Academic journal article Research-Technology Management

Customer-Driven Innovation: To Be a Marketplace Leader, Let Your Customers Drive

Academic journal article Research-Technology Management

Customer-Driven Innovation: To Be a Marketplace Leader, Let Your Customers Drive

Article excerpt

Organizations in today's competitive marketplace are increasingly recognizing the need to innovate in partnership with their customers. They are changing their innovation strategies from "innovating for customers" to "innovating with customers" and involving those customers in a process of "knowledge co-creation" (1,2). As these customers become increasingly connected with a firm and with other customers, they are becoming partners in product/service innovation. Consider the following examples.

Smart organizations have begun to consciously tap into their "lead users," who possess knowledge that can help an organization better plan for the development of new products and the improvement of existing products (3). Some companies, including the software producer SPSS, have begun to host customer workshops, bringing in the super-users of their products and learning from them. Other organizations have product research centers where they monitor subjects as they interact with products and services. Some software development firms purchase add-ons, scripts and other artifacts created by their customers while using their products, and then introduce those artifacts in future versions of the products and services.

Organizations gain in various ways by letting their customers connect with each other and by facilitating the process using innovative communication technologies. Consider, for example, the Wiki (a software that allows users to create, remove and edit content on Web pages) introduced recently by eBay. By encouraging customers to develop shared product reviews and recommendations on its Wiki, eBay: 1) attracts the attention of customers to its portal, 2) provides an experience of ownership and control among its customers, and 3) taps into their insights and ideas.

In such ways, customer innovation has become an essential strategy for organizational survival. Innovations can come from how organizations interact with customers: 1) by identifying, analyzing and communicating with them, 2) incorporating them into their existing innovation process through transformation of their business processes, and 3) encouraging customers to engage in improving existing products and services.

In this paper, we introduce various types of customer innovation and discuss ways of establishing an organizational innovation program that takes into account the strategic value of these different types. The second half of the paper shows how to manage customer innovation in a complete innovation program.

Identifying the Customer

Innovation in how customers are identified is an implementation of new customer segmentation (4). Segmentation calls for separation, categorization and classification of objects, and should be done before analyzing data and information about customers. By using segmentation, organizations can classify and categorize customers based on certain features that will allow them to identify target markets. These features, if managed appropriately, will improve service and products. For example, by segmenting customers based on demographic data (such as disposable income) and analyzing their tendencies (such as willingness to purchase products), organizations can position products better and improve marketing campaigns, among other aspects.

NPower Seattle is an example of successful customer categorization. The nonprofit organization, which assists other nonprofits with technology-related projects, upgrades and strategies, has found that customer segmentation greatly assists its relationships. While acknowledging that the characterizations it creates are caricatures, the firm has found it highly beneficial to assess customers as "technology constrained," "technology optimists" and "technology investors."

Each of these categories has different needs for, and perceptions of, technology. For instance, technology-constrained customers tend to be frustrated with the limitations of technology and perceive it as a burden and a cost, and consequently seek to limit their investment in technology. …

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