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Ordinarily, Great Britain is not the first country to come to mind when thinking of chocolate. The names of Switzerland and Belgium are more likely to come up first, and then perhaps some other European countries (e.g., France, Italy, Germany, Austria). However, the British upmarket chocolatier Hotel Chocolat may deeply change our perception of Britain in association with chocolate; that is, following of course consumers’ pleasurable associations with the brand Hotel Chocolat. The brand name identifies both the company and its products (i.e., it is a ‘branded house’ of chocolate). Moreover, the company is a manufacturer as well as a retailer, offline and online, of chocolate products of multiple sorts, all under an encompassing brand, Hotel Chocolat.

Britain has been known for chocolate from companies like Cadbury and Thornton. But their products did not really succeed in raising an equivalent alternative that challenges the quality of chocolate from the better known ‘chocolate nations’. Cadbury in particular is most probably the main source for perceptions of British chocolate generated by consumers; in some of its products Cadbury blurs the distinction between true chocolate and chocolate snacks or confectionary. In 2010 the American company Kraft Foods took over Cadbury in an unfriendly maneuver; yet Kraft had a problem in swallowing the business of the acquired British company and just a year later split all of its confectionary arm including Cadbury to a new spin-off company called Mondelez International. Thornton’s already set a standard of higher quality chocolate delicacies in forms like bars and pralines. It also developed a chain of chocolate delicacy and gift shops. However, the enterprise expansion eventually ran into trouble and in 2015 the brand was acquired by the Italian giant Ferrero (well-known for ‘Ferrero Rocher’, also owner of Nutella).

Hotel Chocolat seems to be different, not merely for its positioning as an upmarket brand but in virtue of the fine feel and taste of its chocolate products — one immediately knows it is different when tasting one of the brand’s chocolate products. Drinking their hot chocolate with cocoa-flavoured cream makes a fitting complement to the pleasure of eating the solid chocolate delicacies. The experience of visiting a boutique shop of Hotel Chocolat (e.g., in Covent Garden in London, in the basement) also is an important contributor to conquering committed chocolate lovers.

Appetising Selection of Chocolates at Hotel Chocolat

Tempting chocolates displayed in cave basement of Hotel Chocolat’s Covent Garden shop

 

Hotel Chocolat was co-founded by Angus Thirlwell, CEO of the company, and Peter Harris (Development Director). In an earlier stage of their chocolate business, the co-founders established a company named ‘Express Choc’ as an online retailer of chocolates in 1993 (no doubt an early venture in e-commerce). They opened their first physical shop in the north of London in 2004 after changing the business name — this event practically marks the initiation of the brand Hotel Chocolat.

Over the years the brand has evolved and broadened its concept and it actually extends beyond products, shops and online store (retailing) — it also includes a Tasting Club (pre-launched 1998), chocolate workshops  (School of Chocolate), café-bars, a restaurant in London, and a hotel with restaurant in the Caribbean Islands. The company is proud of being a grower of cocoa for its products, a unique status for either a chocolate manufacturer or a retailer. The co-founders acquired a cocoa plantation in the Caribbean island Saint Lucia (2006), an initiative that brought Thirlwell back to his childhood in that part of the world, an origin of cocoa. In the estate of the plantation they opened their hotel (‘Boucan’) and a restaurant (2011). Their restaurant in London, established a couple of years later (2013) to bring West Indian tastes to the UK combined with modern British cuisine (e.g., ‘Slow Cooked Cacao Glazed Lamb Shank’), bears the name of the plantation and the year it was created (‘Rabot 1745’).

In an interview to BBC News, Thirlwell explained the reasoning behind the name — at start there seemed to be no logical relation to hotels. As for the choice of ‘Hotel’, Thirlwell replied: “It was aspirational. I was trying to come up with something that expressed the power that chocolate has to lift you out of your current mood and take you to a better place“, like going on vacation where one would stay at a hotel. As said above, seven years later and Thirlwell materialised the symbolic idea of Hotel into physical reality. Regarding the French wording ‘Chocolat’, he said that “everybody agreed ‘chocolat’ sounded better than chocolate”, which is hard to argue with, and added that the sound of the word almost suggests the sound of how chocolate melts in the mouth (he used the Latin term ‘onomatopoeia’) (BBC News: Business, 27 October 2014).

As reflected from his interview to the BBC, Thirlwell is a devout chocolatier, completely enthusiastic about chocolate. This impression is also supported in a personal page about Angus Thirlwell on the website of Hotel Chocolat. He continues to taste products every day and approves every recipe the company produces. A guiding principle that appears highly important to him is using more cocoa in chocolate products and less sugar. It is said that people started to crave cocoa long before anyone added a grain of sugar. This principle was practised, for example, in a product called ‘Supermilk’ that contains 65% cocoa, emphasises the ‘smooth creaminess of milk’, and includes less sugar than a dark chocolate — a feel of milk chocolate that is nearly a dark chocolate. In ‘Our Story’ webpage, Hotel Chocolat laments the overemphasis on sweetness in British chocolate: “Today, sugar is 20 times cheaper than cocoa, and a typical bar of milk chocolate contains more than twice as much sugar as cocoa”. Conversely, the mantra of Hotel Chocolat is explicitly: ‘More Cocoa, Less Sugar’.

A notion of this motto is felt very present indeed in a number of chocolate products of Delicious Orange Tangs by Hotel ChocolatHotel Chocolat, and it is probably at the root of the magic of their chocolate, and their business success. Just for instance, take their chocolate shells filled with Salted Caramel Cream, or Orange Tangs (orange-filled chocolate sticks) that are truly special and delicious (based on the author’s experience). It is all about the pleasure of eating genuine and fine-flavoured chocolate.

Formally, according to the website of Hotel Chocolat, the company operates 93 shops as well as cafés and restaurants. The Telegraph (24 January 2018) tells us that in the weeks running to Christmas 2017 and New Year of 2018 Hotel Chocolat opened ten new shops, bringing their total number to 100 across the UK. The store locator on the website (provided with an interactive map) suggests, however, that the company may have an even larger number of establishments in the UK — 153 locations are designated as ’boutique’ (shops). There are specifically 26 locations of café-bars, and the restaurant in London. It should be noted that café-bars are mostly (or always) integrated with shops, and Rabot 1745 is a complex including the restaurant, shop and café-bar. The brand is also represented in concessions (51 in total). The conflicting numbers are confusing and make it hard to determine the true current number of outlets of the company (could be a result of duplication in the counts of location types in ‘Our Locations’, apparently mainly due to concessions counted as boutique shops). Hotel Chocolat also has two stores in Copenhagen, Denmark, and several outlets in Ireland (seem to function mostly as concessions).


  • The revenue of Hotel Chocolat Group in the financial year 07/2016-06/2017 amounted to £105.24 million, an increase of 15.5% year-on-year; the net income in that period was £8.76m, an impressive rise of 114.6% year-on-year.
  • Hotel Chocolat Group was incorporated in 2013 and is listed on the London Stock Exchange since 2014 (the founders exchanged a third of their holdings for cash, receiving each about £20m, while in total raising £55m).
  • In the past six months the share price shifted between 240p and 380p, standing in late January ’18 at 333p; market capitalization: £375.5m.
Source:  FT.com, (Market Data)
Sales received a lift of 15% during the 13 weeks to 31 December 2017, attributed mostly to a special package in advance of Christmas (a gin ‘advent calendar’ package), a 100% cocoa collection, and the introduction of no-sugar milky chocolate range. Hotel Chocolat makes 40% of its annual sales in the run-up to Christmas and New Year (The Telegraph, 24 Jan. ’18).

A clear, well-stated and meaningful vision must have helped Hotel Chocolat considerably in its evolution and expansion. It stands on three values people in the company believe in: (1) Originality — not playing by the rules, rather doing things differently, and being creative and innovative. (2) Authenticity — growing cocoa, making and retailing chocolate, being true to cocoa and using natural ingredients (not letting sugar dull the flavour of cocoa itself and not mask the nuances from other ingredients, in line with the mantra cited above), and developing their own recipes in-house at the factory in Cambridgeshire (award-winning). (3) Ethics — committing to a deep sense of fairness that extends to farmers, customers and future generations (i.e., not spoiling the environment with waste in all stages of production).

The description of these three values or principles seems elaborate and specific enough to offer very clear guidelines for all managers and employees in the company to go by. They are accompanied by two business or marketing goals set by Thirlwell: excite the senses with chocolate and making it widely available. The two goals help to add focus to the mission of the brand: the first seems to pertain primarily to the products, the second underlies the network of retailing through physical shops and an online store. Other activities of Hotel Chocolat (e.g., hotel,  restaurants and café-bars, Tasting Club, School of Chocolate) contribute in enhancing the brand: deliver its message across and strengthen closer relationships with customers.

The business revolves around the brand ‘Hotel Chocolat’ and its development as it is their face and voice to the world. That is how customers and other stakeholders recognize everything they do. The more prestigious image of the brand is expressed through their products and packaging, primarily with their premium collections (‘tables’ — e.g., 86 pieces £65, 179 pieces £100). Pricing is also part of supporting the image, though Hotel Chocolat tries not to be excessive (e.g., one can find small-medium packages and boxes for prices in a range of £5-25). The concept of Café bars is gaining weight in aim to come closer to consumers — creating a venue where they can relax and enjoy a good chocolate drink with something light to eat (e.g., brownies) from Hotel Chocolat. The company may tap on a desire of Britons for high-quality chocolate, having a better own experience with chocolates from countries like Switzerland and Belgium. The founders protect the brand from dilution by avoiding, for example, displaying their products on shelves in supermarkets for sale (but their products are sold through concession in departments stores of John Lewis which fits better their brand image). The brand is taken care of meticulously by the founders to maintain an image they worked hard to instill: “a necessity of life, albeit a luxurious one” (Kate Burgess, opinion column, FT.com, 13 March 2016).

The brand of Hotel Chocolat has built its strength in quality of products and the expanse of its brick-and-mortar shops in addition to online retailing, supported by further activities or services. But attention must be paid to challenges ahead. First, how to balance resources correctly between keeping the quality of products and the expansion of the retail network — not falling to the trap of sacrificing the pleasure from the chocolates to their increased availability in the retail chain. Second, how to manage wisely and responsibly reaching out to other countries. In the interview to the BBC News (2014), Thirlwell concluded: “If you are specialist you have got to be absolutely specialist. There is a lot of competition and we want to be in the driving seat.” Consumers who appreciate and love genuine chocolate would surely hope that Hotel Chocolat succeeds in its mission so they can continue to enjoy their delicacies, and be excited.

Ron Ventura, Ph.D. (Marketing)

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In 2016 General Electric (GE) sold its domestic appliances division to Haier from China. The American company reached a dismal situation wherein it needs to repay a large debt and streamline its businesses. Selling the consumer-oriented business may have seemed to the management, led at the time by previous CEO Jeff Immelt, as a means to relieve the company from a business that is out-of-line with its other mostly industry-oriented business areas. However, that division was an asset whose value could not be measured just in financial terms — it was more than a capital asset. It provided a valuable support to the brand of General Electric, together with the lighting business. The incoming CEO John Flannery is planning even more drastic changes to the company’s composition, but removing the appliances division might turn out as an obstacle to his mission. The industry brand of GE could benefit from its long appraised consumer brand.

General Electric is engaged in a range of business areas. In some of them the company has obtained or enhanced its capabilities through acquisitions during the tenures of CEOs Jack Welch (1981-2001) and Jeff Immelt (2001-2017). The businesses of GE feature: (1)  Additive –advanced manufacturing technologies (e.g., 3D printing); (2) Aviation — engines, components and electric systems for jets, and avionics (e.g., innovative digital pilot dash-boards); (3) Power, including gas, steam and nuclear power; (4) Industrial Connections, including electrification, grid and control; (5) Healthcare — medical technologies such as ultrasound, MRI  & CT, digital integrated care (i.e., data sharing and management), patient monitoring, surgical imaging and more; (6) Renewable Energy, including wind, solar and hydro, and innovative hybrid solutions; (7) Transportation — digital automation and industrial Internet-of-Things (IoT) solutions for  locomotives, marine (drilling) and mining.  The businesses of GE today are directed largely to industrial, commercial, and public clients. The last business that targets consumers at least in part is Lighting, offering advanced LED bulbs (e.g., smart IoT-controlled, HD-quality), linear fluorescents, and other products.

Noteworthy, digital transformation is omnipresent through most of the businesses of the company, entailing advanced computer-based digital systems, interfaces, and mobile applications (e.g., IoT apps developed in co-operation with leading hi-tech companies). Much of the digital activity seems to be originated, planned and developed at the Digital division or unit of the company (e.g., industrial apps serving IoT products, Predix — the online platform applying IoT data and predictive analytics, manufacturing software, as well as cybersecurity). Internet-of-Things functionality applies also to lighting products for consumers; it was supposed to be implemented as well in their domestic appliances. In practice, the appliances may still be reliant on GE for IoT technology even after the transition.

For many years the Appliances of GE were commonly associated by consumers with quality and durability — having a refrigerator carrying the art-graphic logo sign of GE in the kitchen was taken as a symbol of social status. In 2015 the appliances division generated revenues of $6.34bn, 7.1% of GE’s total revenues. The combined revenues of GE from appliances and lighting, as reported by the company, stood at $8.8bn (an increase of 4.8% from the previous year). Combined profits were $700m, a margin of 7.7% as percentage of revenues (GE 2015 report on financial results, Segment Operations: Appliances and Lighting). GE overall reported a loss in 2015 (see Chart 2). The company first tried to sell its appliances to Electrolux but the deal was objected by the American Department of Justice. A new process for selling the division started with Qingdao Haier, and after six months of negotiations a deal was closed in June 2016 at a price of $5.6bn. The range of appliances in their new ‘home’ includes refrigeration, cleaning (dishwashers), cooking, laundry (washing machines), accessories such as water filters, and air-conditioning.

The division of appliances is now identified as ‘GE Appliances: A Haier Company’. This company is in an interim period of transition, alas outwards its status creates a bit of confusion about who is really in charge. The company’s website is resident at a domain titled ‘geappliances.com’ and the company retains the brand identity of GE. The association with Haier does not seem too committing. For example, whom consumers should expect to be responsible for their appliances? Or, how to distinguish between appliances that originate from GE or from Haier? The headquarters of GE Appliances remains for the time being in US territory in Louisville, Kentucky, under American executive leadership. Recently, the new company announced the creation of appliance connectivity — operation command by voice and through mobile apps (IoT). Yet the technology is reasonably a direct extension of GE’s development of capabilities of Artificial Intelligence and IoT in their businesses for industry.

Haier has thereof received a strategic foothold on US soil, in hope to strengthen its position in the country and establish a long sought market share in the American market; American consumers have refrained from buying appliances of Haier. The Chinese manufacturer rose from a failing refrigerator factory in Qingdao of thirty years ago by instilling over time quality standards that were much higher than those accustomed in China. Zhang Ruimin, leading the transformation, succeeded remarkably in turning the company into a major national appliances manufacturer in China with global extensions. However, the quality standards at Haier remain behind those of developed countries and therefore the company’s efforts to sell in the ‘West’ have been lingering (1). Haier still has a challenge of closing a gap in quality and credibility, which the acquisition from GE is expected to help overcome.  Many consumers in the US as well as in other Western countries will probably remain concerned by ambiguity about the source of their appliances, being of GE (United States) or Haier (China). Haier also gained important American technological know-how (e.g., in AI) from the American company. General Electric apparently gained a financial relief, but one that may be only for a short-term, and the company may have to pay for it in the future.

The new CEO of GE, John Flannery, revealed in an annual ‘Investor Day’ meeting last month (Nov. ’17) the company’s plan to focus on three business areas: power, aviation, and healthcare. It will exit completely some of its existing business operations (e.g., transportation, lighting, industrial solutions, electrification) while reducing its effort and involvement in others. For example, the company will retain its digital unit or division to develop and sell apps to customers for operating and monitoring equipment reliant on Predix platform, yet with a smaller budget. Flannery was less clear on the future of some areas such as renewable energy where the company is not completely willing to leave and some other arrangement may have to be found. Strategically, the plan is to reduce the span of businesses the company engages. In addition, the CEO informed analysts that the company will have to cut in half its dividends.

The share of GE climbed from a level of $25 to $30+ in late 2015 and held its price as high through 2016 with small fluctuations. Then, the price started to slip down continually through 2017. So much for the effect of selling GE Appliances on equity. By August 2017 the share price already came back to $25. Since Flannery entered the CEO office, and subsequently following the announcement of his plan and the harsh cut in dividends, the share price steeply fell to about $18, as low as the band of $15-20 in which the share fluctuated in 2009-2011.

Chart 1 GE Share Price

Analysts were left unsatisfied and critical about the turnaround plan at GE. They complain for instance that the company is too expansive, and that it must increase efficiency and reduce duplicate costs across the organization (Reuters, 13 Nov. ’17). Others express concern in particular about the debt at GE, and that the plan includes insufficient measures to fix problems with the company’s businesses (CNBC.com, 14 Nov. 2017 — also noted, GE share underperformed S&P 500). Part of the cure will have to include exit from some businesses (e.g., where GE entered by acquiring another company or where it did not build a substantial advantage). Nevertheless, increasing efficiency and reducing duplicate costs can be achieved also by merging some associated areas and consolidating them into a new division, though perhaps narrowing the scope of operation in each field. One example for doing so may be in the area of energy: sources, production or distribution (i.e., power, renewable energy, connections). Another area to consider is ‘digital’ — balancing between development of original technologies and solutions in a central unit, and their implementation for specific systems and equipment in the various business divisions. Letting go of the appliances business could be seen as a logical way to free resources for advancing industry-related areas of expertise that remain. But solving problems of over-expansion and inefficiency in the industry-oriented businesses did not have to come at the expense of the consumer-oriented business in which the company developed product and brand advantages over decades.

The company has to come to terms now with damages from excessive expansion-by-acquisition, a strategy led by Welch and followed by Immelt. The ‘elephant in the room’ for the company is GE Capital, the investment bank of General Electric, whose troubles particularly since 2009 inflict on the whole company. Now the company under Flannery plans to heal by letting go of some more of its genuine businesses such as transportation and lighting (Matt Egan, CNNMoney.com, 20 Nov. ’17), that is, in addition to the appliances already shed by Immelt. The company has built an expertise in transportation, especially locomotives, during the past hundred years. Lighting can be regarded as a founder’s asset of the company (i.e., attributed to Thomas Edison); as described by Egan, lighting “symbolizes the company’s history of innovation”. General Electric could find it very difficult to continue after removing parts of its heart and soul.

The intensive occupation of the company with allocation of capital was initiated and developed by Welch but it spiralled out of control under the leadership of Immelt. The latter quadrupled the amount of capital invested in the company (from $42bn in 2001 to $163bn in 2009) which involved a significant increase in borrowing. By 2011 it was recognised as a major problem with the management of Immelt. Geoff Colvin of Fortune described how Immelt as CEO remade the portfolio of GE, for instance by entering new “future industries”  (e.g., healthcare, green energy). However, his aggressive expansion came at a high cost. While the CEO already tried to unburden the company from some businesses (e.g., NBC and Universal Studios), it was seen by analysts as insufficient. The real issue at GE, as Colvin noted, was capital allocation, and it became more so critical at GE Capital (2). The decision to quit the involvement of GE in TV broadcasting and online media (NBC) as well as cinema productions (Universal) sounds very reasonable. Conversely, the claim supported also by Colvin that Immelt was waiting too long to unload appliances (executed only in 2016) and lighting (never completed to-date) from GE should be much less applauded because these business areas made-up a distinct branch at GE with deep roots, and were also carriers of its consumer brand, a valued non-tangible asset.

In a highly critical opinion column in the Financial Times, John Gapper argues that focusing management on capital allocation could kill GE as an industrial company. It would make GE operate more like an equity fund. The company needs to shift because it may no longer be sustainable to run a manufacturing conglomerate as in the 1980s. However, it does not require to treat the business units as equity holdings for capital optimization: “Once efficient allocation becomes the priority, it is hard avoid this cycle.” It cannot be surprising for Flannery to continue this path, following the leadership of Welch and Immelt, considering his long career at GE Capital, up to the latest post he held as head of that division. Culture and a style of management have kept the units of GE stick together like a glue for many years. Without them, Gapper wonders how longer GE can hold together (FT.com 15 Nov. ’17).

The financial figures of GE in 2015 and 2016, as published in the Fortune 500 ranking, show little so far in favour of the impact of exiting from some business activities such as Appliances, measures taken by Immelt to heal the company in his last years in office: The revenues have fallen, but moreover the return on revenues has also decreased from a level of 8%-10% in 2011-2014 to 7% in 2016, after recovering from a loss in 2015 (Chart 2 below). It should be noted nonetheless that the value of assets has already shrunk by 50% between 2011 ($717bn) and 2016 ($365bn).

Chart 2 GE Revenues and Profits

  • General Electric descended from former 6th-9th positions in the ranking of Fortune 500 (US) to 11th place in 2015 and 13th in 2016.

The products of GE for consumers, both appliances and lighting devices, were the ‘face’ of the company to the wide public and a closer form of connection with consumers. Their contribution is in providing stability and longevity to the GE brand, identified by name, logo, and other associated elements. Above all, the brand was represented in products, equipment and devices, in millions of homes, to be useful in the everyday lives of the consumers and make their lives more comfortable. The domestic products also were a channel to implement some of the technological progress and innovation of the company and demonstrate them to a wider public audience. Consequently, exposing consumers (who also happen to be small investors) to GE could help to increase public confidence in the company, especially in turbulent times.

General Electric did not depend on the appliances and may do well without that business. The same may be true for the lighting business. But removing them will not bring the cure either– the selling of GE Appliances apparently has gone wasted so far. Instead, keeping the consumer products would have enhanced the corporate brand. The management could perhaps have gained some peace of mind while reforming their industry-related businesses. In the medium term, making reforms could be a little harder for Flannery and his top-management team to push through. In the longer term, leaving consumer products out of the company — as already happened with the appliances and is expected to repeat with lighting — may remain as a wound, something amiss, in the reputation and brand image of General Electric.

Ron Ventura, Ph.D. (Marketing)

Notes:

(1) “Zhang Ruimin’s Haier Power”, Michael Schuman, Time (Europe), 14 April 2014 (183 (14)).

(2) “Grading Jeff Immelt”, Geoff Colvin, Fortune (Europe), 28 February 2011 (163 (3)).

 

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Think of this: You walk into your car, close the door, and fasten your seat belt. Then you keypunch your destination on a panel or simply say “Go to XXX”, press a button, and your self-driving car gets on its way. During the travel you may read, eat a light meal, or do some work on your lapKnight Rider Hasselhoff and KITTtop computer/tablet device. This scenario is not that much imaginary — the development and testing of autonomous or driverless cars is already in progress, and the time the first models are marketed and hit the roads may be just a few years ahead. Some may want to see it as a dream-come-through when every person can have his or her own private chauffeur — installed in the car. For some the new robotic car may remind them of KITT, the clever and talking sports car in the popular futuristic TV series Knight Rider from the 1980s (featuring David Hasselhoff). However one relates to the concept of a self-driving car, it is likely to change dramatically the whole experience of travelling in a car, especially in the driver seat.

The autonomous car of Google appears to be the most publicised venture of this kind, full of ambition, but Google is just one of the players. Projects in this evolving technological field have called for collaboration between technology companies or academic research labs, responsible essentially for creating the sensors, computer vision and information technologies required for navigating and operating the automated cars, and automakers (e.g., Toyota, Audi, Renault-Nissan) that provide the vehicles. While the relevant devices and technologies could already exist, they have to be particularly accurate to be self-reliant and they must communicate properly with the ordinary car’s systems to control them safely in real-time; the effort to achieve those targets is still in progress.

The elaborate system of Google equips an autonomous car with a radar, laser range finders (aka lidars), and associated software. Extended capabilities of this system allow the car independently to smoothly join the traffic on freeways/highways, cross intersections, make right and left turns, and pass slower vehicles. The system’s cost is estimated at $70,000 to be installed in each car (1).

A high-tech company based in Israel, MobilEye Vision Technologies, offers an alternative approach that is based on camera only to collect all the visual information necessary from the scene of the road. For MobilEye, engaging in the driverless car challenge seems as a clear extension to their existing capabilities in developing and producing Advanced Driver Assistance Systems, camera-driven applications for alerting human drivers of collision risks (e.g., pedestrians starting to cross the street, insufficient distance from the car in front of them, as well as passing the legal speed limit)(2). The competence of MobilEye’s system for a driverless car is reduced at this time vis-a-vis Google’s system, but that may be attributed partly to the fact that the system currently applies a single camera at the front windshield. Hence, a car equipped with their system is capable only of self-driving in a single lane on freeways; yet it can detect traffic lights, slow down until complete stop, and then resume the journey in freeway speed. But the capabilities and performance of their system in driving a car are expected to improve as company officials say they plan to enhance it with a wide-angle camera and additional cameras, side-mounted and rear-facing. They aim to match the capabilities of the Google’s autonomous system but with a technological solution that is much more cost-effective to put on the road (1).

The most urgent and vital issue to address with respect to driverless cars has to be road safety. It is the motivation more frequently suggested for making the transition from human driving to robotic driving; that is, a computer-based system would behave more reliably on the road than a human driver and therefore will lead to a considerable reduction in road accidents.

Car accidents are often caused by misjudgement of a situation on the road in a matter of seconds by the driver who consequently takes the wrong action. But accidents also occur because drivers make dangerous moves, believing overconfidently that they can pull-it-through (e.g., “stealing” a red light, passing a slower car without sufficient distance from other cars or clear view of traffic on the opposite direction, speeding). A robotic system may indeed be able to prevent many accidents in either circumstances — its estimates (e.g., distance) would be more accurate and the computer algorithms it utilizes would make more reliable decisions, certainly not subject to human tendencies of risk-seeking and whims. Human judgement is fallible and intuitive quick decisions can be misguided. But intuition on many occasions is very effective in identifying obstacles, irregularities and hazards, and therefore helps avoid personal harms or accidents. It allows drivers to make sufficiently accurate decisions in a short time, important especially when time limitations are in force. Gut feelings also play an important guiding role. Yet when more time is available, drivers can plan their path and re-examine their intuitive judgement.

Sadly, drivers get into dangerous situations because they distract themselves, willingly or unintentionally, from whatever happens on the road (e.g., operating and talking on the mobile phone, kids that are quarrelling in the back seat). Thus, video demonstrations of MobilEye of how their warning system helps to avoid an accident (e.g., pedestrian ahead) focuses on incidents when the driver is distracted, possibly operating his music player or searching in his handbag, something he should not have done in the first place. However, the logic that since this kind of behaviour and other human fallacies cannot be completely prevented, and efforts for educating and training people to drive better are ineffective, we should pass control indefinitely to robotic systems, is normatively flawed and even dangerous — it allows people to feel less responsible. Nevertheless, an autonomous system may be welcome to resolve specific incidents when distraction to other activities cannot be delayed or when fatigue breaks-in.

Subsequently, an interesting question to be posed is: How well will robotic driving systems be able to anticipate human behaviour on the roads? Assuming that the human driver keeps his/her eyes on the road, who will more successfully detect a pedestrian about to step into the road from between parking cars, the driver or the robotic system with its sensors? Will the latter respond in time without human intervention? While there are some fascinating projections about how the new cars will impact urban life (e.g., parking, traffic lights, building construction (3)), there is lack of convincing evidence yet that the driverless cars are ready for crowded busy urban areas. Furthermore, replacing the fleet of cars on the roads can be expected to take years (auto experts suggest that the first models will be commercially available as early as 2020 and most cars will be autonomous from 2040 to 2050). This is not likely to be a smooth transition period; transport and urban policy makers must be carefully prepared for it. Particularly they should be addressing how effectively driverless cars are able to anticipate and respond to errors or misconduct of human drivers and the risk of accidents due to human drivers who misunderstand how self-driving cars manoeuver or even try to outsmart the robotic cars.

It is therefore that much essential that autonomous cars will in fact operate in different modes of human and robotic control during the transition period, and continue further later. David Friedman, Deputy Administrator of the National Highway Traffic Safety Administration in the US identified in an interview to Wall Street Journal five levels of automation, from “0” (all-human) to “4” (full automation). The intermediate Level 3 indicates “limited automation”, using assisted positioning technologies but which require the human driver to retake control from time to time (4).  Although human judgement is imperfect, human drivers should be given flexibility in relying on automated driving and be allowed to occasionally intervene. John Markoff of The New-York Times/IHT reports that the Toyota-Google car (Level 3 [WSJ]) made him feel more detached from the operation of the “robot” while the Audi-MobilEye car made him better realise what it takes for a “robot” to drive a car (1). Nevertheless, there is not a definite answer to the question what is correct to do in critical moments: should the human driver trust the system to do its job or to interfere and take control? Markoff felt less confident when the car in front slowed ahead of a stoplight (on the road down to the Dead Sea) and it “took all of my willpower”, in his words, to trust the car and not intervene. That system probably still has to be improved, but such episodes are likely to continue to be experienced all the time. On the one hand, computer algorithms are likely to deal better more frequently with road/traffic conditions and the driver should sit back and trust the robot. On the other hand, the driver should be advised not to engage too deeply in activities like reading or playing a video game and remain conscious of the road, prepared to take control in complex and less normal situations.

Introducing driverless cars may have, furthermore, significant implications for connectivity of the computerised car with and use of external information resources, and consequently for our privacy versus convenience. Thinking in particular of an information giant like Google, it is difficult to imagine that the company will not make use of the flow of information it may receive from cars for marketing purposes. True, much information can already be gathered and utilised by existing navigation applications and be shared through them. And yet, employing an autonomous driving system is going to involve even increased volumes and expanded types of information; collecting the information will be justified by operational requirements of the system, which will be difficult to argue with (e.g., information from Google’s sensors on a car can be matched any time with cloud-based data sets). That is, the autonomous system, a navigation application in the car, and external information resources will have continuous “conversations” as the car drives.

Therefore, during a future autonomous car drive, you may not be left so free to read or do your work. It will become more likely that as you pass near a restaurant you receive an alert that you have not visited it lately, and as you approach a DIY store you are notified of their great discount deals, etc.. The system will know much better what business establishments of interest the car is going to pass by and when it is expected to reach them; the sensors may also detect brand signage of interest on other vehicles or on the roadsides, consult external information resources and send a message to the driver.  That is not to mention the history of the pathways of a car that can be gathered, accumulated and saved on external databases. The opportunities for business enterprises and marketers are enormous and they are just starting to reveal. It would be convenient for digital-oriented consumers to receive some of those messages, but it would be also at a growing cost of losing the privacy of their whereabouts.

The cars of the future are expected to be increasingly more electronically wired, connected to the Internet (wirelessly), and supplanted with sensors, processors, and computer applications/applets. Some experts suggest that the dashboard controls of the car will actually become virtual and displayed on the driver’s smartphone instead of embedded in the car. Overall, analogue instruments are expected to be replaced by digital ones (5). It could change considerably the mission of car repairs, requiring more involvement of electronics and computer experts vis-a-vis mechanics and electricians. It would probably make more complex the care and maintenance of the car by its owner. The car will be more susceptible to sudden shutdown due to software failure or malfunction; the owner will have to take care of updating the various software installed on the car, wirelessly from the Internet or by a USB key (5); and thereby it may also be necessary to install anti-virus protection software on the car.

Eventually, technological visionaries and proponents of self-driving robotic cars should keep in mind that driving gives pleasure to many car owners besides the benefit of bringing them from place to place. A law-biding driver who simply enjoys the experience should not be deprived of it. However, not every journey is enjoyable and driving enjoyment should be balanced against releasing the human driver from effects of fatigue and stress. Therefore a self-driving system may prove greatly positive and desirable after an extended period of driving during a long travel, on a monotonous long straight freeway, in city centres, and in traffic jams. Yet, don’t be surprised if your car drives you off the road to a nearby steakhouse restaurant at its discretion.

Ron Ventura, Ph.D. (Marketing)

Sources:

(1) “Low-Cost System Offers Clues to Fast-Approaching Future of Driverless Car”, John Markoff, The International Herald Tribune (Global Edition of The New-York Times), 29 May 2013 (See the original article in NYT with a short demo video of MobilEye at: http://www.nytimes.com/2013/05/28/science/on-the-road-in-mobileyes-self-driving-car.html?pagewanted=all&_r=0 )

(2) Website of MobilEye Vision Technologies (www.mobileye.com — see Products pages).

(3) “Driverless Cars Could Reshape the City of the Future”, Nick Bilton, The Boston Globe (Online), 8 July 2013. http://www.bostonglobe.com/business/2013/07/07/driverless-cars-could-reshape-cities/SuUfDpWx9qs9Db3mxr7hRN/story.html

(4)’ “Self-Driving Car Sparks New Guidelines”, Joseph B. White, The Wall Street Journal (Online WSJ.com), 30 May 2013.  http://online.wsj.com/article/SB10001424127887323728204578515081578077890.html

(5) “Automobiles Ape the iPhone”, Seth Fletcher, Fortune (European Edition), 20 May 2013, Volume 167, No. 7, p. 25.

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The consumer goods global company Procter and Gamble (P&G) is an acknowledged master of brand management. Overseeing more than 300 brands across 160 countries worldwide, its innovations and business practices in branding, product development, marketing and advertising are taught probably in almost every marketing course programme at business schools; over the years it has also been a source for exemplary strategies and tactics to many companies that chose to follow in its footsteps. P&G is actually credited with conceiving in the early 1930s the concept of managing-by-brand and assigning a brand team to be in charge of orchestrating and streamlining all marketing and other managerial activities for any given brand (an idea attributed to Neil McElroy).  It took another fifty years to expand and formalise a theory of brand management, and particularly develop the psychological concepts of brand’s role and functions in consumer decision processes; still, P&G has practically started this ball of brand management rolling.

Now the top management of P&G finds itself in a crossroad, how to sustain its record of excellence and leadership in marketing, product innovation, and business in general. The last four years — since the financial crisis erupted in 2008 and following economic recession– have proven a tough period for P&G: Lower earnings, market shares declining, and a stagnation of its share price (at $60-70 after recuperating from a bottom low of ~$45 at the outset of the crisis); just in the last 4-5 months P&G started to see some improvement.  A decline in consumer spending, particularly in the developed countries, must have aggravated P&G’s difficulties. However, the problems of P&G originate to a large extent from within: Bob McDonald, CEO of P&G from 2009, identified in a recent meeting with investors two key weaknesses, excessive bureaucracy and insufficient product innovation (1). Yet, a higher-order problem seems to hover above these causes, that P&G has allowed its distance from consumers to widen.  Internal problems appear to have inflicted on the company’s competence to reveal changes in consumers’ needs and concerns and react to them soon enough or proactively. Currently, major shareholders, analysts, and P&G alumni are skeptical if McDonald can return the company to the right course. In the last quarter the share price climbed to $76, but more time is needed to see if correction is indeed on its way.

McDonald initiated a vision and strategy ‘driven by purpose’ for guiding the company’s business initiatives and actions with a key motive “touching consumers’ lives”. Critics argue that the directive of McDonald had been at first too abstract and vague to execute, and then in attempt to become more focused he turned to over-emphasis on efficiency of internal processes, making P&G too much inward-looking (1).

The vision called “purpose-inspired growth” directs, as explained by McDonald, towards “touching and improving more consumers’ lives, in more parts of the world, more completely”. It implies for instance that employees were not selling merely soap but cleanliness itself or that diapers let parents sleep through the night and that would enable an improvement of the earning power of middle class families (2). The intention is positive, emphasising the connection of the company to consumers, but the implementation was flawed. On a ladder of product attributes – consequences (benefits) – values (Means-End Chain decision model) McDonald was trying to start right from the top.  Employees had difficulties to interpret the strategy and translate it into action, configuring what is ‘a purpose’ and how to pursue it. Consumers may feel quite uncomfortable relating explicitly to their end-goals and personal values or they may not admit to them in advertising claims made by the company — this has to be done implicitly by hinting consumers from the bottom up on the basis of prior research.

A.G. Lafley, CEO of P&G in 2000-2009, highly respected for helping to salvage the company from a previous major downturn, championed a strategy centered on “the consumer is boss”.  The important contribution of Lafley to make the strategy practical was his highlight of two “moments of truth”: when a consumer first sees the product in a store and when he or she first uses it at home (2). These are decision points at which a consumer makes a purchase decision and, after experiencing the product, decides whether he or she will be a continuing customer of the brand. Thereon, employees could direct their efforts to win on these two crucial moments of truth. In an interview last month to Wall Street Journal, Lafley emphasised that the importance of being close to consumers has to be demonstrated by personal example:”Whenever I went outside the US and into an emerging market, I would go inside a store the first day and shop with real consumers. I could have told my employees ‘the consumer is boss’ a million times, but it wouldn’t have made any difference if that isn’t what we did” (3). That kind of practical guidance and personal commitment to a consumer-centric vision was apparently lacking in McDonald’s executive approach.

Procter & Gamble owns and manages brands in five head categories: grooming; beauty; fabric and home; health; baby and family. Among its more renowned brands are Ivory, Camay, Tide, Ariel, Crest, Pampers, Pantene, Always, Head & Shoulders, Olay and Wella. The company has been divesting lately from the food category, giving up on brands such as Folgers and Pringles, and, on the other hand, made the substantial acquisition of Gillette in 2005 which brought under the roof of P&G also Oral-B, Braun and Duracell. 25 brands generate each more than $1Bn in sales. The brands have generally been organized and marketed at the level of single products or mostly product lines (i.e., close variants of the same concept and function) so that many consumers would not  know the parent company of the brands they use. On a spectrum of brand architecture that spans over four main grades of brand relationships — House of Brands, Endorsed Brands, Sub-brands, and Branded House — Procter & Gamble is distinctively a House of Brands: the company hosts a pool of brands, each in charge of a narrow range of products, but there are only loose connections between them or to a parent endorsing brand (e.g., the corporate name). The autonomy given to a brand to tailor its positioning and marketing for its product(s) is a blessing for a brand leading in its category but may limit and impose a risk for brands that take the third or fourth place in their categories (4). In practice the autonomy of brand teams has been reduced in recent years in a way that seems to limit rather than support smaller brands. In addition, assimilating acquired brands that arrive with different types of relationships is more difficult and may cause greater confusion in the brand architectural model of the company (e.g., the Gillette brand is an endorser of a broader range of grooming products for men and their sub-brands like razors (Mach 3), shaving creams, deodorants, body wash gel and more).

In the 1980s the company added another layer of category-level management; they shifted focus towards spreading more brands in every category (e.g., laundry detergent, hair care) with aim that every market niche may find its answer in a brand of P&G. McDonald added yet new priorities defined by combinations of category and country. Lafley instated a complex “matrix” structure that involved a system of checks and balances, and its grip is said to have even tightened more under McDonald as CEO. It means that actions have to be approved by executives responsible for marketing, human resources and finance, geographical regions and product categories; brand managers are required to get permission for relatively simple actions or consult a book of PACE models (Process Owner, Approver, Contributor, Executor) for finding who has the relevant authority to settle disagreements (2). Perhaps this was meant to achieve better co-ordination between brands and control of functions and budgets but it has caused much frustration and discouragement of employees.

  • Jennifer Reingold of Fortune magazine (2) summarised the effect pointedly: “Process itself was threatening to become more important than conceiving great products and selling them” (p. 39).
  • Sonsoles Gonzales, former general manager for Pantene (left P&G in 2011) commented to Fortune that “There was lots and lots of measuring for the purpose of promoting productivity, but it resulted in too many internal transactions and negotiations and had less to do with winning the consumer” (p.39).
  • And Ed Artzt, CEO in 1990-1995, expressed his exasperation with the “brain drain” from P&G: “The loss of good people is almost irreparable when you depend on promotion from within to continue building the company” (p. 37).

Complexity is only increasing in the company with time and managing at the brand level is becoming harder as decision processes slow down. Nik Modi, analyst with UBS, suggested that P&G “is not too big to grow, it is too complex to grow”, making the fine argument that in times of volatility this problem becomes critical because the company’s structure limits its ability to confront quick changes and improving competition (1,2).

P&G’s brands are losing market share particularly to competing brands of key consumer goods companies such as Unilever, Colgate-Palmolive and Johnson & Johnson. Criticism claims that P&G is creating too few breakthrough product innovations. The more recent products to be appreciated as successful innovations were a synthetic detergent of Tide, Swiffer sweeping mop and Febreze odour freshener, but they are already more than ten years old (1,2). However, the claims urging more breakthrough innovations may be somewhat impatient and too harsh because such achievements are usually not so frequent — research and development (R&D) processes can take several years (mostly in the range of 3 to 10 years), requiring much experimentation and testing, and deep pockets. It is fair to say that many of the categories in which P&G is marketing are crowded with solutions offering different benefit-strengths and it is increasingly challenging to create new products that truly change the way consumers do things and influence their lives. The question to be raised is how a company like P&G is handling these challenges and works to overcome the obstacles to innovation in its fields of operation.

Going back to 2000, Lafley recognized P&G’s hardship to generate growth by innovation from within the company, in spite of its large apparatus of R&D (7,500-strong). He started a programme called Connect and Develop to import greater knowledge to the company by co-operation with outside sources (P&G’s approach to Open Innovation). The company estimated that for every member of its R&D team there were about 200 scientists and engineers out there who had talents the company could benefit from. The programme directed by Larry Huston linked with suppliers and other business partners, highly experienced retired experts, and young scientists in or fresh out of academia, to initiate new R&D projects (5). This brave initiative has had successes in creating more new products, but unfortunately it came short of impressing the stakeholders. It is claimed the company, helped by Connect & Develop, did not manage to create significant ‘blockbuster’ innovations, more of minor line extensions. The implication is that these product formulations justify much less paying price premiums, turning away consumers especially in the current economic period (2, 6).

In the past decade the ratio of R&D investment as % of sales continuously dropped from its peak of nearly 5% in 1999 to 3% in 2006 and 2.4% in 2011-2012. According to Bloomberg-BusinessWeek, this cutting back in R&D is explained not necessarily by reliance on external resources through Connect & Develop but mostly by decentralising and passing authority for R&D to heads of business-units who have put other priorities before investment in R&D (6).  Notwithstanding, more factors may have had adverse effect on innovative achievements in P&G. First,  a drawback of the Connect & Develop programme may be that drive and commitment to innovate are slipping farther away from P&G. Second, a long tradition of acquiring brands over at least three decades can weaken the ability and motivation to develop home-grown brands and innovative products in-house.

Much of the pressure on P&G is directed squarely at CEO Bob McDonald, with some shareholders demanding him to step down. Alumni managers are reportedly divided between opponents and supporters of McDonald. Nonetheless, he enjoys the backing of three former CEOs, Lafley, Artzt and Pepper, from whom he sought advice in recent months. He deserves extra time to show what improvement he can make. It may be wise for him to consider giving back more autonomy to brand management teams but promote joint-actitivites between brands, and encourage more co-operation between R&D, the in-house market research division Consumer & Market Knowledge, and brand managers. It is a testing time for McDonald and P&G to convince the company can keep touching and improving consumers’ lives meaningfully.

Ron Ventura, Ph.D. (Marketing)

Sources:

1. “P&G Chief Reassesses His Priorities”, Barney Jopson, FT.com (Financial Times Online), 31 January. 2013 http://www.ft.com/intl/cms/s/0/eb442eda-6b27-11e2-9670-00144feab49a.html#axzz2Oqll9hRr

2. “Can P&G’s CEO Hang On?”, Jennifer Reingold, Fortune (European Edition), 25 February 2013, Vol. 167 (No. 3), pp. 34-41.

3. “Former P&G CEO: What Companies Get Wrong” (Interview with A.G. Lafley), Wall Stree Journal: At Work Blog (Management), 4 March 2013 http://blogs.wsj.com/atwork/2013/03/04/former-pg-ceo-what-companies-get-wrong/

4. “The Brand Relationship Spectrum: The Key to the Brand Architecture Challenge”, David A. Aaker & Erich Joachimsthaler, 2000, California Management Review, 42 (4), pp. 8-23.

5. “Innovating Innovation: Procter and Gamble”, Management Lab (MLab), New Frontiers (case study, pp. 28-32) http://www.managementlab.org/files/u2/pdf/case%20studies/procter.pdf (“MLab is a non-profit  corporation, based in California, with the aim to accelerate the evolution of management”.)

6. “At Procter & Gamble, the Innovation Well Runs Dry”, Lauren Coleman-Lochner & Carol Hymowitz, Bloomberg-BusinessWeek (Online), 6 September 2012   http://www.businessweek.com/articles/2012-09-06/at-procter-and-gamble-the-innovation-well-runs-dry

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It is increasingly evident that consumers no longer care to wait for companies to have their say on new products. Consumers want to be heard earlier in the process of developing products and exert more influence on the products they are going to use. The Internet, particularly Web 2.0 and its interactive methods and tools, is clearly playing a key role in facilitating and enhancing this mode of consumer behaviour.

The engagement of consumers in the process of new product development (NPD) can be viewed as a facet in the broader phenomenon where consumers are mixing production and consumption activities, known as ‘prosumption’. Tapscott and Williams contend in their book on “Wikinomics” (1) that many consumers seek to turn from passive product users into active users who also participate in the creation of the products they use and influence their design and function. But the type of involvement hereby referred to goes beyond the personal design of selected features of product items by consumers for their own use, as applied in mass customization; the contribution made by consumers (‘prosumers’) collaborating with companies in NPD is meant to positively affect many consumers other than themselves.  Tapscott and Williams suggest that companies should encourage their customers to contribute in more profound and significant ways to the design of products that may thereafter be marketed to many more users.

Agreeably, consumers differ in the extent and quality of contribution they are capable to make as function of their knowledge and skills in the domain of every product, and therefore consumers should be invited to collaborate in forums and with methods more appropriate for them. The forms of collaboration may vary from consumer participation in NPD research to generating ideas in social media forums and up to more extensive proposals of technical designs of product prototypes. As collaboration gets more advanced and significant it can greatly help — in addition to co-creating improved products — also to produce closer and more valuable relationships between a company and its consumers or customers. More advanced collaboration has the power to elevate relationships to a form of “partnership” and to increase the level of their strength and intimacy between a company and its more loyal customers.

In an instructive and interesting paper on Internet-based collaborative innovation, Sawhney, Verona, and Prandelli present methods which they classify by the nature of collaboration (breadth and richness) and the stage of NPD in which the given level of consumer involvement is applicable (e.g., front-end idea generation and concept development, back-end product design and testing)(2):

  • Deep-rich information at the Front-End stages: Discussions in virtual communities of social media that encourage exchange of ideas allow companies to capitalise on social or shared knowledge of consumers. Another method that relies on consumer-to-consumer communication is Information Pump, a type of “game” through which a company can reveal and better understand the vocabulary of consumers in describing product concepts vis-à-vis expressions of needs;
  • Reach a broad audience at the Front-End stages: Web-based conjoint analysis and choice techniques can be applied among consumer samples to gather and analyse relatively less rich but well-structured information about consumer preferences;
  • Deep-rich information at the Back-End stages: Web-based toolkits for exercising users’ innovation let the more expert consumers configure or design original product models of their own creation, working in a specially built environment and with computer-aided design tools — this approach relies on knowledge of individuals;
  • Reach a broad audience at the Back-End stages: Particularly applicable to digital products (e.g., software, web-based or mobile applications, video games) where prototype or experimental beta versions can be tested online; however, visual-simulated depictions of alternative virtual configurations of advanced prototypes can be applied to test and evaluate the acceptance of a wider range of tangible products.

In the virtual world of the Internet, unlike the physical world, there is a less rigid trade-off between breadth of access to consumers and richness of information (e.g., small focus groups versus surveys of large samples); this advantage is stated by Sawhney et al. “…Internet-based virtual environments allow the firm to engage a much larger number of customers without significant compromises on the richness of the interaction. ” This advantage is particularly demonstrated in social media forums.

It should be emphasised, nevertheless, that new methods of collaboration should not come in replacement of  NPD research methods; research-based methods and non-research methods of consumer-company interaction can wonderfully complement each other and should continue to be applied in parallel to answer different requirements of the NPD process for consumer informational input and aid. In a leading paper for the new age of NPD research, “The Virtual Customer” (3), Dahan and Hauser describe state-of-the-art research methods and techniques for different stages of the NPD process. They distinguish, for example, between (a) conjoint types of measurement techniques and models that are most suitable for guiding product design at an early stage (feature-based), and (b) a method applicable for testing the appeal and purchase potential of candidate prototypes (integrated concepts) at a more advanced stage of product development. The latter method in particular takes the advantage of displaying images of virtual prototypes (e.g., SUV car models) to consumers , supplemented by additional product and price information, in an online survey for testing  reaction (choice) before going to production. They also explain in great detail unorthodox methods such as the Information Pump and Securities Trading of Concepts.

  • It is noteworthy that most research methods concentrate on learning from consumers about their preferences without engaging them in proposing product designs; the User Design method, however, already gives more leeway to consumers-respondents to construct their desired products using a self-design tool similar to mass customisation.

Forums or personal pages in public social media networks are widely accepted these days as an excellent arena for companies to receive ideas from consumers for new products and gather information about their product preferences and expectations. However, it is likely to turn out as a formidable task to comb and pick-up ideas of real value and practical potential for implementation from these sources as well as user-generated-content in blogs. Some good ideas may also get lost in the river of postings or comments customers upload in a company’s page on service issues, billing etc.. Dedicating a special separate page for interaction with consumers on new products, goods or services, can help to raise the level of ideas formulated and to allow peer discussions on those ideas that can lead to their further progression. But even then, the ideas proposed in such a venue may be mostly initial concepts, vague or unfocused. Such a venue is a good place to start, allowing any customer interested to contribute. Thereafter, owners of more mature or promising ideas may be referred to a company-owned virtual forum on its own website where a more advanced collaboration with the consumers-contributors may be developed.

Managing collaborative activities for NPD in a company-owned website division can offer some valuable possibilities. First, it provides better control and capabilities for moderating discussions among users or interacting directly one-to-one with the originators of product-concept proposals; it would be an environment dedicated by the company and designed by it specially for interacting with users and among themselves. Second, performing collaborative activities in this environment is likely to attract users with higher level of knowledge, competence and interest in domains of the company’s products; greater proficiency of users demonstrated in their discussions frequently leads to natural screening-out of novice and less serious users.

Third comes the sensitive issue of security and protecting intellectual property. Companies do not tend to guarantee any protection for initial ideas brought up by consumers, not even in their own websites. Particularly in forums that are founded on sharing knowledge and discussion of ideas between users, information has to remain transparent and accessible to participants and to the company. Tapscott and Williams noted that consumers get excited by the creation of their own products and enjoy it even better when they can do it together (4).  However, companies can offer some better measures to secure information such as limiting access to discussions and materials (e.g., by password permission) and preventing unauthorised extraction of content. Where proposed designs of product models are meant to be shared, originators should get the option to credit their models with their IDs. Confidentiality and rights are offered for the most progressed technical designs that are planned to be adopted by a company for manufacturing and marketing.

Fourth, a company can provide an interactive toolkit for innovation on its website for consumers-collaborators who wish to take their ideas and concepts one step or more further. With the toolkit users can apply relevant design tools to sketch plans and construct virtual 3D product models. Depending on type of collaboration program and context, users can allow their proposals to be available to other users or to the company alone. Thomke and von Hippel proposed a complete process for customer innovation that includes several iterations of developing a design with a ‘toolkit for innovation’, building a prototype, receiving feedback from the company (‘test’), and return for revisions (5). Through early iterations the prototypes built by the system would be virtual, until the design is satisfactorily advanced to manufacture a physical prototype of the product. The authors suggest that the customer-led process is likely to require fewer iterations than in a ‘standard’ NPD process, save time and money, and free the company to invest more effort in improving manufacturing capabilities.

Different schemes have been devised for collaboration programs with customers:

  • The Open Innovation Collaborative Programme of Unilever, for example, is designated for highly skilled contributors with extensive knowledge in the domains of products for which they invite proposals (list of Wants, e.g., solutions for detergents). Collaborators are referred to a special portal for submission (in co-operation with a consulting firm yet2.com that manages the review process).
  • Other programmes are more popular in nature and appear suitable to a wider audience of consumers with varied levels of expertise. Take for instance the Create & Share collaborative suite by Lego on its website. More than a decade ago Lego cleverly realised with appreciation the creativity of its leading hobbyists and enthusiasts (adults included!) who invented original models based on existing parts and suggested new forms of Lego blocks; Lego started to accept such designs and offer new models’ sets and less conventional building parts. The online suite includes today a gallery of models built by fans, message boards, and especially the Lego Digital Designer toolkit application for constructing virtual plans of fans’ own models (unfortunately Lego has terminated last year its ByME customization program that allowed users to order their own physical models).

Consumers who collaborate with companies should be rewarded for their more significant contributions of ideas and products designs. On the one hand, the reward does not have to be monetary, cash-in-hand (some may not even want to be perceived as paid contributors/employees). On the other hand, companies should not get satisfied by relying on enjoyment of contributors and their feelings of self-fulfillment and accomplishment. Furthermore, a company should not appear to be relinquishing its duties in generating genuine ideas and developing new products to its customers. First, many customers will be happy to receive credit by name in recognition of their contribution in the company’s publications and websites. Second, contributors can be rewarded with special gifts or privileges in obtaining and using their own-designed products and other products of the company. Monetary prizes will probably continue to be distributed to winners in competitions.

Collaboration for innovation changes the relations between a company and its consumers or customers because it gets them to work together, co-creating new products that thereof better fit consumer needs and wants. Particularly activities that engage consumers in developing concepts and designing products have the better potential of narrowing gaps between companies and customers.  Research, collaboration in other ways, and internal development by professional teams within the company should be used together in integration in NPD activities.Collaboration shifts the balance of control more towards the consumers, but companies who learn how to share knowledge and competencies with the latter can gain in improving innovation practices, increasing value, and not least, enjoying stronger customer relationships.

Ron Ventura, Ph.D. (Marketing)

Notes:

(1) “Wikinomics: How Mass Collaboration Changes Everything“, Don Tapscott and Anthony D. Williams, 2006, Portfolio.

(2) “Collaborating to Create: The Internet as a Platform for Customer Engagement in Product Innovation”, Mohanbir Sawhney,  Gianmario Verona, & Emannuela Prandelli, 2005, Journal of Interactive Marketing, 19 (4), pp. 1-14 (DOI: 10.1002/dir 20046).

(3) “The Virtual Customer”, Ely Dahan and John R. Hauser, 2002, The Journal of Product Innovation Management, 19, pp. 332-353.

(4) Ibid. 1.

(5) “Customers as Innovators: A New Way to Create Value”, Stefan Thomke and Eric von Hippel, 2002, Harvard Business Review, 80 (April), pp. 74-82.

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