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Radical innovations and revolutionary products, all aimed at seducing new customers, may not give companies the competitive advantage they crave after all.
Research by marketing academics has discovered that investing millions of dollars into research and development may be unnecessary, when in certain instances what would work just as well would be to improve or update existing features.
Myungwoo Nam, an assistant professor of marketing at Insead, with Jing Wang, an assistant professor of marketing at Tippie college of Business, University of Iowa and Angela Lee in the marketing faculty of Kellogg School of Management, Northwestern University suggest that companies should research their customers’ levels of experience and knowledge about their products. Companies would then be in a better position to decide whether or not it would be worthwhile to spend time and money on innovations.
The academics carried out a series of experiments and presented participants with two brands of MP3 players, mobile phones and laptops. The products had both similar and distinguishing features. The participants were questioned about their understanding of the various features of each product and were then asked to pick out those features they considered to be most important.
They discovered that those consumers with little product knowledge cited battery life and design as being the most important, while the savvy consumers placed far greater value on the unique features offered by some of the goods.
Prof Nam suggests their results indicate that companies should first distinguish between expert consumers and novices and act accordingly.
“When companies are targeting experts, their strategy should focus more on developing products with attractive, unique attributes and on positioning their competitive advantage on these attributes,” says Prof Nam.
“On the other hand for consumers with little product knowledge, companies should instead allocate resources on improving existing attributes and on highlighting their superior performance in promotional campaigns,” he adds.
● In the current economic crisis many companies are suffering, from small family-owned ventures to much larger corporations. But Haoyong Zhoe, a PhD fellow at Copenhagen Business School has looked into whether some companies are surviving better than others and if so what is their secret?
Analysing the performance of family and non-family companies using international data, Mr Zhoe has discovered that although most companies are suffering equally, one segment has bucked the trend. Those family-owned companies whose founder is still active, either as chief executive, board member or significant shareholder appear to do better than non-family companies on average by 2 per cent (measured by operating return on assets) during the five-year period.
Mr Zhoe believes that family companies where the founder is an active member may have a more conservative long-term investment strategy compared with companies where a manager may be tempted to over-invest in potentially risky projects and boost short-term earnings. Mr Zhoe also suggests that founder family ventures have much lower administrative costs, leading him to the conclusion that “in addition to being visionary or inspiring leaders, founders are also good expense controllers.”
Are family firms better performers during financial crisis? is published in the Social Science Research Network working paper series.