Then comes the dreaded question: what’s the projected ROI? And instantly, all the air gets sucked out of the room or e-mail thread – and the great idea is never to be heard from again. Because for any idea that’s even remotely risky or disruptive, guessing the projected ROI is largely a fantasy, right up there with unicorns, leprechauns and a working office printer. (IT folks – I keed, I keed)

So when Phillips’ Oral Healthcare, makers of the Sonicare electric toothbrush line, faced a mandate to double their rate of growth, they knew they had to find a way to neutralize the ROI question from the beginning. The result was the company’s Segment-Focused Innovation Roadmap, part of our revamped Product Management topic center.

Instead of focusing innovation on which idea would generate the highest ROI, the Roadmap focuses innovations around segment needs first, then sends ideas through a number of filters to determine which would move ahead in the development process. Marketing creates a rough estimate of the relative size of each segment need and the odds of success Philips has in addressing that need. It is against these segment-specific needs – not relative ROI – that Philips places bets. The process elevates ROI measures from project-specific granular projections to informed valuations of the opportunity size and likelihood of winning specific consumer needs – in other words, from a metric, to a concept.

Marketing then filters ideas through a four-step funnel that tests for the following:

1. Team enthusiasm. Recognizing that internal buy-in is the most crucial element of any innovation effort, Philips throws out potential innovations that are not broadly supported by the team.
2. Intensity of customer dilemma. If the innovation is a “nice to have” for customers, as opposed to a “need to have” or “would really like to have”, ideation stops here.
3. Effect on brand equity. Is the innovation consistent with the brand? Philips places this towards the end of the funnel, recognizing that if the opportunity is big enough, it may warrant reappraisal of the brand.
4. Alignment with business strategy. Is the innovation consistent with short and long-term objectives? Again, this is placed last for a reason – a truly disruptive opportunity may warrant a reappraisal of business strategy.

The hard-nosed realists out there are shaking their heads. “Why make a move in the market, if you can’t even make an educated guess about ROI?” Fair question – but the problem with this reasoning is that good ROI models project returns based on products that are already in the market. If the offering is really is disruptive and innovative, ROI exercises will likely be nothing but conjecture – a waste of time at best, and actively misleading at worst. The ROI filter also has a pernicious side – it ensures that nothing gets through the internal vetting process except safe, incremental innovations – a sure recipe for slow growth.

In this case, we’re talking about product innovation, but ROI is an awfully restrictive metric in any situation that involves extensive speculation. In the social media space, we’ve advised against using ROI as a determining factor in investment decisions and in marcomm planning, we’ve observed that higher-level metrics do a better job of allocating resources than ROI.

MLC members, for more on the Roadmap, including steps for getting executive and cross-functional buy-in, please check out the full case.

But another avenue for concept testing is presented by the emerging importance of virtual worlds. Consider: 80 percent of active Internet users and Fortune 500 enterprises will participate in virtual worlds by the end of 2011, according to industry data.  The virtual world is dominated by two types of immersive environments: (1) role-playing games such as World of Warcraft  and (2) social communities such as Second Life.  So far, virtual world marketing has taken place mainly in the latter.

The crucial advantages to market testing in virtual worlds are the low cost of designing 3-D products and access to real-time feedback. Drawbacks include privacy and security concerns and design tools that may be too crude for representing some product ideas (like aircraft engines). Nonetheless, many entrepreneurs insist that the prototyping possibilities and ease of collaboration it offers just aren’t available anywhere else.

Businesses are using virtual worlds to build products they couldn’t otherwise afford to prototype. And some entrepreneurs are using Second Life or other virtual worlds to test ideas—such as a mass transit system with individual pods for riders—that aren’t feasible to prototype any other way. Other companies, including Disney, MTV, and Coca-Cola, have created their own virtual worlds.

So how can companies attract customers to try their product concepts in virtual worlds? Experts tend to agree on a few approaches:

• Providing value for customers: In order to get customers’ attention in virtual worlds, marketers have to provide them with value. One commonly used way of providing value is to give free product samples. As a successful example, Nissan has a gigantic dispenser in Second Life that gives away free virtual Nissan cars, which then can be raced around a virtual track.
• Offering highly interactive applications: Unsurprisingly, interaction is seen as an important element of virtual world marketing because in so doing, customers can be engaged by the company’s representatives, products, or other customers. One company that got it right is Starwood Hotels & Resorts, which tested a new hotel concept called Aloft. After a trial in Second Life, Starwood decided to put more seating in the lobby and install radios in the shower, among other changes.
• Managing the community: Probably the most significant flaw in the typical approach is failing to understand the community you are trying to engage with. Virtual worlds are platforms for social networks. To foster integration into these communities, successful companies are hiring people who already live, work, and play in Second Life to act as advisors and work in the company’s virtual locations. Other companies are enhancing social interaction within the community by arranging events for the community or offering meaningful locations for interaction.

In virtual worlds, as in the real world, companies need to invest in creating beneficial long-term customer experiences. If done correctly, these worlds offer a whole new opportunity to test product concepts.

Have you had success testing product concepts in virtual worlds? Any lessons you can share?

120 years!  That’s 1.2 centuries.  Or, a decent-sized-fraction of a millennium.

Awe-inspiring, no doubt.  But what is particularly remarkable is that the basilica planners had to answer some extremely important questions before construction even began: would the building accommodate the size of the community in 120 years?  Would the design meet the aesthetic tastes of our grandchildren?  To answer these questions without the luxury of Excel, Stata or dartboards (created 100’s of years later by our friends in England) must have required luck—and prayer.

In many ways, it’s the equivalent of a modern-day, consumer product development cycle.  In a sea of shifting segments, who will purchase my product when it finally hits store shelves?  Not an easy question to answer, even with modern, predictive tools we now have at our disposal.

This long product development cycle is nothing new to the automotive industry, and is captured in the bowing of two new vehicles: the Chevy Volt and the redesigned Jeep Grand Cherokee (the two ‘poster-cars’ for the rebirth of the American auto industry).  Both are generating lots of media attention.  But which one will appeal more to buyers?  The gas hog or the gasless?  Two years ago, consumers joined a waitlist for a hybrid.  Now, the US government is declaring a slightly different message: Americans like big cars.  The shifting target phenomenon is nothing new to marketers.  Besides the obvious myriad of segments, volatile externalities like gas prices significantly impact the buying patterns of the US auto consumer.  So, someone’s Volt preference today very well could be a Grand Cherokee tomorrow.

The current crop of American autos is being hailed as fitting for the public’s taste.  Will it match consumption patterns tomorrow?  No one knows.

But within many of our manufacturing members’ organizations, the debates rage. Despite sophisticated models and scenario planning tools, most of these organizations struggle to reach adequate confidence levels around the likelihood and impact of each potential future state to take any decisive action.

The trick seems to be to avoid the endless discussion of probabilities, and focus on prioritizing the right focus for action by identifying the most certain changes to the environment and to business capabilities over relevant time frames—the goal being not to develop a more accurate model, but to ensure that the actions you are taking will guarantee success under the circumstances of the top three most probable scenarios. MLC members can click here for a case study of how an automaker did just that (beginning at page 31).

After that, of course – pray.

MLC members, for more on innovation and managing cross-functional teams in new product development, please visit our organizational management and innovation topic centers.

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.

By Tasneen Padiath

I’m no wine connoisseur, so the marketer in me kicked in on a recent trip to my local liquor store.  I considered the attributes I wanted – under $15, preferably red, not too sweet or fruity, a familiar brand name and something that connotes a fun experience. Faced with an array of wines from California to Chile, from Merlot to Bordeaux, I was struck by the enormous difficulty marketers face in differentiating their brands and creating a connection with consumers in the moment.

Granted, I was probably a little outside of the target segment for most wine makers, but what would have altered my decision? A catchy label or even a suggestion from one of the sales people could have nudged me in a different direction. The lesson for me here: while there is immense opportunity to influence a brand decision before a consumer goes shopping, the importance of the in-store experience—whether through product placement, point of purchase signage or a well trained store employee—cannot be minimized.

According to a recent study from the Grocery Manufacturers Association, Booz & Company, and SheSpeaks, shoppers choose 59% of the brands they buy in the store. Of those items, 85% of shoppers perceive in-store factors as more influential than out-of-store marketing. After price, communicating benefits on packaging is most influential, whether to reinforce existing brand preferences, drive competitive switching, capture purchase when there is no strong brand preference, or create impulse sales. In fact 77% of shoppers do not take detailed shopping lists into the store. Instead, they use “mental lists” that include “brand consideration sets,” but evolve as they are exposed to more marketing at home, in transit and in the store.

This probably explains the surge in interest from MLC’s membership on Shopper Marketing. We recently hosted a round robin discussion with a few of our CPG members to discuss the future of the function.  We discussed questions such as:

• Where should Shopper Marketing sit within the organization? (Centralized Under Sales / a Center of Excellence / Centralized Under Marketing)
• What skill sets should we look to hire and develop?
• What are the right metrics to measure our performance?

MLC Members, We’re also seeing increased interest from retailers to partner with manufacturers on Shopper Marketing. Look out for more discussion groups from us in early 2010.

What can Romano’s Macaroni Grill’s re-engineering of its tomato bruschetta dish teach us about innovation in a recession?

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.