Kraft P3 – Innovation for Whom?

OscarMeyer P3

Kraft recently launched the P3 (a.k.a. portable protein pack) – a meat-cheese-nut pack – supposedly aimed at adults and their snacking occasions.  One look at the pack, and you probably will think of Lunchables for adults.  According to Kraft CEO Vernon, “No one else can pull this off, all under one roof, as Kraft can.”

Protein is certainly a hot item these days, from Greek Yogurt to protein bars, all categories with protein extensions have seen growth.  But just because Kraft has the ability to combine a “trinity” of protein into a sealed product – diced ham from Oscar Meyer, diced cheese from Kraft, and peanuts from Planters – doesn’t make it innovative.  This is a classic case of repackaging existing items and trying to sell them differently.  There is nothing new here.

In innovation, you always want to have something that adds value to the consumers, ideally distinctive enough that you have enough leadtime before competitors copy you.  But the P3 is nothing more than a straight sum of products:  1+1+1=3.  All of these pieces can be put together fairly easily and cost effectively by the consumer.  No sophisticated medley of nuts or artisan cheeses in this pack – this is a plain and simple combination of easy-to-find products.

One of the key traits of a snack is its portability and the P3 got this right.  Measuring slightly more than an adult hand, it is compact enough to fit in a bag or purse.  The drawback is that the content is not very generous so there is a lot of empty space – see upclose photo – feeling that even at $1.99, it might be a lot for so little to snack on.

All in all, it does not look like the P3 is anything earth-shattering and though Kraft may be uniquely able to put together these three distinct items together, it does not mean that it is something innovative nor something consumers will need.

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Should We Innovate The US Post Office?

Why would we want to do that?

The U.S. Post Office (USPS) lost $8.5 billion in 2010 and we, as taxpayers, are subsidizing this.

The majority of the red ink comes from pension plan obligations (roughly $7.9 billion).  The remaining loss comes from a 6 billion-piece decline to 170.6 billion pieces of mail (or roughly 5% loss).

So a lot of the losses have to do with labor rules and obligations, something that corporate giants like GM have faced in the near past.  It is mixed with lots of politics so that may be a bit harder to solve.

But for me, the USPS has become fairly irrelevant in my life (not that I am an ideal customer/target audience).  After all, how many of us go to the post office?  Other than having to mail a check here and there, birthday/special occasion cards to close friends/family and the occasional gift during the holidays, I really don’t use the post office services that much.

It’s even gotten to be a pejorative thing to mail something via “snail mail”!

In these days of cost cutting, budget deficit, and sustainability, more things are being done electronically. We get/pay our bills via online banking to save time and be environmentally friendly.  We purchase goods online, some of which are mailed via the post office, though many people are even choosing “pick up at store” options to save on shipping costs.

The U.S. Post Office has lost $8.5 billion last year and is considering to close offices, move into grocery stores/retailers and possibly stop delivering on Saturdays.

These are good cost-cutting moves that may reduce some of the financial losses (the pension obligations are an entirely different problem, though they could be offset with more profits), but will they make enough of a difference to make the USPS a destination for our needs?

With that kind of losses, shouldn’t the U.S. Post Office look at innovating its business model to make itself more relevant, more attractive by providing more value-add?  I am not talking about nickel-and-diming for every service necessarily, but more providing value that consumers would want to spend money with it.

With so many of us in the innovation field, how would you propose we innovate the Post Office?

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New Innovation in China Book Offers Inadequate Solution

I read a tweet from @erlanovation yesterday that intrigued me: Interesting discussion of #innovation in China: Moving China Up the Value Chain

The New York Times article interviews two authors, Mr. Breznitz and Mr. Murphree, about their new book “run of The Red Queen” argue that China should focus on it’s strength in process innovation rather than aim to compete with Europe and the U.S. on full-blown innovation.

They certainly bring some good points to the argument, like fixing the financial system to help companies have the necessary capital to innovate or changing the role of government to enable innovation rather than try to control it. But their raiment is short-term focused.

China will need to fix the short-term road blocks in order to move innovation forward, for sure. That should not be an argument for saying China should not pursue full blown-innovation. In having worked there and following its development, I have realized that China has always forged its own path to its goals. It needs to, not only because it is vastly different from any other developed country but also out of pride.

China needs to move up the “value-chain” and pursuing a short-term goal like incremental process innovation will not support the millions of new graduates that come out of it’s universities each year. China needs to deal with a vast population that is either happily employed or that could revolt. China needs to modernize the hinterlands fast or deal with population migration that will wreck havoc throughout the country.

Pursuing incremental innovation won’t solve these incredibly complex problems.

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Dream A Little…

Innovation begins with big dreams, with asking “what if” questions, with forgetting what you know and what is real and let your mind wander. Call me a dreamer, if you like. Sometimes I feel that we are so focused on being efficient, productive and connected that we forget to dream a little.

After all, disruptive innovation doesn’t really come from following rational thinking and tried-and-true paths. I am not prophesying that we forgo rationality, quite the contrary, but we need a certain degree of irrational thinking, divergent thinking. It’s a bit like ying and yang. You need both. You need some background, some foundation, some guardrails to provide some direction. But once you have that, you need to let yourself go and dream a little. It all starts with thinking about the impossible and moving beyond. Unfortunately, it is not something that can be scheduled within a 15-min interval. It takes time. It takes nurturing. It is quite inefficient.

Our daily work is so productive that every minute is accounted for. Ten-minute meetings here. Fifteen-minute conference calls on our way to/from work, business dinners, breakfast strategy sessions. You name it, we’ve all done it. We are so plugged-in, so connected that we really can’t think beyond the current reality. But what is real today, shouldn’t be in the future. What is real today can be a springboard for the future, but it can’t be an evergreen reality.

It is time to unplug, disconnect, and dream a little…because that is how truly great ideas are born.Plus Pool

A great example of this is the “plus pool“.  Besides being completely off-the-wall with creating a floating pool in a river, everything about it is (or I should say was) unthinkable before you saw the picture in this blog.  We are used to rectangular pools.  Sure there are oval pools or some of us may have “wild” pools with curvature.  But nothing like this.

The closest some of us have experienced “floating” pools may have been on cruise ships, but it is really high above the water.  In this concept, you are essentially swimming in the river, but in a pool!?!

The pool filters the water from the river, making it very efficient and environmentally friendly.

And, quite honestly, it is a blue ocean idea.  You just want to be on it to experience it.  You see, you could go to the local pool and get the same functional experience (bathing in water).  But that is not the point of this pool.  Everything about this pool is “different”.  It just redefines a lot of what we know about pools and therefore we want to “try” it.

That is the power of disruptive ideas, of 360 design, of dreaming a little…

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Time to Chart A New Flight?

This is a follow-up post to the my call for airlines to innovate their customer experience.  An interesting article came out in Fortune magazine (March 21, 2011 issue) showing how much profit an airline makes on an average price of a ticket (including first-class) from Los Angeles (LAX) to New York (LGA).  The answer may surprise you.

Ticket cost was $506.62.

What made up that cost?

  • $97.85 fuel
  • $95.33 labor
  • $75.16 federal taxes & fees
  • $53.73 payments to regional partners & merchants
  • $36.59 miscellaneous
  • $32.05 non-employee labor
  • $27.47 other airline expenses
  • $25.67 aircraft rents & ownership
  • $17.07 nonaircraft rents & ownership
  • $12.25 interest
  • Profit = $33.45 or 6.6%

With a profit margin so thin, it is no wonder that airlines are in trouble.  And so the mission is not necessarily to serve customers in as much as to improve profitability.

There are three ways to increase shareholder value:

  • Mergers & acquisition
  • Organic growth (find new revenue streams within existing business)
  • New product innovation

The baggage fees that have been instituted is a great example of the way airlines have moved forward with monetizing their existing business.  By controlling inventory (flights) and raising the baggage fees (from $0 to $25), there is instant profit.  It does impact the customer experience at the airport with longer lines at TSA security checkpoints since now more carry-on luggages have to be screened.

Interestingly, a few airlines have refused to increase baggage fees in order to further differentiate themselves against the competition.  It is clever, but will a consumer make an airline choice based on a $25 difference?  No, but it does play well with brand positioning like a low-cost airline.

With airlines stuck with such thin margins, it behoofs the industry or its individual players to innovate in other ways, and claim blue oceans instead of monetizing red oceans.  One incredible example is Virgin Atlantic’s partnership with GE to build a more efficient jet engine running on biofuels.  All of a sudden, Virgin Atlantic is no longer just in the business of running a transportation business, but also in the development of the transportation equipment, yielding savings along the way, and quite possibly a new revenue stream in selling jet engines.

Time will tell if they are successful, but they are definitely visionaries.

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Base of the Pyramid Innovation

When speaking about innovation, we usually think about the latest electronic gadget such as a tablet computer (ex. iPad2), a cellphone or even a car. Because this is culturally-based, the response would be different in other countries.  What very often doesn’t come to mind when speaking about innovation is base of the pyramid innovation (BOP innovation).

People at the “base of the pyramid” earn next to nothing.  A recent Harvard Business Review (HBR) article (“Segmenting the Base of the Pyramid”) categorized these individuals to earn $5/day or less.  Because of this, most companies pay very little attention to this market.  By no means is it small.  According to the HBR article, there are 1.4 billion people earning $3-5/day, 1.6 billion earning $1-3/day, and 1 billion earning even less.  That is a total of 4 billion people or 66% of the world’s population.

A few companies have been successful at reaching these consumers.  Yes, I did use the word “consumers” because they have needs just like the rest of them.  They may not have the same financial liquidity that we have, but they are very resourceful.  And they survive.  Companies like CEMEX, Mexico’s largest cement company, set up a program called Patriomonio Hoy, expressly targeting BOP consumers to help them build adequate homes.  Using an innovative system to incrementally pay for the building materials, CEMEX has had a very positive impact in these communities.  Probably the company that shined the spotlight and showed the opportunity with BOP communities is Grameen Bank.  Through the innovative use of microcredits, Grameen has radically changed access to financing so that very low-income could afford to purchase goods, build businesses, etc.

There is a tremendous opportunity for innovation at the base of the pyramid by creating not just products but also programs that satisfy the needs of very poor people and improve their lives in so many ways.  As they grow into mainstream consumers, those companies that have helped them in their humble beginnings will reap more than profits…they will earn their trust and their loyalty.  And that can’t be bought or couponed.

Let’s think about innovation beyond our borders…

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Should We Innovate The Model for Libraries?

I go to my local library every week. Why? My son’s school requires that he read a book a day so we go through an enormous number of books each school year. The thing is that our city’s budget is so tight that the mayor is talking about reducing hours by 50% from an already lean schedule: Monday, closed; Tuesday, 12:30-8pm; Wednesday, 12:30-5pm; Thursday, 12:30-8pm, Friday, 12:30-5pm; Saturday, 8:30-2:30pm; Sunday, closed.

The schedule works great for people who are retired or stay-at-home parents, but less so for busy working individuals and school-age kids.

Libraries are often staffed by generous volunteers who dedicate their time to help others with their reading needs so the choice to reduce library hours yet by another 50% brings this question: Who will be using libraries in the near future if most of the time they are closed? Who is going to benefit from the resources they hold if they are closed?

The benefit they provide is inside their four walls: quiet space, lots of books, DVDs, magazines, newspapers, etc.

Instead of using the traditional corporate slash and burn budget approach which often leads to commoditized businesses and reduced brand equity/relevance in the consumer mind, maybe there is a better way.

Libraries are essentially destinations that offer “free” book and DVD rentals.

Libraries are also a place that allow a community to bind together.

Libraries are a place for content.

So why not provide premium content for a nominal fee?

  • Movie marathons (watch movies in a series before the opening of the latest installment in theaters)
  • Classic films on a big screen
  • Dinner with a local author at the library (catering company takes care of the logistics)
  • Book club meetings
  • Did You Know series with local experts
  • Holiday themed events like Halloween, complete with readings, movies, crafts, etc.

We need to stop thinking about libraries as buildings with books and look as destinations for great (and unique) content.  What other premium content ideas do you have?

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Airlines Need To Innovate The Consumer Experience

Ask anyone these days how was their last flight and the most common answer is “uneventful”.  That is the consumer expectation for flying these days and that speaks volume to the state on the industry.

Since September 11, 2001, the industry has suffered tremendously.  This lead to what is called in the industry “un-bundling” which means that rather than a airline ticket including everything, you now pay for everything from luggage to food on board, allowing airlines to monetize their business as much as possible and return to profit.

The airline industry has a very challenging business model.  It faces tremendous costs:

Add to that long-term leases on airplanes (and parts for maintenance) and you have an industry with a huge amount of expenses – most of them are hard to control.  Fuel prices are dictated by the market.  Southwest is known in the industry for hedging its fuel purchase (agreeing in advance to purchase fuel at a set price for an extended period of time) which has helped it save money.  Airplanes are built by other companies and leased or purchased over a long period.  Because their expense is amortized over many years, it is hard for an airline to quickly switch to more fuel-efficient airplanes.  Labor contracts are long drawn negotiations with unions that take effect over many years.  So costs are locked in over the long-term.

What the industry controls is the service.  And what it has done is monetize the service by charging for everything.  What it has done is basically commoditized its business (red ocean) so consumers look for price as deciding factor in choosing a flight because paying more for an “uneventful” flight does not make much sense.

The airlines will not differentiate themselves by their airplanes.  There are only two major airplane manufacturers with a variety of airplanes that does not change very often.

The airlines will not differentiate themselves by their routes.  Most major cities these days have multiple airlines serving them.

The airlines will differentiate themselves with the experience they offer to their consumers.

One approach that has been taken recently by Virgin Atlantic was to redesign its airport terminal, adding comfortable seating in the waiting area, hydration station so you can fill your empty water bottles inside the terminal, lots of open spaces – all to transform and differentiate the “consumer experience” from the regular packed terminals we all dread.

Another approach is to provide great service, on the ground and off the ground.  Remember when Southwest attendants were singing and making jokes onboard their airplanes?  You had a great time and you certainly felt the change when you travelled with another airline.

The secret sauce has always been the consumer experience, yet it always seems to be the last thing an airline thinks about.  That is the one of the few thing that an airline can control and help differentiate it from its competitors.  It is important to minimize costs and maximize revenue, but it usually gets you deeper in your industry’s red ocean. 

Innovate the consumer experience and profits will take off.

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What Can We Learn from P&G’s New Laundry Pods?

Judging for the response to P&G’s new laundry pods, there isn’t much excitement about this latest innovation in laundry care.  Maybe it is due to the fact that a lot of innovation these days has been called “game changing” when it really only is a line extension or product improvement.  There is a lot of hyperbole in the world of innovation, always looking for the next “disruptive” innovation.  Maybe it is a sign of the times with so much happening in the online and technology world (facebook, twitter, foursquare, iPhone4, tablet computers, etc.).  It is good to strive for these types of innovation to create “blue oceans”.  But it should not be the end-all-be-all.

Good innovation, just like life in general, is about balance.  You need the right mix of products, pearls and all.  The key is good portfolio management so you can play to your core strengths in critical strategic areas.  Though it is good to strive for disruptive innovation, it is not realistic to achieve it every time you launch a new product.

Good innovation is about fulfilling a consumer need.  If you can achieve it with “game changing” innovation, that’s great, but it does not always have to be that way.  In consumer testing, P&G says that consumers love the convenience of having a pre-measured pod to get “excellent results with minimal time and effort.”  That is the need the pods are fulfilling.  One need they are not fulfilling is that of consumers washing less than a full load.  For that need, the innovative method® pump product, mentioned in one of my previous post, might be better suited.

As Robert Cooper wrote in his book “Winning At New Products”, there are different types of innovation.  They all play a critical role in a product portfolio and should be used to achieve strategic goals set: New to the world, new to the company, new to the category, product improvement, line extension, cost reduction.

Innovation is hard work.  Innovation is a continuous process.  It doesn’t stop with the launch of a product.  Far from it, it is omnipresent and requires to continually improve, research, challenge, dream, etc.

P&G’s launch of Tide Pods is just that.  Having failed in the 1960s with its Salvo tablets and seeing its competition fail in the 1990s with their improved versions, P&G has continued to research for the right technology and the right time to address a consumer need.  Despite failures and competitive entries, P&G is re-entering the laundry pod category.  It is not easy to come back from failure and it certainly is not easy to try something again after failure.  The Tide Pods are fulfilling a specific consumer need that fits into the Tide product portfolio.  They may not be new to the world nor to the company or category, but I am sure they are achieving a strategic goal within the Tide portfolio.  There is a lot we can learn from that.

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The Need To Diversify Innovation Sources

I met with Vizio’s General Manager a few months ago.  For those of you who don’t know, Vizio has been the value price leader in flat-screen TVs.  With the help of the government’s mandate to have all TV signals switch to digital by 06/12/2009, the government created a market, and a strong demand for these TVs.  While SONY and Panasonic entered the market on the high-end, Vizio took the low-price route by relying on Chinese suppliers and low overhead to gain significant market share. 

The present looks pretty good, but what about the future?

What struck me as suboptimal, though, is that Vizio relies on its suppliers for innovation.  It has no R&D team, no R&D budget per se.  That is a recipe for disaster.  Although its suppliers have an incentive to innovate to stay competitive, they may decide to go on their own and launch their own product line (cut out the middle man – Vizio).  Or they may sell their innovative technology to the highest bidder.  After all, they may be able to get a higher price by going to a SONY or Panasonic than with Vizio.  Another issue is that suppliers may just want to squeeze as much production with their existing contracts and forego any innovation investments.

Eventually, SONY and Panasonic will be able to introduce a lower-priced flat screen TV that outperforms Vizio’s line-up.  At that point, with little innovative products and little intellectual property of its own, Vizio may be in a serious bind.

Vizio has started to diversify into accessories for its flat-screen TVS – sound bars, speakers, etc. – which is smart in the short-term but it will not be an antidote for a lack of innovation.

What are innovation sources?  Here are 6 good ones:

Suppliers can still be a good sources, but by no means should they be the main one.

Employees are probably some of your heaviest users and understand the benefits of your products (and sometimes the limitations of your production capability) to provide some really good ideas.  Create a lunch roundtable every quarter or so to bounce off ideas based on a specific innovation strategy.

Consumers are the obvious choice.  That is why “open innovation” and “co-creation” are a big initiative these days.  Get consumers involved in the process and you will get much better results.  Beware of intellectual property legal troubles, though.

Retailers that sell your category of products.  They are always being pitched new products and want to have unique offerings on their shelves so scope out their stores!

Tradeshows are a treasure trove for new product ideas.  They don’t have to do with your product per se, even if it is a tradeshow with your target audience, you could learn a lot from them.  Set up free lunches to chat about issues they face.  You could learn something really useful.

Social media and the opportunities that monitoring offers.  You may not get deep insights but you will definitely see trends – and by the way, people in the space that influence that conversation – always good for future marketing!

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