breakthrough insights: expanding categories, exposing needs · your category? • consumer...

Opportunities for Action in Consumer Markets

Breakthrough Insights: ExpandingCategories, Exposing Needs

Breakthrough 6/7/04 4:41 PM

Breakthrough Insights: ExpandingCategories, Exposing Needs

Behind every winning innovation is an insight thatleaves consumers surprised, excited, and energized.When it finds expression as a new breakthrough prod-uct, markets take off and competitors don’t knowwhat hit them. Its success, in hindsight, seems preor-dained. Why didn’t you think of salsa chips shapedlike little scoops?

Yet, even at the best companies, too many attempts atinnovation fail. Often the root of the problem is anarrow, static, and backward-looking process. It forcescompanies to spend too heavily on market researchand outside vendors, and to waste time on late-to-mar-ket me-too offerings that eat into other products’sales. These companies fail to find the right balancebetween spending on marginal improvements andspending on products that consumers have neverdreamed of. Products that cause a consumer’s pulseto quicken. Products that are differentiated and newto the world. Products that competitors can’t rush outand copy.

Many companies believe they have plenty of goodproduct ideas, but their innovation performanceoften tells a different story. To determine whetheryour company might benefit from rethinking its inno-vation process, consider these questions:

• Innovation track record: Are you meeting your targetfor breakthrough leadership with products thatopen up new categories, new user groups, or newapplications? What percentage of sales comes fromproducts introduced in the past five years? Arethese sales driving real growth or cannibalizing the

Breakthrough 6/7/04 4:41 PM Page 3

main business? Do you have a plan for the next fiveyears that will increase your growth rate, expandyour field of play, and enhance your value?

• Culture: Do you know which people in your organi-zation are specifically accountable for generatingbreakthrough innovations? Are they motivated todeliver blockbuster ideas rather than “safe” sugges-tions? Are they distracted by the requirement tomatch competitors’ moves and deliver a steadystream of incremental improvements? Is your cul-ture open to new-to-the-world designs? Do youhave the best talent working on the biggest ideas?

• Category definition: Do you track market share bydefining it in a way that makes you the leader? Ordo you define the market for your category as anexpanding arena of consumer needs? Is your long-term plan for growth driven by a broad, strategicview of the full opportunity space that surroundsyour category?

• Consumer segmentation: Do you understand con-sumers better than your competitors do? Have yousegmented them in a way that is unique and power-ful and generates new insights? Is your segmenta-tion giving you a competitive advantage?

• Consumer understanding: Can you articulate howyour new products fulfill consumers’ emotional, aswell as functional, needs? Do your products gener-ate more excitement with consumers than yourcompetitors’ products do? Do you clearly identifydissatisfactions and respond to them quickly?

If you’re not entirely satisfied with your answers, thereis something you can do about it. Insight is the result


of a deliberate process. The Boston Consulting Grouphas developed a rigorous four-step approach to devel-oping breakthrough insights that has proved success-ful with companies in a variety of industries. Ourapproach distills a company’s institutionalized knowl-edge of consumer insight and brings together focusedteams to implement it.

To succeed with this approach, companies must pre-pare the groundwork by aligning senior managementto sponsor creative idea development, and then buildthe organizational structure to support it. Here, then,are the four steps for filling the innovation funnelwith blockbuster projects.

Step 1: Explode the Category

Focus may facilitate flawless execution, but it canimpede insight. The way you see your market todaycan blind you to tomorrow’s possibilities. Many of ourclients have reaped breathtaking results by explodingnarrow category definitions—expanding, for exam-ple, from “windows” to “keeping the outside out” orfrom “deodorizers” to “indoor air quality.” Rethinkingyour own definitions can unlock hidden areas of con-sumer need and potential profit. Distant but adjacentcategories now appear close to home, “mature” cate-gories suddenly bristle with opportunity, and once-invincible competitors become vulnerable.

A packaged goods client, for example, embarked onan expansive exercise in category definition with theassumption that it owned 42 percent of a relativelystagnant category. After redefining its category, itfound that it owned only 2 percent. The new defini-tion encompassed other packaged goods, services,


and even appliances—all of which delivered to a com-mon consumer desire. Along the way, the companyidentified 26 entirely new areas of exploration thatincluded specific locations, occasions, delivery mecha-nisms, benefits, and consumer segments.

Stretching your category definition can begin with amap of the opportunity space. A visual representationhelps. We plot opportunities on a cube whose threeaxes show

• Who: potential users of a product category

• Where or when: potential uses or occasions to whichproducts might be put

• Why: the range of benefits the products might deliver

Each cell in the cube represents an opportunity. Byidentifying unoccupied cells and conceiving of prod-ucts that could fill them, you give structure and direc-tion to your innovation process.

We think of the cube as an enabler. It’s a way ofexploring a product or service in terms of differentuses and applications. It can provide a systematic andexhaustive view of the current state of a product cate-gory and help you identify the potential opportunityspace. By prompting expansion along the three di-mensions, it also suggests how a category could grow.(See Exhibit 1 for examples involving gas stations andmineral water.)

It is critical to set up the cube correctly, and fewteams get it right on the first attempt. We recom-mend beginning with expansive brainstorming, fol-lowed by a logical grouping of opportunities. Each ofthese opportunities should then be assessed more


Gas station cube

Who?

Where orwhen?

User segmentation:• Sociodemographics• Lifestyle• Expenditures

Application:• Weekly gas fill• Travel gas fill• Emergency gas fill• Convenience store top-off• Shopping for meals

Why?

Benefits:• Speed• Service• Ergonomics• Cleanliness• Ease of access

Mineral water cube

User segmentation:• Preteens• Teens• Young adults• Families

Application:• Mealtime• At work• On the go• Waking up

Benefits:• Take a break/socialize• Quench thirst• Medical• Safety

Who?

Where orwhen?

Why?

SOURCE: BCG analysis.

Exhibit 1. The Cube Can Generate Numerous Insights


thoroughly and its potential measured—first qualita-tively and then quantitatively—to understand how itcould add value to the current offering.

Step 2: Microsegment the Market

Traditional market research, with its emphasis on collecting large amounts of statistically significantquantitative data, may be “scientific.” Unfortunately,scientific validity all too often comes at the price ofsuperficiality. We recommend going beyond typicaldemographic segmentations—such as “married wom-en aged 34 to 54”—to explore creative, nuanced seg-mentations that identify attitude, life stage, or usagepatterns.

The toy maker Fisher-Price, for example, recognizedthat preschool children have distinct developmentalneeds at different stages. The company segmented itscustomer base into closely defined age brackets. Foreach bracket, it developed a uniquely tailored set oftoys and toy categories, including the Intelli-Table,which helps one- to two-year-olds learn language andnumber skills. (See Exhibit 2.) The company’s finelytuned segmentation was built on extensive observa-tion, which included a dedicated “play lab,” wherechildren played with prototype toys, and “mom talks,”during which mothers of preschool children met withinnovation team members to discuss their needs andaspirations.

Step 3: Quantify and PrioritizeOpportunities

Once new categories and user segments have beenidentified, the next step is to size the opportunity


through rigorous quantitative measurement. We rec-ommend creating a model of the consumption function.This model quantifies the opportunity by multiplyingall the levers that drive consumption. When stretched,it can also provide an estimation of overall opportuni-ties for incremental growth. Successful consumercompanies use it to

• Identify immediate opportunities in the main business

• Quantify the impact of new or improved productsin the same category

• Quantify the impact of breakthrough innovationinto adjacent areas

6–12 months 2 years

3 years

4 years

Intelli-Table

• Cars and vehicles• Early electronic learning

• Fisher-Price classics• Little People toys• Musical toys• Outdoor toys and sports• Playing grownup• Play sets• Power Wheels• Push-and-pull toys• Trikes and Ride-Ons• Walkers

• Introduces letters and numbers• Teaches animal sounds• Introduces more than 50 new vocabulary words• Develops eye-hand coordination

0–6 months 5+ years1–2 years

SOURCE: BCG research.

Exhibit 2. Fisher-Price Segments Its Children’s Market

Tailoring the Intelli-Table for one- to two-year-olds


The components of a model will vary by product andcategory, but the basic structure is the same for anycompany. The consumption function applies equalrigor to quantification of aggregate consumerdemand, or the addressable market, and your company’sunique ability to serve it, or the opportunity share. Theaddressable market begins with the broadest possibledefinition of the target, then moves through succes-sive stages of descriptive or demographic filters. Theopportunity share factors in your company’s uniquemarket presence, brand awareness, and pricing constraints. (See Exhibit 3, which illustrates the con-sumption function for a premium food product.)Sometimes the model will surprise and challenge

Incomethreshold

(%) Targetpopulation =

x

Addressable market size

x Nonrural(%)

Nondieters(%)

x

xOther

demographics(%)

Coremarket

population

Access(%)

Coremarket

population =

x

Opportunity share

x Awareness(%)

Repurchase(%)

x

x Frequency(units)

Coremarket

opportunity($millions)

Trial rate(%)

Price($)

x x

SOURCE: BCG analysis.

Exhibit 3. A Premium Food Product Quantifies Its Opportunity Space

The Consumption Function


managers—for example, exposing many markets tobe much smaller than anticipated and allowing forquick prioritization of competing ideas. The endresult is a solid (and early) estimate of market sizeand company sales for new product ideas.

Step 4: Expose Consumer Needs

Once an initial set of prioritized opportunities hasbeen established, the last step is to develop a deepunderstanding of the targeted consumer’s aspirationsand wants. Companies should focus not only on con-sumers’ technical and functional needs but also ontheir emotional needs—recognized or latent.

Duet, the new washer-dryer combo from Whirlpool,offers a good example of targeting emotional needs.Priced at more than $2,000 a unit—two to three timesthe price of other brands—Duet is rapidly outper-forming initial sales expectations.

Of course, Duet’s new technical and functional fea-tures are important—it is energy efficient and easieron clothing—but its surprising success has more to dowith consumers’ emotional response. The Duet pairhas twice the capacity of other machines, so the per-son doing the laundry (usually the mother) can makefewer trips to the laundry room to empty and reloadone machine or the other. This feature, along withthe ease of front loading, makes it a convenience ofgreat value to its owners. They make a direct connec-tion between the performance of the washer-dryerand a decrease in the amount of time they need todevote to the washing chore. It is time they candevote instead to taking care of themselves and con-necting with family and friends.


Research on Duet’s customers has revealed consistentemotional reasons for their purchases—such as “I ammaking a smart investment,” “I have more time toenjoy life,” and “I’m doing a better job for my fami-ly”—as well as technical and functional benefits. (SeeExhibit 4.)

* * *

As the Duet example shows, even in a mature catego-ry it’s possible to develop new products that grow thecategory, expand the user base, and capture premiumpricing. The challenge is to develop a rich and broadset of ideas through rigorous idea development andclose consumer discovery, then screen those ideasruthlessly to arrive at the ones most likely to succeed.

If you want our four steps to work for you, make surethat senior management is engaged at every step:challenging the organization to expand business con-cepts, spending time face-to-face with customers, and

Emotional:How the product makes

the customer feel

• Life is great• Better mom, better person• Free time• Family oriented

Functional:What the product

provides

Technical:How the product

works

• Convenient placement in the home• Time saver—double the loads• Cleaner clothes• Less pilling• Saves water and energy

• Large capacity• Front loading• Intelligent sensors• Water efficient• More effective washing and drying

SOURCE: BCG research.

Exhibit 4. Duet Meets Emotional Needs, Not JustFunctional and Technical Needs


actively participating in exploring the opportunityspace. For every business, there is an innovation story.Bringing it to fruition requires consumer insight, cre-ativity, technical skill, focus, and encouragement.

Marcus BökkerinkKermit King

Michael Silverstein

Marcus Bökkerink is a vice president and director in theLondon office of The Boston Consulting Group. KermitKing is a vice president and director in the firm’s Chicagooffice. Michael Silverstein is a senior vice president anddirector in BCG’s Chicago office and the executive officer incharge of the firm’s Office of the CEO.

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© The Boston Consulting Group, Inc. 2004. All rights reserved.


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breakthrough insights: expanding categories, exposing needs · your category? • consumer...

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