!

From the quality – satisfaction literature we know that increased service quality will increase customer satisfaction, and customer retention, i.e., reduced churn. Recently, we have added service innovation as a turbo charger to satisfaction, loyalty, and growth. The link to firm value is through customer equity, i.e. the total combined customer lifetime values of all of a company’s customers (Rust, Lemmon and Zeithaml 2004).

Today, the bottom line and what most CMOs, CFOs, and CEOs take away from executive courses is that while operational efficiency is a ticket to play, service innovation is a ticket to stay! Quality and innovations are ways to attract and keep the right profitable customers, i.e. increasing customer equity.

Lately, I have spent some time thinking about innovations and growth. It all started with a research project on why consumers are so glued to their smartphones or tablets? Together with Professor Line Lervik-Olsen at the Norwegian Business School, we identified a number of factors that explain why people are always logged on: habits, fear of missing out, technological and social externalities, and social norm. An interesting side effect of always being logged on to the Internet was its link to excessive Internet usage.

In trying to make sense of the above, we identified from psychology an alternative route to business growth: increased availability and improved accessibility leads to increased consumption. In plain language:

  1. The more you own of a product or service the more you will consume and
  2. The easier the access to the service, the more you will consume.

When for example Starbucks offers customers the option to load their “coffee app” on the smartphone with money and populates cities with Starbuck restaurants, they tap into both mechanisms with huge success.

In our research we see that increased availability of Internet, i.e. more WIFI availability in public or private arenas, better band-with, and lower Internet prices, leads to increased usage. At the same time we see a social network effect: the more people who use Internet the more you are stimulated to use Internet. The non-human interaction becomes the norm.

In a service innovation context making a service more available and accessible should, according to the above, lead to increased usage. With the advent of the Internet ecommerce and other Internet solutions have emerged which makes the service offer more available and accessible. Smartphone solutions are now the new frontiers.

But more is not always better. For most service companies there is an optimum level of accessibility and availability. Beyond this point negative reactions kick in: too much becomes too much. The question is: how far away are you from this point? For your innovation efforts, remember that the job customers want to get done is often linked to efficiency!

But, there is one area where customers cannot get enough: customer service! Easy access to the firm (24x7x365) and the ability to communicate with people, who can solve the problem, is critical. While this may increase operating costs, customer service is where a WOW-experience can be created.  The effect of delight and positive word of mouth on access to new customers and customer equity has been documented in several studies.

Conclusion:  When researchers in one study found that increased access to (stale 14 days old) popcorn leads to increased consumption, one would expect that increased access to a service of outstanding quality would lead to even higher usage. This is what we call innovating for business growth.