Iconoculture recently reported on an unsettling trend in consumer travel—as airline innovation fails to keep pace with consumer demands, consumers are either rewarding smaller players like Suite Arrival (who delivers TSA-friendly personal items from popular brands directly to travelers’ hotel room) or inventing their own “DIY” approaches to make travel less frustrating.

The news isn’t all bad—Iconoculture spotted a few noteworthy exceptions as big brands made progress in the long march to improve travel.  Noteworthy innovators winning travelers’ endorsements include:

• Southwest Airlines “Bags Fly Free” Policy: takes one painful and expensive worry out of travel, and translates into clear, benefit-driven marketing messages.
• JetBlue’s Customer Bill of Rights: reimburses customers for the most aggravating travel missteps, including vouchers and refunds when flights are cancelled and delayed.
• Clear: the growing fly-through-security service enjoys over 75% favorability in online mentions.

For more winners—and a few losers—MLC members can check out Iconoculture’s full trend analysis.

That changed recently when I spent time visiting with marketers at Ingersoll-Rand, makers of Hussmann refrigerated cases.  In this day and age, I couldn’t imagine there was a lot of innovation in the design of refrigerated cases.  Their job is pretty simple – keep stuff cold while maximizing shelf space and minimizing energy use – and people have been building them for decades.  I mean really, what’s left to do with commercial refrigerators?!?  Apparently a ton.

As I talk to marketers across industries and categories, most would do cartwheels to have the right insights that result in a handful of commercially-viable innovations.  Yet filling the top of the innovation funnel and then knowing how to filter those ideas is proving far more difficult.

Working with Strategyn and using one of the Council’s favorite frameworks, jobs and outcomes, Hussman identified fistfuls of under-served customer opportunities for their products.  In other words, among the dozens and dozens of potential innovation plays, Hussman found more than enough actionable opportunities where the customer has low satisfaction for a highly important job. 

Members, if you’d like to learn more about Ingersoll-Rand’s approach, consider joining Manlio Valdes, Vice President of Global Product Management for the Industrial Technologies Division at Ingersoll-Rand at our next Innovation Summit on July 22.  The session is hosted by W.L. Gore and includes a tour of their world-class Innovation Center.

Whether co-opting outsiders into helping you innovate as NASA does or getting creative with your ethnographic research as Moen did, we are seeing more and more members reaching out to their customers – and even their non-customers – for innovation help.  Already NASA’s Centennial Challenge Program has resulted in technological breakthroughs orchestrated by a “regular guy” from Maine working alone in his dining room as well as a group led by an undergraduate student at Worcester Polytechnic Institute.

Of course, just opening your doors to the outside world isn’t going to be a panacea that cures your innovation ills.  While we are seeing lots of companies succeeding via social media platforms that engage customers in idea sourcing (see examples from Starbucks and Dell), the best marketers are leveraging their “specialist users” over their “mass customers” to drive real breakthrough thinking.  From automotive companies to commercial paint manufacturers, we’re hearing more and more about the pursuit of customers with a unique skill set or unique need state that open more doors to innovative thinking that traditional research approaches – even one company that has successfully recruited “haters” of their products.

MLC members, are you curious about how the best companies identify and co-opt their specialist-user customers to jump start real innovation? Join us for more on this topic by attending one of our half-day Innovation Summits.  The next session, on July 22, is being hosted by W.L. Gore, makers of GORE-TEX, and will include a tour of their world-class innovation center (40 minutes outside of Philadelphia).  Curious about how your innovation efforts stack up against your peers?  Take our innovation diagnostic and find out.

Click to Enlarge | Domino’s Pizza (NYSE: DPZ) Share Price vs. S&P 500, Dow, and Pizza Sector (PZZA) August 21, 2009 – April 13, 2010 (Red line denotes launch of new crust)

(This is a guest post by Andrew Kent of the Sales Executive Council, our sister program for sales leaders.)

Domino’s Pizza’s new crust has been making the company a lot of dough.  The pizza delivery chain announced a new and improved crust on December 16, and has been blitzing the airwaves with ads ever since—ads which you’ve no doubt seen many times by now.  Over that time, the firm’s share price has leapt by 84%, trouncing the S&P 500, Dow, and pizza sector.

That’s a meteoric improvement—and no doubt a relief to Dominos’ marketers, who spent “tons of time — about 18 months — and millions of dollars” experimenting with various recipes and testing them with customers, according to CMO Russell Weiner.

Those marketing dollars certainly translated into a mouthwatering share price, but what about the pizza?  Did the crust really improve by that much?

Well, I’ve tasted it.  Several times.  The verdict?  It’s a welcome improvement, but not a nearly-double-your-market-cap-in-three-months kind of improvement.  Essentially, it tastes like they took the old crust and rubbed some garlic butter on it.

So here’s the question: How did a firm spend millions of marketing dollars improving a product, settle on some pretty incremental changes, and translate that into an 84% leap in stock price?

Simple: it’s not what you sell—it’s how you sell.

Now, my point is not that Dominos’ marketing dollars didn’t result in an improved product—they almost certainly did.  But an improved product wasn’t the whole point.  The real reason the company spent millions of marketing dollars was… to say that it had spent millions of marketing dollars.  Why?  Because the message those marketing dollars convey is not only that Domino’s had perfected (or at least improved) its pizza, but also “we listened to you.”

It’s a perfect example of not selling on product features and benefits alone.  Weiner explains:

“I spent a lot of time thinking about how to change the perception of people who didn’t buy Domino’s. We talked to them, and read their blogs, and this is what they were saying. And I knew that, other than my mom, no one would care about “new and improved.” So if we just said, “Hey, this is a new and improved pizza,” we would not have gotten the doubters to try it.”

In other words, Domino’s isn’t saying, “buy our pizza because it has a garlic crust that intoxicates taste buds and stimulates serotonin production.”  Rather, they’re creating an experience around doing business with the company: “you told us our pizza tasted like cardboard, we took time to listen and made changes, so give us a try again!”

What was their secret?  Building platforms and content around customer needs – not their own product launch. 

National Instruments had a large base of enthusiastic customers, but realized these customers needed both the means and motivation to connect with each other.  Analysis of customers’ networking patterns revealed two core motivations: 1) building credibility with peers and 2) finding technical resources.  These key insights shaped the entire campaign’s choice of channel and message, both on and offline. 

Conferences for leading engineers offered opportunities for networking, training seminars kept customers up-to-date with cutting-edge technologies, and social media platforms enabled customers to collaborate and promote their professional successes.  National Instruments also generated extra chatter by bridging social media networks with real-world communities.  At the start of the campaign, keynote speakers at conferences educated attendees on ways to stay connected online; later, key online contributors received recognition at offline “Breakfast of Champions” events.

By designing networking tools to help customers achieve their own professional goals, National Instruments successfully boosted word of mouth, which increased awareness and sales.

MLC Members, check out our recent webinar discussion with  Deirdre Walsh, National Instruments’ Social Media lead, to learn more about National Instruments’ social media strategy and successes.

Very rarely does one member conversation spark a complex web of issues, but one yesterday with a senior marketer at a consumer firm in a mature industry did just that.

The firm has reconfigured its entire new product development process, from stage gates, to resource allocation, to organizational structure and ultimately, the locus of innovation – a conscious shift from incremental to disruptive.  Simultaneously, the company placed brand management among its top priorities for the year.  Our dialogue quickly turned to the intersection of the two and which was actually driving the bus.

The mixture of brand and innovation creates multiple thorny dilemmas:

1. If a company needs innovation to survive coming out of the recession, how does it reconcile a brand image that may be out of sync with the new technologies it develops?

2. How far can you push the envelope on brand positioning in advance of worthy innovations that demand a tweaked or entirely new value proposition?

3. Where does the customer fit? For B2C indirect firms like this one, innovation must satisfy end-consumer needs while also enabling retail success – a retailer not entirely focused on your one category.

4. With customers having more control over the brand and product experience through social media, how can companies bring external sources to bear on innovation without undermining the brand essence?

As we hear more from members that innovation is re-emerging from its two-year recession hibernation, there is an unfortunate pull toward playing product catch-up.  ‘We need to find the next great product,’ or so the story goes (unfortunately, Apple’s iPad may fit here).  Not so fast.  Progressive firms seem to be taking a holistic approach to innovation that anchors all efforts in the brand and consumer.  The brand leads, innovation quickly follows.

This is not to say your brand is a roadblock to blue-sky thinking; it does mean that the strategic focus of the brand has to be incredibly precise and internalized by all those that touch innovation.  In both B2B and B2C, pushing the brand to an emotional level – be it through a shared value or unique benefit – opens far more innovation doors than brands that stand for functional features that may be obsolete by the time you blink.

MLC Members, check out these case studies that can help manage this brand/innovation dichotomy:

• Philips Oral Healthcare uses a segment-focused roadmap to enable long-term consumer-centric innovation
• Lego harnesses the enthusiasm of consumers to improve NPD
• Wrigley’s creates a separate innovation process to ensure non-standard sources of insight lead to potentially disruptive innovations

On the one hand, you have P&G launching the latest, feature rich, premium-seeking version of its Fusion razor.  Blade edges so fine you need a microscope to see them.  Anti-hydroplane technology.  And an even more ergonomic grip. 

(Wait.  Backup.  My razor blade can hydroplane? On my face?  Scary… Does my auto insurance cover that?)

In contrast, the neighboring article details GE’s plans to launch a handheld ultrasound device.  Price point: under US$10,000.  Compare that to $25-50k for laptop-based machines, or $250k for a cart-based ultrasound.  Of course, the handhelds won’t have the functionality of the others, but for many situations, they don’t need to.  Cutting out features in favor of portability and low price actually opens up new markets.  That’s smart, “good enough” innovation in a tough economic environment.

Needless to say, perhaps, but the feature enhancing variety of innovation is a tough row to hoe in a recession.  With all great respect due to the Gillette brand—for decades an innovator and real enricher of daily shaving activity, including my own—at some point, consumers will declare the emperor naked. 

You can purchase 13 Schick QuattroPro cartridges (a four-bladed monster) for $19.99.  That’s more than enough shaving chops for me.  Compare that to 14 Gillette Fusion Power, five-bladed cartridges for $41.49.  Is the Fusion Power shave a better one?  Perhaps.  But not detectably so for me, and I’m guessing most consumers would say the same, if pressed to break out of their purchasing habits.

Surely, social media will accelerate this emperor de-shrouding.  How long before some clever razor blade upstart equips its socially active advocates to lay bare the math, and make the quadblade the sharp choice on a tight budget?

If you haven’t put your innovation strategy under the microscope to spot the keen edges, its worth doing.  Are you cutting against the economic grain, or shaving with it?

MLC Members, join us for breakfast on May 13^th in San Francisco.  Schwab will host a morning roundtable for MLC members to discuss innovation.  Email Kelly Shattuck if you’d like to pre-register (kshattuck@executiveboard.com).

Also, see some of our favorite innovation case studies:

• How Motorola does 360-degree customer needs mapping
• How BT fosters employee participation in innovation
• How Eli Lilly fosters a common employee understanding of what great insight looks like

• The recession has fundamentally recast customers’ hierarchy of needs, priorities and in some cases core values, giving rise to the “New Normal” customer
• The “Good Enough Revolution” (an important read) has demonstrated that, in many categories, the returns curve on adding new features has flattened or even inverted
• The increasing participation of our target audiences in digital and social media has presented an opportunity to dramatically reduce innovation cycle time
• The source of consumption growth is shifting to BRIC countries, which is putting more pressure on innovation processes to produce discontinuous innovation for those markets

In 2010, we will research these forces and more importantly, the best practice approaches that marketing leaders can use to retool their innovation engine for this new environment.  We anticipate delivering insights and best practices to the membership this summer.  Interested in shaping our research inquiry? Please email me (pspenner@executiveboard.com).

For those of you who need help now, here are MLC innovation resources that should help to see you through:

• Ground Yourself in Macroeconomic Forces: Join us for three upcoming webinars on the business barometers in the US, EU, and China with Dr. Roman Cech, PhD as our guide
• Understand How Your Customer Has Changed: start by attending the MLC’s upcoming webinar, Lessons to Remember: Recession-Era Insights Most Managers Will Forget, January 28^th, 11:00 EST
• Re-Examine Unmet Customer Needs: apply a customer jobs/outcomes approach to understand your New Normal Customer’s needs—see the Customer Outcomes Surfacing Process Tutorial
• Organize Innovation Around Key Segments: your customer segmentation may have changed—apply these World Class Segment Innovation Solutions to boost your innovation productivity

Or, if you’re starting from square one, visit MLC’s NPD and Innovation Topic Center.

So how about an even-handed assessment of things to watch for in 2010? Even the cynic can provide that.  Here are three big macroeconomic and marketing-specific trends every marketer should follow in earnest:

Macroeconomic Trends

1)      Consumer Behavior and Economic Recovery – It’s unclear whether a true recovery stimulated by increased consumer spending will occur. Regardless, marketers should closely track the salience and imprinting of consumer behavior patterns exhibited during the worst of the recession into 2010. Is the ‘cool-to-be-frugal’ mindset permanent? Is consumer spend retrenchment category-specific? How do smart marketers stimulate similar consumer behavior for their brand? Members, join us for a webinar January 28^th to hear our take on the recession lessons marketers might soon forget.

2)      U.S. Federal Debt and the Declining Dollar – With continued weakness in the world’s reserve currency, US-based companies will find overseas operations ever-more expensive, while the US activities of firms headquartered in Europe or Asia will be hit once by the lack of consumption and a second time by miserable exchange rates. As Congress raises the national debt ceiling, foreign governments will continue to raise red flags on US creditworthiness, potentially impacting cross-border direct investment around the world.

3)      Unemployment and Labor Markets – With very few predicting improvement in the overall employment picture, the fact that it correlates too well with discretionary consumer spending bodes poorly for 2010. But for our businesses, there is incredible opportunity to hold on to and find the right marketing talent, without whom the hill to climb will be even steeper.

Marketing Trends

1)      Social Media 2.0 – In case you haven’t noticed, social media is kind of a big deal. 2010 will tell us how big a deal. From how Twitter will endure to the privacy concerns inherent in Facebook, the churning sea of social media will quickly separate marketing winners from losers. Fast-cycling failure and embedding social opportunities into marketing communications planning are just two ways to keep up. Members, see our full suite of social media resources here.

2)      Organization Structure – Now more than ever, marketers are asking us about the ‘right’ organizational design. Whether looking to achieve cost savings through efficiency, embed digital/social without upsetting entrenched hierarchies, or simply find a new way of doing business, structure conversations are unavoidable.

3)      Resurgence of Innovation – As pipelines dried up along with innovation budgets across 2008-2009, there’s a remarkable gap in many categories between the last disruptive innovation and today’s drastically changed customer outcomes. Leading marketing organizations are finding creative ways with budgets to ensure innovation is no longer under-funded as they look to beat competitors into the daylight the economy seems to show.

Best wishes to all our members on a successful 2010. Let’s hope the realist in me becomes a bit happier across the year and puts the cynic to bed.

Most marketers are relying on price and promotional shifts to re-position their brands for value.  By contrast, savvy marketers are re-assessing their products more holistically, taking into account how raw materials and production costs interact with traditional marketing disciplines like consumer understanding and pricing.

Enter Macaroni Grill, which reported in The Wall Street Journal | Sep 16 is reworking its menu to get away from 1,000 + calorie items—its consumers want to eat more healthily.  The restaurant’s tomato bruschetta appetizer makeover illustrates recession-minded innovation at its best: 

• Reduce olive oil dressing—drive down a costly input
• Put in better tasting cherry tomatoes + small leaf basil— recover the flavor loss from reduced olive oil with these stronger tasting (but cheaper) substitute ingredients
• Serve tomatoes in a bowl on the side—reduce labor that goes into getting those pesky little tomatoes to balance on the bread.  Leave that challenge to the consumer, many of whom actually prefer having extra control.
• Drop price by about 6%–fantastic! Just what our wallet-riven consumers need in this recession.  Maybe that’ll help you pull off a Panera Bread, and catch consumers drifting out of more expensive alternatives.

All of this, and calories cut by 36%, in keeping with consumer preferences for healthy (okay, healthier) eating.

Some marketers do this sort of multi-variable swapping by zen (less charitably, you might say its by gut).  But we’re seeing marketers bring real science to making these swaps.  They’re building “consumer value equations” by using conjoint analysis and vector analysis.  Conjoint in marketing isn’t new, per se.  But it’s typically applied only to functional attributes and price.  We see marketers applying it to emotional attributes, as well.

With this approach, you can with confidence reduce that olive oil and replace it with small leaf basil, because you know consumers won’t mind that.  You can serve the tomatoes in a bowl on the side, but you can’t CUT the quality of the tomatoes.  In fact, all the better if you can increase quality of a critical ingredient.

This kind of recession-minded innovation is replicable by most companies.  Think through the interdisciplinary dimensions of your own products— are there any tomato-bruschetta opportunities in your portfolio?

MLC members, take a look at this short case study on consumer value equations to learn how to how to re-engineer your product offering.  Or Access our best tools and insights on NPD and Innovation.