Tuesday, January 18, 2011

Purpose Innovation© – An answer for developing the next billion dollar, game changer type opportunities?

Out of the six dilemmas that were identified within our last blog , the one that has caught the attention of most folks was - the dilemma between customer (or user) centric innovation vs. vision centric innovation – and so, we thought of expounding upon that topic little more within today’s blog. While both of these innovations are equally important - the most successful innovative companies in the world today are the ones who have found a way to balance them properly (by assigning the appropriate emphasis to both) depending upon where they are in the life cycle or season of their business. In other words, the intuitive tactics of assigning the right weight factor emphasis to both innovations (in the form of 60:40 or 70:30 or 50:50 split) within the context of their business life cycle is what going to differentiate a company from their competitors. As it turns out, our purpose innovation© concept seem to exactly do the same – as it inherently helps companies to pick and choose the best of both worlds – i.e. choosing the best features of customer and vision centric innovations (with the right split weight factor emphasis) that is further custom- tailored to their business cycle.

The natural follow-on question is - how does Purpose Innovation do that from pragmatic standpoint? Let us take one of the key strategic challenges facing most companies today – creating the next billion dollar game changer opportunity - and see, if our purpose innovation© concept can help solve that puzzle. First things first… With the concept of purpose innovation being already covered in detail in one of our earlier blogs –we are going to just focus on putting purpose innovation© in to practice within today’s blog. We recommend our readers to read the earlier blog to get grounded on purpose innovation© concepts (Purpose Models, Purpose Bundles and Purpose Platforms etc.) - before reading today’s blog.

Now, back to the question of developing the next billion dollar opportunity, as a first step, let us introduce an index called Consumer Experience Threshold (CET) © index. CET index is an index that is designed to quantify the “value of experience” expected by consumers from a P&S category, not only based on the price they are willing to pay (i.e. baseline functional experience expectation), but also, based on what they are dreaming of experiencing (i.e. emotional and emerging experience expectations) from it, on top of its baseline functional experiences. In other words, when a P&S delivers more than the consumer’s baseline experience expectations (or more than its category median break-even CET), it is deemed to be an exceptional P&S - and, in our opinion, those brands that exceed the CET index, on a consistent basis are the ones that qualify to be the next billion dollar brand or opportunity.

  • CET = Baseline Experience/Price +the dreaming component of Emotional & Emerging Experiences

Having said that, with all things being equal, it is important to highlight yet another fact that different P&S categories will have different CET indices – and so, it is important that a brand, not only to figures out a way to accurately calculate that CET index for its category, but also, find a way to go above that index consistently, for it to qualify to be the next billion dollar opportunity. As it turns out, there is another challenge here as well- that competition keeps pushing the CET index higher and higher on a daily basis (as consumer's experience expectations keeps going up as well), and so, the need of the hour is a mechanism to group the experiences of various P&S categories in the form of a framework, so that companies can devise ways to exceed their category CET indices on a consistent basis.

With that need in mind, we did a deeper dive analysis on the CET index concept using a CET framework as outlined on the top of the page. With the economy showing signs of improvement- more and more consumers are becoming experience minded when it comes to buying various P&S categories. Our research also suggests that more than 50% of the consumers are looking for better value experience deals when it comes to buying P&S’s - followed by another 30% who are willing to exchange their preferred brands for better experience providing brands. This does not mean that they are trying to buy cheap – rather they want to get the best possible experiences for the price they are willing to pay. Within the context of this insight, we did some more “deeper dive analysis” on the spending patterns of consumers across various P&S experience categories. The insights we garnered was all the more intriguing - that consumers have altered their spending patterns, not only based on the experience their brands provide, but also, based on the way they map their preferred P&S’s to the experience it provides. Based on this renewed insight, we grouped those experiences under five major experience categories and plotted them within the CET framework – with “Dollars Paid” on X axis and “degree of perceived Experience” in Y axis - as outlined below and on top of the page.

  • Experience base liners – addressing the basic experiences quadrant -where these P&S’s barely break-even the CET median index and provide just the minimum baseline/functional experiences for a price point below the industry average - leaving an impression of “no gain, no pain” mindset in consumer’s minds.

  • Experience Stalers – addressing the basic experiences quadrant -where these P&S’s barely break-even the CET median index and provide just the minimum baseline/functional experiences, but for a price point much above the industry average – and so, leaving an impression of “paid in full, yet no net gain” mindset in consumer’s minds.

  • Experience Stars – addressing the star type experiences quadrant-where these P&S’s exceed the CET median index and provide both emotional and emerging experiences on top of the baseline/functional experiences for a price point above the industry average - leaving an impression of “paid in full, yet got dollar’s worth” mindset in consumer’s minds.

  • Experience Super Stars – addressing the super star type experiences quadrant -where these P&S’s score exceed the CET index and provide both emotional and emerging experiences on top of the baseline/functional experiences for a price point below the industry average - leaving an impression of “Got a deal, yet exceeded $’s worth” mindset in consumer’s minds.

  • Experience balancers – addressing the “optimum experience” quadrant – where a P&S or a bundle of P&S’s together provide both emotional and emerging experiences on top of the baseline/functional experiences for a price point, just around the the industry average - leaving an impression of “Got a deal, and got $’s worth” mindset in consumer’s minds.

Interestingly enough, four of these experience categories fell perfectly in to the four quadrants of the framework with an exception of one category called experience balancers– which got placed in the centre of the framework covering all the four quadrants. What does this tell us? There is a new need of “purpose experience based composite brand equation” evolving when it comes to consumer’s experience expectations. This new need - is indeed an emerging insight – and so, it is time to accept this new composite brand experience based purpose bundle (i.e. bundling products and services in the form of purpose bundles) and devise an appropriate purpose innovation strategy to answer these emerging experience patterns of 21st century consumers.

Granted, the CET indices vary from category to category and industry to industry – and so, those brands that exceed their category CET median index consistently are the ones that qualify to be the next billion dollar brand. This is where our purpose innovation concept looks very promising as it helps companies to create the next billion dollar composite opportunity using the same rationale used by the alchemy equation (1+1=3 ) that is commonly used to justify the synergistic M&A business cases. In other words, by combining various "multiple experience providing" P&S’s from both related and unrelated industry verticals with various degrees of CET indexes in the form of purpose bundles would definitely help participant companies to exceed composite CET median indexes on a consistent basis. In other words, the next billion dollar opportunity may not necessarily come from a single category brand – rather it could be a composite brand in the form a purpose bundle covering multiple P&S categories across multiple related and unrelated industry verticals.

For example, a Health and Wellness/Green minded consumer (who is also a passive participant of the Purpose innovation platform), will get a better experience deal when they purchase a dynamic purpose bundle of “health insurance along with a variety of H&W based durables and non durable P&S and GYM workout services” in a price that is in proportion to their purpose scores. The causal chain relationship rationale here is that- those consumers, who eat healthy organic food, apply natural beauty treatments to their bodies and exercise well will have a healthy life - and hence they deserve a better health insurance premium and so on and so forth. In other words, stronger the power of purpose themes (e.g. H&W, Green, Externality etc.) that binds the purpose bundle components together, the stronger the affinity (or causal chain relationship) within the sub components of the purpose bundles – which will eventually make this composite brand to be viewed as a single category brand in the hearts and minds of consumers .

I am sure someone is asking - how does this Purpose Innovation concept along with purpose bundles, purpose models and composite brands (& the corresponding CET framework) help solve the earlier dilemma between customer centric innovation and vision centric innovations? As it turns out, customer centric innovation, by and large helps companies only to meet just the base line experience expectations (i.e. Experience base liner and Experience staler quadrants) whereas vision centric innovations is the one that help companies to exceed the base line expectations to become Experience Stars and/or Experience Super Stars, as we can clearly see in the CET framework picture on the top of the page. This does not mean that companies need to pick one approach vs. the other; rather they need to do both in the words of Inder Sidhu and Roger Martin – as focusing on vision centric innovation without customer centric mindset, will invariably result in “out of context” super star experiences without the minimum functional/ base line experiences – and vice versa.

At the same time, we should not limit our innovative thinking just to meet the needs and wants of the typical consumers (as 80% of consumers by and large look for solutions to solve only their today’s needs); rather we need to derive our inspirations from the remaining 20% of the creative consumers – as part of the vision centric innovation. In a way one can also call the vision centric innovation as customer centric innovation in steroids (or glorified customer centric innovation) - and this where our purpose innovation concept comes in to the picture as it derives its best features from both customer and vision centric innovation approaches- as outlined in the center of the CEM framework picture.

In the final analysis, it is important to highlight the fact that history is filled with many such examples of billion dollar game changer opportunities – but, if you study them all in detail, there are not many of them in the recent years, with the exception of few within the consumer gadget product categories. Part of the reason is that most consumer’s needs and wants have already been met my multiple products and services within a given category, and in a way, most P&S categories are highly crowded with products of similar functions without much differentiation. Hence, the need of the hour is an alternate, out of the box, differentiated approach called Purpose Innovation© – and, in our opinion, it is one of the compelling ways to create the next billion dollar game changer opportunities for corporations.


  1. Charles, I see your interesting analogy of Consumer Experience Threshold with the dynamic consumer expectations shifting the break even point in Casual Dining Industry. According to the recent study by Chicago based Technomic; "Consumers have become very adept at getting the maximum value from each dining experience....the value statement needs to be loud and clear so the customer knows what you are offering and why they should come to you.". In fact, the changes at CET in the dining industry following the credit crunch, creating the competitive dynamics looking for their "optimum value" at the categories of "quick service restaurants" & "casual dining restaurants" and leading to a new born segment of "Fast-casual dining". I strongly believe there will be further developments in the dining industry to create more vision centric innovations to balance the customer centric offerings. As you rightly mentioned, this will lead to the next billion dollar game changer opportunity.

  2. Hello Charles, I believe Fahhan's comment is in accordance with your beautiful post. I think I shall call you the "The Quadrant Man" for you have used these quadrants marvelously well to explain your points.
    Let me quote your above post "At the same time, we should not limit our innovative thinking just to meet the needs and wants of the typical consumers (as 80% of consumers by and large look for solutions to solve only their today’s needs). Growth is looking into the future and satisfying immediate needs only is a risky path. The value of this post is that it provides indices for customers and how to match added values to their needs and the surrounding cloud hovering over these needs. To tailor these added values to each type of customer using your quadrant is a great contribution.
    I recall that in my presentation on Consultative Selling and Customers' Needs Identification (published on docstoc.) I gave a bad example how a small thing like allowing a customer to smoke a cigarette on a flight is worth a lot for a smoker; yet it means nothing to a non-smoker. Your quadrant is very consistent with customizing customers' needs and tailoring offerings accordingly.

    This is a lovely post

  3. Thanks Fahhan for your insightful comment. You bring up an important point – that paying closer attention to customer experience levers like CET indeed results in the formulation of hybrid or altogether new categories like your “fast causal dinning” categories. This is where organizations need to tune their hearts and minds with that of their consumers so that they can have the first mover advantage in to these emerging categories- and one way they can do that is –by making synthesis/analysis based consumer insights driving their major strategic decisions.

    Lots of times, companies hesitate to forfeit current successful products and business models and cling to them for too long - and guess what – consumer experience expectations changes so fast – and the newer experience categories gets formed so quickly -and a much smaller start-up type firms come and eat their lunches using those newer categories– as it happened in the case of blockbuster. Blockbuster waited too long and missed the boat on listening to their consumer experience expectations, and guess what- firms like Netflix ended up being the winners. Great point!


  4. Thanks Ali. In a way I sharpened some of my quadrant thinking based on some of your presentations and so in a way, part of the credit goes to you as well.

    Also, you bring up a great point about the lack of standardized quantitative measures, quantifying these “nebulous unmet needs and wants” of consumers that are out there in the cloud hovering over them. This is where we as bloggers, I guess need to promote this CET type of measures (& many more) accurately gauging consumer experiences moments so that business leaders can make much more effective and timely decisions based on these real consumer experience insights/measures. Point very well noted!


  5. Hi Charles, then how about adding a gauge(s) to your model What kind of gauges would you add. In similarity with balanced scorecard where we added many gauges, in your case we need to add different and creative types of gauges. Still more, we need a gauge to monitor expectations.

    I might be dreaming, but your quadrant id feasible for such possibilities.

  6. As always, great comments and a great follow-up question Ali! Adding the optimal or “good enough” number of gauges (or measures) is indeed an art – as too many measures sometimes could lead us to faulty conclusions.

    Having said that, if I had to add few more measures, this would be in the area of accurately measuring the so called, nebulous emotional and emerging expectations of consumers! This is an area, in my opinion, the quantitative analytics fall short – as this space is filled with too many opposites (or dilemmas) and so, we need a synthesis focused problem solving mindset and metrics.

    One such idea I have been contemplating lately is the – context/profile sensitive gauges – which will manifest itself in the dashboards (or the so called insight driven charts within excel) depending upon the dimension we are analyzing (e.g. consumer profile, context, industry and product category) – with different degrees of certainty and weight factor emphasis.

    For example, when we try to create insights about the consumer dynamics and experiences for a certain consumer micro segment within a certain industry for a specific product category – a specific custom tailored set of experience measures will be used to draw the charts and insights whereas when we extend the same analysis to another consumer profile (or micro segmentation), the set of experience measures will change depending upon the context, so that accurate insights representing the experiences expectations of that profile can be derived– but using different set of measures.
    Downside of this approach is that we may not be able to compare the insights from “apples to apples” comparison standpoint – however, with some intuitive thinking on the business leader’s part, they we might be able to discern the context and still be able to come to meaningful conclusions.

    Of couse, we need to think through this approach little more and it perhaps is another topic for one of the future blog…

  7. Hi Charles,

    I appreciate your comment and agree with your statement " if I had to add few more measures, this would be in the area of accurately measuring the so called, nebulous emotional and emerging expectations of consumers".

    I think this is a thorny walk because of the challenges it imposes. Do we need an accurate measure? Is that possible with complex emotions.Is it possible to quantify emotions when they have the ability to react and produce higher-level emotions. May be it would better to have a signal or whatever to show the relative strength of emotions. I really do not have a definite answer, but the task is formidable. Any progress in the right direction will have great impacts.