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Ishioka and Yasuda IAMOT 2006 1/8

Strategies for Competing in the Innovative Products Market

Masaru Ishioka1

and Kazuhiko Yasuda2

1Department of Business, Ishinomaki Senshu University,

Ishinomaki, Miyagi, 986-8580, Japan

[email protected]

2Graduate School of Economics, Tohoku University,

Sendai-city, Miyagi, 980-8576, Japan

[email protected]

Abstract

In the innovative product market, one of the most important keys to take the advantagein the market is recognizing and introducing the innovative product to fit thecustomers requirements with adding high and new technology. The purpose of this

paper is to introduce strategic approaches to the innovative product market. Byanalyzing the Japanese digital camera market, the competitive factors are defined totake the advantage in the market. The characteristics of market player and competitivefactors are analyzed by two major points, new product introduction rate and productsales rank. Also, research covers the analysis of relations between these two factorsand actual sales results.

The research results indicate, the organizations holding

higher level of both factors show successful business results.1. Introduction

For taking higher competitive advantage in the innovative product market, it is important to

recognize the characteristics of competitive innovative products. One of the most important keys

to take the advantage in the market is recognizing and introducing the innovative product to fit

the customer needs and expectation with adding high technology and/or new product function.The purpose of this paper is to introduce strategic competitive approaches to the innovative

product market. By analyzing the Japanese digital camera market, the competitive factors are

defined to take the advantage in the market. The characteristics of market player andcompetitive factors are analyzed by two major points; 1. new product introduction rate, 2. product

sales rank. The research also covers the analysis of relations between these two factors and actualsales results.

2. Conceptual back ground

2.1 Customer based innovation

There are several ways to recognize the innovation among the products in a market. Some

product innovation are defined by product makers, however some products innovativeness in the

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market are defined by customers.

In this paper, three factors are used to define the product innovativeness. Figure 1 shows

three factors of the innovativeness of the market offering. These factors are developed from the

customers viewpoints. In other words, the factors indicate how innovative products are definedand recognized by customers. Following sections explain each factor in detail.

2.2 Product feature and quality (basic product performance and functions)

One of the simplest ways to recognize product innovativeness is finding new product feature andquality from the customers point of view. Usually, customers recognize the product innovation

by watching, touching, and using them. If the customers find the large differences in product

features and quality from current competitive products in a same market, the new products are

defined as innovative products.

In this research, the factor of product features and quality is not in the strategy analysis.Because this research focuses on market leading competitive organizations, their product features

and quality are satisfied or exceeded required standard technology. Because this factor is basic

factor to stay on the market, it is not the strong competitive factor for the organizations.

2.3 Scope of change (number of hit products)

After new competitive products are introduced to the market, the new products have much impact

on the other competitive products which are already in the market. Some of the products bring

large impact to the other competitive products. On the other hand, some of the new products donot give any impact to the inline products. These differences on the level of impact to the inline

products are recognized as the differences of product innovativeness among the products in the

same target market.

The products, which having the impact on large area of same category products, have a higherpotential to be ranked in the higher sales products. It is closely related between the new products

area size to be influenced and the products sales ranks.

2.4 Speed of change (number of new products)

The number of new products is one of the factors to be recognized as the innovative product. Not

all companies are able to produce large variety of new products at once. Several organizations

are developed and introduce to the market just a few types of new products. The other types of

companies introduce a few new products at first, then increase the number of products with shortor long period of time.

Innovat iveness o f themarket o f fer ing

Produc t fea tures and qua l i ty Produc t in t roduc t ion speed

Inf luence for cur ren t p roduc t s

Figure 1. Components of innovativeness of the market offering

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The number of new product variety is closely related with the companies abilities of new

product development. If the organization has higher abilities of introducing large number of new

products, it could be recognized as innovative products makers. However, if the organizations

are able to introduce only a few products all of the time, the organizations are hardly to berecognized as innovative products makers in terms of the number of new products.

2.5 Strategy classification

Figure 2 shows the basic concept of new product development strategies. It is the chart with

number of hit products on the y-axis and number of product variety on the x-axis.Number of hit products indicates the product number of higher sales rank products. Some of

the products are introduced to the market with successful growing their sales volume. The

products are ranked in the higher position among the competitive products. The higher salesranking products provide satisfaction to customers.

On the x-axis, it is number of product variety is indicated. The factor shows the number ofproducts in the market at the same period. Offering larger number of selection of products

increases the potential to satisfy the customer needs and expectation. However, producing larger

variety of products requires higher cost and skill.Next, the level of innovativeness of the products is categorized in the each area of the chart.

Four types of innovators are indicated in Figure 2. Each innovator types roughly categorized

three levels of innovativeness. Highest innovative product makers are located in leading

innovator. Because the characteristics of the company located in this area provide highercustomer satisfaction with large variety of products, the products are recognized as innovative

products.

On the other hand, following innovator holds both low levels of the factors. The productsand/or product makers in this area, does not offer a good customer satisfaction with small number

of product variety. The target customers do not see any benefit in the offered products.

Moreover, the products do not have enough wide variety of product selection.

Two areas in the chart are recognized as medium level of innovative product makers.

Challenging innovation type I and II are second innovative product makers. In the case of thefactor of number of hit products is large and product variety is small, the higher customer

satisfaction is produced by only small number of products. In this case, it is difficult to keep the

Number of product variety

Figure 2. Strategy classification

Number of

hit products

Large

Small

LargeSmall

Challenging

Innovator type I

Leading

Innovator

Challenging

Innovator type II

Following

Innovator

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higher level of customer satisfaction. Because successive innovative product makers introduce

new products continuously in the same market, the company needs to introduce variety of

products to keep competitive advantage.

In the case of only the factor of number of product variety is high, and hit products are small,the company is introducing unwanted products with large variety of products. In this case, the

organization is facing difficulties of providing customer satisfaction. The company is not able to

define the customer expectation. It means that the introducing products are not good enough tobe recognized as innovative products in the target market.

3. CASE STUDY

The Japanese digital camera market is selected to apply the analysis. The strategy classification

process includes several major steps as follows. First, analyze the organizations each of twofactors, such as influence for current product, the number of hit product, and product introduction

speed, the number of product variety. Second, develop a strategy chart and classify organizationsinto the four types of strategies. And, repeat first two steps for 5-year analysis, 1999 through2003, and 3-year analysis, 2000 through 2003. Then, entry the market shares for each analysis.

Market share of year 2003 is for 5-year analysis, and year 2005 is for 3-year analysis. As the

final step, compare 5-year analysis and 3-year analysis, and analyze the relations between

movements of the organizations strategy locations and change in each organizations marketshare of each year analysis.

4. RESULTS

In this section, the results of the factor analysis and strategy classification are explained. The

factors of number of product variety and number of hit products define the eachorganizations product characteristics in the market. The strategy classification indicates the

relations between the each organizations level of each factor and market share.

4.1 Speed of change

In Figure 3, all of the organization produces higher number of new product in the 3-year analysis

than that of the 5-year analysis. It means that the number of new product introduction during 3-

year analysis has a tendency of higher and/or faster product introduction rate if compare withthe number of the last 5-year.

0.0 5.0 10.0 15.0

Fujifilm

Sony

C anon

O lym pus

C asio

Nikon

Panasonic

Productmake

Num ber of product variety

5-year

3-year

Figure 3. Number of product variety (5-year, 1999-2003 and 3-year, 2000-2003

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Sony has the highest number of product variety in the both analyses periods. Canon and

Sony significantly increase the number of new product introduction between the analyses. The

smallest increase is made by Olympus. Panasonic is the smallest number of product variety over

the analyses.

4.2 Scope of change

In Figure 4, if compare the results of 5-year and 3-year analyses, the organizations are roughly

classified into three types; the first type, the organizations which have higher number of hit

products in 3-year analysis than that of 5-year analysis; the second type, the organizations whichhave higher number of hit products in the 5-year analysis than that of 3-year analysis; the third

type, the organizations which have almost same number of hit products between the analyses.

The organizations, Sony and Canon, increase the number of hit products in 3-year analysis ifcompare with 5-year analysis. Therefore, both organizations are more affecting the new product

concept of the other organization in the latter three years.On the other hand, Fujifilm and Olympus are decreasing the number of hit products from 5-

year analysis through 3-year analysis. Therefore, both organizations products are not affecting

the other organizations new product concept in the latter three years.

Panasonic, Nikon, and Casio made small increase of the number of hit products between the

two analyses. The organizations provide small impacts to the other competitive products in thesame target market.

4.3 Strategy classification

Strategy classification is indicated in Figure 5. Both 5-year and 3-year analyses results are

plotted in the chart.In the chart, seven major organizations which are leading digital camera makers in the

Japanese market and allocated, and suggested four types of strategies are also located in the grid.

The beginning of the arrow of each organization indicates the result of 5-year analysis and the

end of arrow is the result of 3-year analysis. Then, the each circle in the chart indicates themarket share and each size of the circle are related with the level of the market share. The circle

of the beginning of the arrow indicates the organizations market share of year 2001, and the end

of the arrow shows the market chare of year 2003.

0.00 1.00 2.00 3.00 4.00 5.00 6.00

Fujifilm

Sony

Canon

O lym pus

Casio

Nikon

Panasonic

Productm

aker

Num ber of hit product (Index)

5-year

3-year

Figure 4. Impact to the other product

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Most of the organizations are concentrated in the two types of strategy, leading innovator

and following innovator. In terms of change between the two analyses, five organizations out

of seven increase both factors of scope of change and speed of change between the analyses.

However, two organizations increase only the factor of speed of change. The two organizationsdecrease the market share also.

5. Analysis of the strategy classification chart

As a general trend of the chart, the organizations with higher number of speed of change and

scope of change hold higher market share. For example, Sony and Fujifilm have higher levelof both factors and hold higher level of market share among the competitive organizations. On

the other hand, Panasonic and Nikon have small number of both factors, and hold lower level of

market share. More detailed explanation of each strategy type is in following sections.

5.1 Leading innovator

In the case of the organizations with both higher levels of scope of change and speed of change,the organizations are categorized into leading innovators. The organizations in this section are

holding higher skills of new product introduction speed and creating the higher sales rankproducts. Especially, the good skill of introducing hit product to the market is closely related

with producing customer satisfaction. It means that the organizations which continuouslyintroducing several hit products are always able to satisfying the target customers.

The organizations in the category of leading innovators usually hold large market share if

compare with the other strategies, because the organizations are providing higher level ofcustomer satisfaction with frequent new product introduction. The number of new products is

large, and each product has a higher potential to produce customer satisfaction. Therefore, the

organizations in this category tend to hold large market share among the competitiveorganizations in the same target market.

0.00

1.00

2.00

3.00

4.00

5.00

6.00

0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0

Speed of change

Scopeofchange Fujifilm

Sony

Canon

Olympus

Casio

NikonPanasonic

Challenging

Innovator type I

Following

Innovator

Leading

Innovator

Challenging

Innovator type II

1

2

3

4

5

67

1

2

3

45

7 6

Figure 5. Product development strategies in Digital camera marketComparison: 5-year and 3-year

analysis

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5.2 Following innovator

The organizations with both lower level of scope of change and speed of change are

categorized into following innovator. The organizations in this section are holding lower skillsof new product introduction speed and producing the lower sales rank products. Because of

lower skill of introducing hit products, the organizations have difficulty of obtaining customer

satisfaction from the target market. In this category, the organizations produce small number ofnew products and the introduced products do not fit the target customer expectation such as

customer need and/or wants.

The organizations in the category of following innovators usually hold small market shareif compare with the other strategies, because the organizations are providing lower level of

customer satisfaction with slower rate of new product introduction. The number of new products

is small, and each product has a lower potential to produce customer satisfaction. Therefore, theorganizations in the category tend to hold small market share among the competitive

organizations in the same target market.

5.3 Challenging innovator type I and II

In Figure 7, two types of challenging innovator are indicated, challenging innovator type I and

challenging innovator type II. The both types of challenging innovator indicate theorganization holding a middle of innovative skill among the competitive organizations in the

same target market. Because one of the factors such as scope of change or speed of change

is low level, the organizations in this category are defined as mid-level of innovative product

makers.

In the case of challenging innovator type I, the organizations hold higher level of scope of

change and lower level of speed of change, and are categorized into mid-level of innovativeproduct makers. The organizations in this section are holding higher skill of creating hit product;

however, the rate of new product introduction rate is in lower level. So, the organizations aresuccessfully introducing the products which fit the customer expectations, such as customer

needs and wants. However, the number of the new products is smaller than that of the other

organizations in the same competitive market.The organizations in the category of challenging innovator type I usually hold mid-level of

market share if compare with the other strategies, because the organizations are providing higher

level of customer satisfaction with small amount of the new products. The number of newproducts is small; however, customer satisfaction is created by the introduced products. In this

condition, the organizations in this category tend to hold mid-level of market share among the

competitive organizations in the same target market.In the case of challenging innovator type II, the organizations hold higher level of speed of

change and lower level of scope of change, and categorized into mid-level of innovative

product makers. The organizations in this section are holding higher skill of introducing large

number of new product in a short period of time; however, the skill of creating hit product is in

low level. The organizations introduce the products very frequently and the number of the new

products is larger than that of the other organizations in the same competitive market, but theorganizations are not able to introduce the products which hit the customer expectation.

The organization in the category of challenging innovator type II usually hold mid-level of

market share if compare with the other strategies, because the organizations are providing large

number of new products to the market with lower level of customer satisfaction. The number of

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new product is large, but each product does not fit the customer expectation. Thus, the

organizations in the category tend to hold mid-level of market share among the competitive

organizations in the same target market.

6. Conclusion

The research analyzes the linkage between the two factor analysis and actual sales results, marketshare. Therefore, each organization is able to recognize the relations between their product

characteristics and market share. The organizations are able to define more effective ways to

develop new products.In Figure 5, the organizations in the Japanese digital camera industry are plotted. The size of

each circle indicates the each organizations market share size. Also, the starting point of the

arrow indicates the results of 5-year analysis and the end point of the arrow indicates 3-yearanalysis. 5-year analysis explains long range characteristics of the each organization, on the

other hand, 3-year analysis indicates recent tendency of the characteristics of each organization.By comparing and observing the movements of each organizations characteristics from 5-

year to 3-year analysis, the characteristics are observed dynamically. Some of the organization

increase product introduction speed, and the others increase the number of higher sales products.

Moreover, some organizations are able to increase both factors.

However, one of the most important things is the linkage between the product characteristicschange and business results change. In this research, each organizations market share is selected

to indicate the business results.

Several major characteristics are identified as follows; 1. most of organizations in the

Japanese digital camera market grow both factors between 5-year and 3-year analysis, 2. when

the organizations increase the level of both factor, the market share of the organization tend to

increase, 3. the organizations holding higher levels of both factors tend to keep higher marketshare if compare with the organizations holding lower levels of both factors, 4. lack of growing

one of the two factors stops market share growth or decline the market share.The four types of strategies are indicated in each quadrant in Figure 5. Each strategy holds

different characteristics. The characteristics are identified by the location of the organization in

the chart, and it provides clear ideas of the ways to react on the other competitive organizations.

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