Is the customer always right?

By Jennifer Lee

Innovation is becoming a key competitive battleground in nearly every sector. Companies are under mounting pressure to continuously innovate and introduce new products and services ever faster. Consumers expect the next thing to be the next big thing—and when it isn’t, they don’t hide their disappointment.

Companies are realizing that traditional methods of innovation — developing new product ideas in-house, conducting focus groups and customer research to determine feasibility and market potential — don’t always reflect customers’ actual needs and desires. To address this shortfall, more and more firms are putting the customer at the heart of their innovation efforts.

Businesses are connecting with their customers and seeking their input earlier than ever in the product development lifecycle. Thanks to social media and other technology, consumer feedback is available during the idea generation and design stages, rather than during product testing. Collaborating in this way enables companies to develop new products and services more quickly and cost-effectively. At the same time, it minimizes the risk that products will underperform or, worse, fail outright.

Making it work
We explored customer-driven innovation in our recent report, Customer-focused growth: Rising expectations and emerging opportunities. To make it successful, companies need to understand how they’ll work with customers as well as why.

Here are some tips:

Start smart, finish strong
Most companies intuitively understand the benefits of involving their customers in their product development efforts. But for the best results, they need to ensure they have a solid business case.

Leaders need to keep the big picture in mind. Creating channels to enable customers to contribute their ideas and perspectives requires some investment, so a company should consider how much of that will be offset by new product revenue. That’s why it’s important to tally the costs and benefits of customer-driven innovation efforts.

It’s also important to be realistic about what a customer-led innovation process, or indeed any innovation process, can deliver. Small ideas, tested, refined, tweaked and tested again, are more common than breakthroughs, and are often just as valuable. Consider starting small – practice your new process with a test group. This allows you to work out the kinks in the innovation sourcing program before inviting insights from the larger market.

The payoff, with a strategic, well-executed process could be amazing: turning customers’ ideas into real, tangible products can build incredible loyalty and engagement — two highly treasured commodities in a competitive marketplace.

Rules of the road
Innovation can lead companies in all directions if the process is allowed to run amok. Defining rules for product development ensures the creative energy of customers and staff is focused in the right strategic direction for your company. It’s also important to manage your consumers’ expectations – Not all consumer-led innovations will spark the next ‘big thing’.

Leaders should take the time to determine what kinds of new ideas the company will or won’t embrace. The company’s appetite for risk will usually play a key role when considering such questions as:

• Are acquisitions ‘in bounds’?
• Will we only consider partnering with other companies that share similar corporate values?
• Is outsourcing a viable approach?
• Are there product categories or markets we have no wish to enter?

The answers can provide clarity and direction to those contributing to the innovation efforts. Guidelines can help triage ideas or modify ‘nearly there’ concepts before making the all-important decision to pursue them.

Maintain your base
When it comes to asking customers for their ideas, input and feedback, there’s always a risk that the people who speak up aren’t entirely representative of your main customer base. It’s important to avoid making decisions based mainly on the input of a vocal minority.

Before you ask your customers for input, ask yourself:

• Which customer segments drive most of our revenue?
• Who are they, what do they want and how do they buy?
• Do these segments generally represent our overall market?

These are the customers whose input will add value to your innovation efforts, and therefore the ones you want to reach out to.

Larger companies, which can either access or afford large amounts of customer data, often have a good handle on their top market segments. It can be more challenging for smaller companies to do so, but focus groups, in-market research and identifying key influencers can help them determine their real main customers.

Living social
Social media can be a useful way to solicit customer input into your products and services, but it should be seen as only one element in any innovation strategy. In fact, companies should ask whether social media will play any role at all in customer-driven innovation before launching any major initiatives. In many cases, social media may be better reserved for marketing, sales and customer service.

Passive social listening, as opposed to active engagement, can also provide a company with a sense of what customers like or don’t like about its products and services. These insights can be just as useful for sparking innovation efforts. However, if you do opt for active engagement on social media, be prepared to hear the bad and as well as the good.

Balance old and new
Customer-driven innovation offers companies a valuable new means to develop fresh ideas for products, services and ways of doing business. Yet they shouldn’t discount the value and importance of more traditional methods. In our view, a balanced approach is a better option.

We expect that over time, customer-driven innovation will become a viable channel within a company’s innovation strategy—but not the only one.