I would like to use this session to take you through the main concept of leader user, as well as some suggestions how you should approach your two exam questions. In order to help you develop a clear understanding of the leader user concept, let’s first have a look of its background and its importance.
I shall start off with the term open innovation. It is a term used to promote a mindset toward innovation that runs counter to the secrecy and silo mentality of traditional corporate research. Before 1960s, firms relied on their big labs to conduct their own research and development. There was a belief that firms’ own R&D was crucial to their success and because of that, innovation should be conducted within firm’s boundary and firms can commercialise their R&D outputs. Open innovation is promoted by Henry Chesbrough and singles the increasing embrace of external cooperation in a complex world. The term is “a paradigm that assumes that firms can and should use external ideas and external paths to innovate “. More recently, open innovation is considered as “a distributed process and is not solely firm-centric. Put differently,the boundary between a firm and its environment has become more blurred; innovations can easily transfer inward and outward between firms and other firms and between firms and creative consumers.
Some examples of open innovations: research has long recognized that organizations use doorkeepers to safeguard their key information. However overtime, these doorkeepers evolved into information hubs to bridge in-house expertise with external sources like government research centres or universities and to facilitate internal innovation efforts. Research partnerships, co-creation with creative consumers and communities of user innovators are all good examples of open innovation.
So far, we leant that innovation in the current world requires that firms should utilize both internal and external sources to improve innovation effectiveness and efficiency. Customers are an important source for ideas, knowledge and skills. Then that are customer types, and in which way they can help with firm’s innovation?
According to marketing management there are five types of customers and each has its own implication to firm’s strategy.
Loyal Customers are less in numbers but promote more sales and profit as compared to other customers. They revisit the organization over times and it is crucial to interact and keep in touch with them on a regular basis, and to invest much time and effort with them. Loyal customers want individual attention and that demands polite and respectful responses from the seller.
Discount Customers are also frequent visitors but they are only a part of business when offered with discounts on regular products or they buy only low cost products. These customers are mostly related to small industries or the industries that focus on low or marginal investments on products. Focus on these types of customers is also important as they also promote distinguished part of profit into business.
Impulsive Customers are difficult to convince .They don’t have any specific item into their product list but urge to buy what they find good and productive at that point of time. Handling these customers is a challenge as they are not particularly looking for a product. They also want the seller to display all the useful products they have in front of them so that they can buy what they like from that display. If impulsive customers are treated accordingly then there is high probability that these customers could be a responsible for high percentage of selling.
Need Based Customers are product specific and only tend to buy items that have a specific need for them. To enlist these customers one should show them reasons to initiate their buying intention. These customers could possibly be lost if not tackled efficiently with positive interaction.
Wandering Customers are the least profitable customers as sometimes they themselves are not sure what to buy. They are normally new in industry and most of the times visit suppliers only for confirming their needs on products. They investigate features of most prominent products in the market but do not buy any of those, or show least interest in buying. To grab such customers they should be properly informed about the various positive features of the products so that they develop a sense of interest.
What are the usage for these five types of customers? This categorisation is useful for firms to define strategy, either on discount customers, implying on low cost strategy or impulsive and need based strategy suggesting a niche product segment, maybe value based strategy.
From innovation management perspective, Rogers has developed a technology adoption theory, which explains how, over time, an idea or technology spreads through a population or social system. The result of this adoption is that people, as part of a social system, accept a new idea, behavior, or technology at different speed.
Adoption of an innovation does not happen simultaneously in a social system; rather it is a process whereby some people are more willing to adopt than others. Researchers have found that people who adopt an innovation early have different characteristics than people who adopt later. When promoting an innovation to a target population, it is important to understand the characteristics of the target population that will help or hinder adoption of the innovation. There are five established adopter categories.
The first category is Innovators. These are people who want to be the first to try the innovation. They are curious and interested in new ideas. These people are very willing to take risks, and are often the first to develop new ideas. Very little, if anything, needs to be done to appeal to this population.
The second category Early Adopters, are people who represent opinion leaders. They enjoy leadership roles, and embrace change opportunities. They are already aware of the need to change and so are very comfortable adopting new ideas. Strategies to appeal to this population include instruction manuals and information on implementation. They do not need information to convince them to change.
The third category Early Majority is rarely leaders, but they do adopt new ideas before the average person. They typically need to see evidence that the innovation works before they are willing to adopt it. Tactics to appeal to this population include success stories and evidence of the innovation’s effectiveness.
The fourth category late majority is skeptical of change, and will only adopt an innovation after it has been tried by the majority. Techniques to appeal to this population include information on how many other people have tried the innovation and have adopted it successfully.
And the last category laggards are bound by tradition and very conservative. They are very skeptical of change and are the hardest group to bring on board. Strategies to appeal to this population include statistics, and pressure from people in the other adopter groups.
Rogers five categories of adopters are useful for a novel product or service that people do not have the equal speed of adoption and different teniques and tactics need to be in place for each category of adopers.
Having reviewed five customer types from the marketing and five categories from innovation perspective, where does the lead user fit.
Lets first have a look of the world wide web. The world wide web was invented by Berners-Lee. Berners-Lee is a consulting software engineer. As a consultant he needed to network with other engineers and this propelled him to invent hypertext, which is a software system allowing extensive cross-referencing between related sections of text and associated graphic material. Put simply, hypertext is text which contains links and each link allows one to access to another link. Hypertext is not constrained to be text: it can include graphics, video and sound. What makes Berners-Lee differ from other inventers is that, he did not simply invent the software , he actually took a step further and make it available on the Internet. What does this mean?
This example means that: first, Berners-Lee faced a problem, which was the difficulty of networking with his clients or colleagues. And this problem he faced was the pain that a lot of people suffered from. So the problem or the pain he was trying to resolve foreshadows a general demand in the marketplace – a trend. Second, he tried to find a solution to the problem. Third, he took his solution to the marketplace and he benefited from such a solution. So a lead user has to satisfy three requirements: 1- he or she can identify a problem that is common to others. 2. He or she can find a solution to this problem, and 3 he or she can benefit from the solution.
Lead users are at the left hand side of the red line, and before they are not buyers/customers or adopters. Innovations are first group of buyers but lead users are themselves makers of the new technology.
Windsurfing boards, snowboards, chocolate milk and mountain bike are all good examples of products that introduced by lead users. Feel free to dig out more behind stories of these examples.
21 Why lead users are important? Innovations are risky in two fields – market and technology. Lead users are extremely valuable because they can identify a future trend, and provide initial solution to address or evaluate the future trend. Therefore lead users reduce both market and technology risks.
- Where to identify lead users and how to work with them? Here I introduce four steps:
1) conduct literature research to identify potential trends
2) agree on a potential trend that will be the focus for development
3) search experts in that trend –using networking (for instance, through recommendation), adjacent market (for instance, like the cooling system for mobile phones one could refer to experts in laptop industry who face a similar problem).
4) use focus group sessions to discuss how to involved lead users into your idea generation.
So far, we have looked at the concept and approach to the lead user method. Next I would like to give you a few tips on how to prepare for your exam question.
The word limit for the question is 1000 words (+/- 10%) excluding references. Your answer should be supported by appropriate examples and references.
Critically discuss the lead user approach in views of its usefulness and challenges in helping firms develop new product/services. Use appropriate real examples from case studies or journal articles to support your discussion.
Instruction (How to answer the question):
Exam question, you shall illustrate critical analysis skills that do not only show your clear understanding of the concept and method, but also engage in the latest research/debates in lead user method. For a good mark in the question, we look evidence of a wide range of reading, your synthesis of materials to build insights, coherent arguments supported by good examples. Here examples should come from books, journal articles. Provide good referencing and follow the Harvard referencing style.
Finally, to help you revise the exam question, I provide a ‘LEGO’ case study which contains good examples of lead users and how Lego worked with these users. I also supplied a few essential readings. Having said, to achieve a good mark, you must read extensively beyond this essential list.
- ¬¬¬¬Our question is all about the lead user and the theory of the lead user.
1) What lead user is?
(It is a chance to show all what you know about the whole subject of new venture development. In what way there is impact on the successful or failure of new venture development overall different situation).
2) Talk about smiler theories around lead user and which theories are particularly relevant so for example: Crossing the Chasm (very important), Lego, Diffusion of innovation, Technology Adoption Model (Moore) and Technology Acceptance Model (Davis). (Please introduce all concepts in 200 to 250 word paragraph (Just write a small description of 1 sentence for each concept). Then choose only 3 to 4 concepts to write about each of them a 200 paragraph in more details according to the question. Finally regarding the introduction and the conclusion, you will write them in 100 word.
3) How a lead user is more or less important depending on whether is product or service? Lead use is more or less important depending on whether its personal service/ more intangible services like insurance (for example: is a lead user important for restaurant) /Is a lead user different for technology product VS traditional product/ or lead user important for a low cost product or high cost product.