Value innovations lend competitive edge

Agus W. Soehadi, Contributor, Jakarta

For some time now, buyers have been pampered more and more by the highly sophisticated innovations incorporated in cars. Almost every week one finds articles in the media that announce these latest features.

For example, the Honda Accord V6 Hybrid comes with a hefty, 240 horsepower engine but consumes fuel as economically as a 4- cylinder Honda Civic.

The hybrid technology features an engine that combines petrol and electricity as the sources of power.

Meanwhile, BMW has introduced the BMW M5, which boasts a 10- cylinder engine and acceleration to 100 kph in five seconds. It is also equipped with an advanced automatic transmission system -- the sequential manual gearbox of the third generation (SMG III) -- which allows for gear changing without using the clutch.

All the recent innovations in car features remind us of what Kane and Yukari Iwatani predicted in their book, Future cars will be wired for everything. One wonders whether in the not-too- distant future supercars featured in sci-fi Hollywood films or James Bond movies, or like the one in the television serial "Knight Rider", will become part of our lives.

Several major car makers are already collaborating with telecommunications companies to produce highly advanced cars that can talk, listen and give suggestions on many things, including what route to take, so as to encounter the least traffic congestion, and so on. The computer device installed in the car can give you reviews on restaurants or even automatically report to the police in case someone tries to steal or tamper with the vehicle.

The question yet to be answered by car makers is how far they should go with innovations and whether they will be instantly welcomed by buyers.

Botha, Potgier and de Wet, in their book "Exploring the perspective of value innovation" wrote that an innovation is valuable if the marketer is able to show clearly that the innovation will serve customers better, and that is it produces many more benefits both in the features of the product as well service offered. This means that customers have to be convinced that the current features are outdated. Hence, the phrase "value innovation" has been coined by many marketers for this approach.

Numerous marketers and market researchers now believe that the value innovation strategy, as long as it offers tangible benefits to customers at an affordable price for the targeted segment, is a highly effective marketing tool.

The Toyota Avanza and Daihatsu Xenia -- both with almost identical features -- can be used as an illustration here. Before the introduction of both cars, the Indonesian market for cars with a price tag below Rp 100 million (about US$ 11,000) was dominated by models like the Karimum, Atoz or Visto. Both the Avanza and Xenia entered the market and met with huge success from day one due to their better-than-expected features, such as fuel-injection technology, spacious and comfortable interior for 7 passengers and elegant design.

With the leading manufacturers' names providing further added value, it was not too surprising that sales soared instantly and the waiting list for delivery in the first few weeks was 6 months.

Kim dan Mauborgne, in "Creating new market space", recommended an analysis to identify and create a new competitive space.

Basically, four actions are suggested. First, eliminate unnecessary attributes. Second, reduce certain attributes or their quality to an acceptable level. Third, raise quality level of certain attributes and finally, create attributes that are currently not offered by competitors.

By taking these actions, producers can create unique plus points and simultaneously cut down costs.

The assumption behind this strategy is that each consumer segment has different needs and, therefore, differs in its sensitivity to certain attributes or features and services.

By correctly implementing the four actions mentioned earlier, costs saved can be used to enhance the features that are expected by consumers. Thus, the product becomes more competitive than those available in the same category.

Naturally, this strategy, as in all marketing strategies, requires focused research to identify the targeted segment along with its current requirements, as well as unfulfilled expectations. Its current reactions to available products from competitors should also be gauged.

In the case of the Avanza and Xenia, the success story can be attributed to the manufacturers' shrewdness in accurately identifying the market and the particular segment's needs. Many buyers -- with less than Rp 100 million in their pockets -- could only afford second-hand, multipurpose vehicles (MPVs). Still, they craved features like good exterior design, large passenger- carrying capacity, a well-designed interior, powerful engine and several other features they could not find in smaller cars with the kind of money they had.

To their delight, the Avanza and Xenia turned out to be the answer to their prayers. In addition, the makers of these cars had a reliable, nationwide after-sales network and their brands enjoy a high resale value.

Thus, innovation can be interpreted rather widely. It does not simply mean adding but also getting rid of redundant features that do not fit the consumer's profile. It is, in fact, innovation in a truly broad sense. -- The writer is a member of the marketing faculty at Prasetiya Mulya Business School