Marketing Strategy and Competitive Positioning pdf ebook

CHAPTER 12 COMPETING THROUGH INNOVATION
solar and wind power. They fear that the power company will go the same way as the tele-
phone landline. DIY electricity is spurred by falling costs for solar panels and government 
incentives, so US homes and companies are producing more of their own power. Utilities 
fear this will squeeze their revenues while leaving them to bear the costs of maintaining 
the electricity grid. European utilities, notably in Germany, have already been battered 
by weaker demand and the EU’s support for renewable energy. Responding effectively to 
disruption on this scale is challenging (Crooks, 2015).
Responding effectively to disruptive innovation also identifies the challenge of innova-
tions that compete with what we already do – cannibalisation.
12.1.6 Proactive cannibalisation
(This section draws from Cravens et al., 2002.) One of the strongest conventional argu-
ments against radical innovation is that we end up simply competing with ourselves – we 
cannibalise our own sales to our existing customer base. Executives often believe that it is 
unproductive for a company to compete with its own products and services, rather than 
targeting those of competitors – it risks under-exploiting existing investments for no gain 
in sales (or probably profits). However, the idea of ‘proactive cannibalisation’ has taken grip 
of many strategists’ minds. At its simplest the logic is compelling – someone is going to 
compete with you and attack the sales of your products and services, so you might as well 
do it yourself and retain the customer. More elegantly expressed:
What causes some firms to be radically innovative over long periods of time, whereas 
many others ossify and perish? We suggest that the answer lies in the extent to which 
firms are prepared to give up the old and embrace the new. Firms must break out of the 
natural human trait that propels them to use yesterday’s bag of tools to solve tomorrow’s 
problems. They must do so today, while they still have options, not tomorrow, when they 
will have nothing left but a useless bag of tools. They must be willing to cannibalise before 
there is nothing left of value to cannibalise. (Chandy and Tellis, 1998a)
These researchers conclude that, although it is counter-intuitive for many managers 
and organisations, willingness to cannibalise is one of the most powerful drivers of radical 
product innovation (Chandy and Tellis, 1998b).
For example, Volkswagen’s multi-brand strategy (VW, Audi, Seat and Skoda) leads 
to some competition between its brands in the middle of the market (all the brands have 
similar hatchbacks built on a similar engineering platform), but had enabled VW to break 
Fiat’s control of the European car market and achieve leadership, until the emissions test 
scandal of 2015 weakened the company’s position.
Nonetheless, considerable care is required. Faced with the invasion of the British and 
European internal flight market by ‘no frills’, low-price operators such as easyJet and 
Ryanair, BA needed to respond to stop the decline in market share. Having looked at buying 
its new competitors or putting them out of business, and being prevented by the European 
regulators from doing either, BA’s response was to establish its own ‘no frills’ airline – Go. 
However, from the start, Go was priced substantially higher than the existing ‘no frills’ 
operators but offered less service and convenience than BA’s regular flights. Predictably, 
the major effect of Go was to cannibalise sales of BA flights but with little impact on the ‘no 
frills’ operators, who continued to expand. By 2001, BA was ready to sell Go (for much less 
than the original asking price). Go was sold to venture capitalists 3i for £110 million, who 
promptly resold the business to easyJet, the rival low-cost airline. It seems a conventional 
full-cost airline lacked the will or the ability to operate a genuine ‘no frills’ operation, and 
BA had simply established a stronger competitor for itself. A similar result was achieved 
by Buzz, launched by KLM as its low-cost brand, which was bought by Ryanair in 2003 for 
£15 million (based on O’Connell, 2003).
Less extreme is defensive cannibalisation – or at least cannibalisation resulting from 
defensive strategies – which is different to proactive cannibalisation, when the price of 

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INNOVATION STRATEGY
innovation is to compete with your own products. For example, Intel’s continuous improve-
ment of computer chips and Gillette’s continuing introduction of improved shaving technol-
ogy show cannibalisation that has positive benefits at relatively low risk.
12.1.7 Value innovation
The growing challenge for companies is to focus innovation thinking on customer value. 
Broad-based innovation is increasingly critical – extending far beyond new products and 
services to include ideas, processes, business practices and designs (Shervani and Zerrillo, 
1997) – and is not just concerned with conventional new product development, and minor 
brand extensions. Gary Hamel is critical, for example, of the type of product-led, incre-
mental change led by marketing departments in the past – his challenge is that we should 
be creating radical new products, concepts and business models or face the alternative of 
‘crash and burn’. He says, ‘Radical, non-linear innovation is the only way to escape the ruth-
less hyper-competition that has been hammering down margins in industry after industry’ 
(Hamel, 2000). For example, in one major research programme, the study of 100 major new 
business launches found that 86 per cent were ‘me-too’ launches, or incremental improve-
ments, but these generated only 62 per cent of launch revenues and 39 per cent of profits. 
By contrast, the other 14 per cent of launches – those radical enough to create or re-create 
markets – generated 38 per cent of revenues and a massive 61 per cent of profits (Kim and 
Mauborgne, 1998).
The reality is that as products tend to converge and become more similar, it is no longer 
possible to beat the competition by making incremental improvements and changes because 
they will be instantly copied, and in modern markets you quickly reach the point of dimin-
ishing returns (Jones, 2000).
An important insight comes from the work of W. Chan Kim and Renee Mauborgne at 
INSEAD. Their observation is that between 1975 and 1995, 60 per cent of the Fortune 500 
companies disappeared. The reason was that in industry after industry, companies building 
innovative businesses raced ahead by replacing established firms who were focused on improv-
ing existing businesses. Their research suggests that the really high-performing companies in 
every sector are those who achieve ‘value innovation’ – they do not just imitate competitors, or 
invest for competitiveness against established rivals, they innovate in new value for customers. 
They suggest that one useful exercise is to assess portfolios of products and services on their 
‘Pioneer-Migrator-Settler’ map, because innovation linked to value determines the real growth 
prospects. They argue that managers should examine and predict the competitive offerings 
and entries in terms of those three categories (Kim and Mauborgne, 2014):
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