Al Ries

Innovation Should Be Seen as a Tactic, Not a Business Strategy

Most Brands Need to Focus on What They Stand for and Dominate Their Categories

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Sharper Image, home of innovative products such as the Razor scooter, the robotic dog, the Ionic Breeze, the StressEraser and the R2-D2 interactive droid, has just filed for Chapter 11 bankruptcy.

Innovation is not a strategy, and companies that depend on a constant flow of new, innovative products will someday find themselves in deep trouble, as Sharper Image has.

Every successful company needs a branding strategy, which may or may not include innovation. Yet many marketing gurus have elevated "innovation" to a point where it is widely perceived as the single-most-important function of a corporation. Witness the raft of recent articles on the subject, including an editorial in my favorite publication that had the theme, "Forget the recession and innovate."

There's also the famous Peter Drucker quote, "The business enterprise has two -- and only these two -- basic functions: marketing and innovation."

I would simplify that quote: "A business enterprise has only one basic function: build a brand that can dominate a category." Early on, innovation can help a company build that kind of brand. Consider: instant photography and Polaroid; the plain-paper copier and Xerox; the microprocessor and Intel; wireless e-mail and BlackBerry; the athletic shoe and Nike.

But when a category matures, the situation changes. Take the automotive industry. The significant innovations in the auto industry -- the V-8 engine, automatic transmission, power steering, air conditioning, seat belts, air bags, etc. -- took place decades ago.

What makes a powerful automobile brand today is not innovation, but a narrow focus on an attribute or a segment of the market. Reliability and Toyota. Driving and BMW. Youth and Scion.

Innovations outside of a brand's core position can undermine a brand. What did the PT Cruiser do for Chrysler, except to confuse customers? What did the Phaeton do for Volkswagen? What did the Viper do for Dodge? Dodge is a big truck brand. Does the truck buyer prefer a Dodge because it accelerates like a Viper?

Most brands don't need innovations; they need focus. They need to figure out what they stand for (or what they could stand for) and then what they need to sacrifice to get there.

It's sacrifice -- not innovation -- that builds brands. Search was a commodity on the internet, pioneered by AltaVista and then AltaVista later added innovations such as e-mail, directories, topic boards and comparison shopping to its home page. changed its name to Overture and turned itself into an innovative syndication service.

It took Google to narrow the focus to search only and in the process build a powerful brand. So what is Google doing lately?

It's innovating. Google is planning to extend its brand into targeted advertising for radio, TV and newspapers. Also, Google e-mail, Google software for personal computers and cellphones. The company is even spending hundreds of millions of dollars to innovate alternative energy sources.

The March issue of Fast Company features "the world's 50 most innovative companies." No. 1, as you might expect, is Google.

As a matter of fact, the magazine devotes 18 pages to the Google story. Prospective employees are often asked, "If you could change the world using Google's resources, what would you build?"

My answer would have been, "I'd use the resources to build a second brand, like Toyota did with Lexus, instead of using the resources to sabotage the base brand."

Then there's Apple, which seems to be an exception to the principle that innovation cannot build a brand. Certainly Apple has been successful because of the widely held belief that all Apple products are highly innovative.

That's true today, but what about tomorrow? Innovation cannot last forever. Sooner or later Apple is going to run up against a brick wall and find itself fighting a host of competitors who dominate their categories.

Apple doesn't dominate any category, yet manages to compete successfully against Hewlett-Packard and Dell in personal computers. Against Nokia and Motorola in cellphones. Against Sony and Samsung in consumer electronics. Against Microsoft in personal-computer operating systems.

Like Sharper Image, that's a situation that cannot last. As the categories mature, Apple is bound to run out of innovative new ideas.

Innovation, as a corporate strategy, is not limited to high-tech companies. No category has seen as many innovations as the cola category. Over the years, Pepsi-Cola has introduced Pepsi One, Pepsi A.M., Pepsi Kona, Pepsi Light, Pepsi Edge, Pepsi Max, Pepsi XL and Pepsi Blue.

Typical quote: "Pepsi Blue has the potential to reinvigorate the cola category," said a company executive. "We're convinced innovation is the key to growth."

In the U.K., the company is launching Pepsi Raw, the healthy cola, which the marketing director called "the most significant innovation from Pepsi U.K. in the last 15 years."

Over at Coca-Cola, the innovations also roll out on a regular basis. The latest is Diet Coke Plus with five essential vitamins and minerals.

Meanwhile, per capita consumption of cola in the U.S. continues its slow decline as consumers switch to water and other healthier beverages.

In general, a company should spend its innovation money to create new brands, not to salvage existing brands. Why didn't Coke put the five essential vitamins and minerals into water instead of cola? The company could have saved the $4.1 billion it spent to buy Vitaminwater maker Glaceau.

As the Sharper Image story illustrates, innovation is not a strategy. It's a tactic that needs to be used in support of a company's branding strategy.

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In addition to his monthly column, Al Ries and his daughter and partner Laura Ries host a weekly video report on their website:
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