Irrespective of the greatness of the idea, willingness to pay of innovation–in a competitive market–keeps drifting downward. To counter it, innovators need to keep releasing succeeding better versions. Hence, incremental approach for sustaining innovation is a core winning strategy in taking ideas to maket.
In the discussion of innovation, idea competition, or start-up financing, often disruptive potential surfaces. How radical the idea draws far more importance than the need for incremental improvement. Irrespective of the greatness of the idea or the genius’s creativity, invariably, every great innovation faces the challenge to sustain in the market. Besides, the market is the ultimate test in determining how great an idea is. Once an innovation shows profitability potential in the market, it faces a competitive force. Apart from it, it also benefits from the externality effect. In order to leverage the externality effect and counter the competition force, innovators need to keep incrementally progressing the product. Even Steve Jobs’ magical iPhone could not avoid this situation, which has led to the release of successive better versions. Hence, an incremental approach for sustaining innovation in the competitive market economy is an essential strategy.
Net effect of two major forces keeps willingness to pay of an innovation drifting downward
An innovative product experiences two kinds of effects: The externality effect and competition force. Usually, the externality effect positively influences the product. On the other hand, competition forces attempt to weaken the market position of the product. All these effects are not adequately predictable at the beginning. Moreover, it’s not often a smart move to address them all in the first version. Instead, the strategy is to address them through the release of successive better versions incrementally. To this effect, either new features are added and/or existing features are redesigned. Therefore, an incremental approach for sustaining innovation is an indispensable act of making innovation to succeed.
Externality effects demands an incremental approach of progression
At the core of the success of an innovation is about how much and how many customers are willing to pay for it. Of course, it depends on the features the product has. It also depends on other externality factors like i. 3rd party complimentary goods and services, ii. network externality effect, iii. state of needed infrastructure, and iv. also, the industry standard and Governments’ regulation as well as incentives. Often time, the externality effect is positive. But to leverage them, the innovation should have suitable features.
Leverage 3rd party goods and services
Invariably, customers usages a product in a combination of other goods and services. If an innovation shows a high potential of diffusion, 3rd party innovations start showing up. They have complementary effects on the willingness to pay for the core innovation. To leverage it, innovators should also have appropriate plugin features. For example, Apple’s iPhone has significantly profited from 3rd party apps. Apple did not risk investment in developing those apps. But, Apple products, particularly the iPhone, significantly benefited from it. With the release of each useful app, perceived value, or willingness to pay for the iPhone kept growing.
Network effect create demand side economy of scale
The next one is the network effect. As more and more people keep using the product, the perceived value keeps growing. In the beginning, it is not quite known what are the features to be built to keep increasing network effect. Hence, the smarter approach is to keep adding features and/or enhancing existing features for enhancing the network effect. For example, Facebook and many other social networking applications extensively use this effect to create their success. Facebooks photo sharing or like options are deliberately created to increase the appeal from the network effect. Infrastructure is another external effect.
In certain products, particularly which are disruptive in nature, it has a very high bearing. For example, the take-off of electric vehicles largely depends on the ease of charging. EV innovators are increasingly looking for options to address this issue. Similarly, smartphones and also smartphone-based innovation are depending on the rollout of high-speed mobile internet services. The advancement of the infrastructure also encourages adding those features that were not feasible before due to weakness in infrastructure.
Industry standards, and Public policy and regulations
Industry standards and also public policy play vital roles in affecting the willingness to pay for the product. For example, Betamax was superior to competing video recording means. But due to the acceptance of VHS, a superior technology Betamax failed to diffuse in the society. Similarly, public policy and regulation also play a vital role. For example, the regulation of smartphone at schools was impeding the penetration of that innovation. On the other hand, the adoption of eLearning, particularly during the COVID time, expands the market of that same innovation.
Competition force compels the release of successive better versions through incremental innovation
The 2nd set of effects affecting the willingness to pay depends on the response of the competition. Notwithstanding of barriers in the form of technology, ideas, and intellectual property rights, innovation experiences a replication effect. Some of the competitors will also imitate and add innovative features to take away the market share of the innovative product showing potential or making profits. In the long run, the response from the competition will also show up in the form of substitution. Hence, an incremental approach for sustaining innovation in the market is quite vital.
Replication demands sustaining innovation response
Replication is a common form of response by the competition. Some Chinese makers replicated even iPhones. By condoning intellectual property rights issues, often, some countries encourage their local firms to replicate foreign products. In fact, the import substitution strategy through replication is quite popular among many developing countries. There are also examples that some firms, even countries, as a whole, made some progress through this strategy. For example, industry strategy of notable countries like India and China are predominantly on replication of state-of-the-art industrial products. In certain cases, they also take a license to avoid litigation. For example, India took the license of replicating UK’s Morris Motor’s automobile. However, such a replication strategy often does not lead to sustainable capacity. Nonetheless, it takes away market share from innovators.
To take a share of an innovation market, competition often imitates selective features or the whole product. For example, Toyota or Honda entered the automobile industry through imitation. In the same way, Canon entered the camera industry. In the recent past, Samsung’s success has been mainly through the entry as an imitator. Invariably, imitations are cheaper as there is no R&D cost component. Hence, imitations do not serve the same market segment. Instead, they target those segments which are price sensitive.
Innovation response of competition demands incremental approach for sustaining innovation
Some of the smart competitors bring innovation to existing products, although many of them are innovative. For example, Apple entered the iPhone market through innovation. Similarly, Nokia has also followed the path of innovation. In the automobile sector, Tesla has been pursuing innovation to enter and establish a footprint. Sometimes, imitators also grow as innovators. For example, Toyota or Honda established them as global players through innovations.
In certain cases, the innovation journey also leads to a change in technology core, causing substitution effect. Invariably, the substitution effect grows as creative waves of destruction. For example, an LED light bulb is causing destruction to the filament and fluorescent lamps. Similarly, flash memory is destroying other forms of computer storage. In certain cases, the substitution effect fueling the creative wave of destruction also causes disruption to existing firms. For example, Kodak got disrupted due to the uprising of digital cameras.
The response of sustaining innovation—successive better versions through an incremental progression
As opposed to just making marginal change, incremental innovation is critical for sustaining innovation in the market. In the absence of incremental advancement based successive releases, even a great idea fails. For example, within the first year of release in 2007, iPhone sales came down to zero. Through incremental advancement, Apple has been sustaining innovation in the market. Hence, incremental change is at the core of succeeding with the journey of profiting from a great idea. There should be a clear focus on an incremental progression strategy from the very beginning. Otherwise, a great idea runs the risk of failing in the market. For example, being first in releasing a smartphone, IBM was unable to make Simon a success story. However, as opposed to generating a creative wave of destruction or pursuing disruptive innovation, sustaining innovation primarily focuses on sustained position and growth of existing products.