News & Views

Opinion / The Environment Effect for Digital Innovation

by Contagious Contributor
In this extract from Does It Work? co-written by Shane Atchison, CEO, and Jason Burby, President Americas, POSSIBLE, discuss why in innovation meeting consumer expectations is far tougher than surpassing rivals

Done right, innovation often leads to something that used to be unusual in marketing: an actual product. Nowadays, it’s inexpensive and relatively easy, for example, to make something and put it in an app store. You might think this is a great idea – and it is. But apps are not intended merely to surprise and delight your customers. Rather, they exist to help and build deeper and more intimate relationships with them. Done right they can make your brand more valuable to the customers who matter most to you. Unfortunately, that only happens if you’re prepared to sustain the innovation.

We call this the “bug fix paradox”. We did a brief study on it in early 2014 that looked at a snapshot of fast food apps. We divided them into two groups. The first had made recent or frequent updates. The latter had launched a version months in the past and then mainly performed bug fixes. We then compared the apps’ all-time ratings to those of their most recent update. That could tell us whether people liked them more or less after the most recent improvements.

The recent and innovative apps, of course, usually had ratings that had improved over time. The bug fixers’ ratings all fell. This seems counter intuitive. A less buggy app should still beat out a buggier one, shouldn’t it? The answer appears to be no. That’s why we call it the bug-fix paradox, and it’s a big problem with brand innovation.

We can trace the problem to two causes: the environment effect and external competition. Both are new and unique to the digital space.

The environment effect

Brands traditionally marketed against one another in their own category. In other words, Burger King tried very hard to make a better sandwich and more appealing ads than McDonald’s. It did not try to be as whimsical as Bud Light or as tough as Ford trucks. By a similar logic, when one of the chains’ marketing departments releases an app, the others should simply release a better one.

Unfortunately, this simply doesn’t work anymore. Nowadays, consumer expectations are shaped by the whole product, technology, and marketing landscape. Google, Apple, Netflix, Facebook, and Amazon set the pace for what a digital experience should be – not Subway or Dunkin Donuts. This is something we call the environment effect. With it, your rivals do not set the bar for the experience you create; instead you must meet your audience’s expectations for smart, seamless, useful experience. This issue is particularly acute for companies that target millennials, as they come with highly digital expectations out of the gate.

Probably no product company has understood this better than Nest. Before its arrival, thermostat companies competed solely with one another. Nest instead built an appliance for an environment shaped by peoples’ experiences with digital services. It was intelligent, connected, saved money, and made peoples’ lives easier.

External competition

The next worry you have is that your product, service, or unique differentiator will run up against real world competitors committed to doing the very thing you are. When creating the FuelBand, for example, Nike ran into FitBit and Jawbone. Both of those companies lived and died by their fitness products. It’s all they did. That can be tough to beat, even for a strong brand like Nike.

Competition can be hard to avoid and even anticipate. A good example of the competitive environment is the US-based brand Sea Tow. The company is a category killer in the business of towing stranded boaters. Working much like the American Automobile Association or the ARC Europe, it allows you pay for a yearly membership for a low rate. Then, if your boat breaks down on the high seas, Sea Tow comes to the rescue for free. This can be a compelling deal, as a single tow from an independent provider can cost thousands of dollars.

Sea Tow leaped into the digital age with an app perfectly related to its brand. It (it’s still around) gives boaters useful information when they are on the water: wave and weather conditions, tides, and even a GPS. And if you need help, it syncs up with Sea Tow’s rescue service to dispatch a boat to your exact location.

It sounds great, until you realize that there are hundreds of apps out there that do the same things better. There are weather apps that give up to the minute wind advisories, apps that log all your expenses on a boat, chart apps for the entire world, distress beacon apps, dozens of weather apps, and so on. Sea Tow has an advantage over the others in that it doesn’t need to make money from its app. But its competitors are working hard to maintain a qualitative edge. And they seem to be winning.

So while Sea Tow has done a great job of extending its brand, it has also come into clash with a hungry class of developers who do nothing but sea-based apps. To stay relevant, it would have to be just as agile and aggressive as they are. And that can be tough for a brand whose real focus lies elsewhere.

The bottom line is that innovation for innovation’s sake doesn’t really work in the digital world. Instead, you have to be prepared long term to sustain that innovation and remain relevant and interesting to your consumers.