Marketing and innovation

GLOBAL INVESTOR 2.05 Marketing versus innovation—7
Marketing versus innovation: Is the balance right?
Marketing and innovation have been two inseparable parts of capitalist success
since the earliest days of the industrial revolution. Craftsman Thomas Chippendale
published his Furniture Catalogue in 1754. Giles Keating
Mr. Chippendale’s fine products, previously sold only in small
quantities, were transformed into the ultimate interior design
feature for the English middle class, and he became a wealthy
man. The following century, international brands such as Lipton’s
Tea and then Coca-Cola emerged, offering consumers the guarantee
of a product with consistent taste and quality, and making
fortunes for their owners.
Initially, marketing and branding were about taking a product
that had already been invented and making sure that it sold. Gradually,
many successful companies introduced feedback in the
other direction, giving marketing people a say in the way that
products were developed, aiming to leverage their brands and
increasing the chances of commercial success for new products.
This process gathered momentum in the later decades of the
twentieth century as marketing and pricing strategies became
increasingly refined, bringing benefits to both companies and their
customers. But arguably, it has now gone too far for the good of
either, with marketing now dominating R&D in many firms. In
some major pharmaceutical companies, the heads of each of the
main brand lines are now paid multiples of what is earned by the
research chief. And across many of the sectors covered in this
edition of Global Investor, the budget for marketing far exceeds
that for R&D.
This dominance of marketing over R&D is very often associated
with a reliance on ever more incremental product improvement,
rather than the development of truly life-altering innovations. In
the short-term, this is a nice safe and easy strategy for managements,
since instead of the risk of costly development of unknown
novelties, it leverages existing brands, taps into apparently loyal
consumer groups, and may allow new look-alike patents to replace
old ones that are expiring. The sense of comfort is enhanced when
all the major incumbent companies in a sector are doing much the
same. However, in the medium to long term, this kind of strategy
can be a recipe for disaster, as utterly unexpected competitors
appear with genuinely new innovations that sweep the market.
The classic case is the rise of the low-cost airlines, which has left
Southwest Airlines with a higher market capitalization than the
three traditional carriers combined.
Another obvious example is in the consumer electronics sector,
where Sony’s focus on incremental improvements to its
famous Walkman (allowing, for example, ever-larger jolts without
upsetting the music flow) has left it gasping in the face of the