Commercializing innovative products: An overview of new statistical indicators

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by Julio M. Rosa, Antoine Rose and Paul Holness

In the fall of 2007, Statistics Canada designed a survey to gather information on how successfully businesses commercialize innovative products.  What strategies must businesses use to achieve their ends? How can they attain their business goals? How is commercial success or failure measured? These are some of the challenges that drove the development of a new survey on commercializing innovation.

Background
Findings
References
About the authors

Background

Increasingly, commercialization is proving to be of prime importance, indeed, as much so as production, for any company seeking to acquire a share of the market or merely to sell its products. There is no end to market studies aimed at gathering consumer opinions on the features of this or that new product.

Not only are firms looking for information on the features of competing products, they are primarily interested in winning over consumers, meeting their needs and, eventually, gaining their loyalty. Furthermore, this quest for information is often thought through even before a product is brought to market. Creating and fulfilling a new consumer need requires lengthy preparation. When it comes to commercializing a new product, planning can make all the difference between commercial success and failure.

Findings

Measuring commercial success

Commercializing innovation includes all activities that a firm must implement to derive an economic benefit from the launch of a new product. In general, the sale of products, especially innovative ones, requires a certain amount of promotion. Commercial success is measured to assess to what extent innovations are well received in the marketplace.

Commercial success occurs when a firm achieves its goals. Its aim may be to recover development costs, increase revenues, profits, exports or market share, or generate a strong demand for its product. The notion of commercial success may vary according to the characteristics of a given industry, business or product.

This notion of commercial success also depends on the novelty level of the product being marketed. A product said to be “innovative” must be new or improved significantly, and must have been brought to market over the past three years. A firm who wishes to launch an entirely new product must publicize and promote it. It may also measure product sales. A significantly improved product generally replaces another and its success is linked in some way to the popularity of the product being replaced. In such cases, the issue of commercial success is more difficult to grasp and its measurement is more complex.

Another stumbling block to measuring success is the problem of timing. A statistical survey is a snapshot of circumstances as they stand at a given time or period. Some of the companies surveyed will have been innovative at different times over the past three years. They cannot all be expected to have reached the same stage in their commercialization efforts.

Additionally, different firms and industries have different products. Some have relatively short life cycles and require change very quickly. Development costs are often spread over a large number of units. Computers and cellular phones are good examples of such products. In these cases, one can expect to measure commercial success quite soon. Other products, such as commercial airliners, have relatively long life cycles and may be very costly to develop. Profitability may only be achieved after several years. In the shorter term, commercial success would be measured rather on the basis of the number of orders.

Can commercial success be quantified? The answer is yes, though the process is a difficult one. An initial problem is to obtain relevant data from companies. Their accounting does not always support easy extraction of the required data. A second challenge is related to problems of timing and differences among products, as explained above. For all these reasons, commercial success tends to be measured according to the achievement of objectives rather than quantitatively.

Strategic features

The market is rife with risks and obstacles for which innovative firms must prepare. If a firm neglects to prepare its commercialization efforts, it may jeopardize its chances of establishing its products rapidly in markets that are already highly competitive.

Risk arises, for example, from the uncertainty that the consumer will accept the new product. The firm may mitigate its level of uncertainty to some extent by carrying out pre-commercialization strategies.

Indeed, a widespread strategy is for firms to build consumer interest in a new product even prior to its launch, either through advertising, promotion at business shows and exhibitions, or by creating expectations via the delivery channel (e.g. the Internet, emphasizing personalized service, offering modular products, etc.), in order to generate consumer curiosity. A prime example of this approach is provided by competition among videogame console designers, who conduct communication campaigns even before their products are available. Diehard gamers will be onboard at the outset, while the undecided will be keen to discover the innovation’s potential even before testing the game. The same phenomenon may be observed among major aircraft manufacturers and, to a lesser extent, small and medium enterprises.

Other strategies for reducing market uncertainty are market studies, distribution network sharing agreements, implementation of strong customer support networks (sales force), product research agreements with partners who are well established in business channels, etc.

Beyond pre-commercialization strategies, firms also attach considerable importance to their market position. In conducting positioning strategies, a firm will determine how to achieve its market positioning goal.

Possible market positioning goals include aiming to become the market leader for a given product or product line, targeting a specific market niche, creating a new market, taking over competitors’ market shares, etc.

Each firm is seeking strategies to prolong its survival in a particular market and commercialize its products under favourable conditions. Commercial strategies can be many, complex or complementary, though, first and foremost, they must meet the firm’s specific need to commercialize its products.

Finally, alternative strategies include partnerships with universities, other companies or organizations, holding a leadership position with regard to environmental standards, prices or production costs, offering the shortest delivery time or being first to market, outdoing the competition in terms of exceptional customer service, etc.

It is important for decision makers to have quantitative indicators of innovative performance in Canada, though they must also understand how firms go about achieving, maintaining or improving performance levels. Understanding firms’ commercial strategies may fulfil this need.

Organizational features

In order to conduct various strategies, firms must acquire human and financial resources and skills, and they must also protect their investment. Furthermore, they may enter into partnerships to obtain resources or mitigate risks.

Human resources are a company’s lifeblood. However, the skills required to commercialize a product differ from those needed to perform technical development. At each stage of the commercialization process, firms require qualified staff to perform research and development, develop new products, conduct market studies and promote products. Companies must also protect their intellectual property rights. To this end, they may hire staff and train and develop resources internally, though they may also call upon other organizations with the skills they seek.

It is not always advisable for a firm to develop internally all its required skills. For example, developing a distribution network throughout North America requires time and resources, and it may be preferable to enter into an agreement with an established network. However, such an agreement also has a cost, that of managing the partner relationship. Through strategic agreements, companies may gain access to specialized skills, financial resources, intellectual property, new markets and distribution networks.

An intellectual property protection strategy is required to safeguard investments in innovation, while allowing the product to move freely to reach the consumer. Patents, copyright and trade secrecy are the primary tools for protecting intellectual property.

Committing human resources to commercialization, establishing partnerships and protecting intellectual property require financial resources. The main source of funding is generally the firm itself. To obtain additional funding, firms use the banking system, venture capital and financial markets, and they may also seek government support. Some businesses are more successful than others in seeking out funding, and it is important to understand why this is so.

Corporate culture is an ill-defined notion that is difficult to grasp. However, it has an impact on a firm’s operations that is sometimes greater among small and medium enterprises.

In many cases, firms have been established by an individual or a small group. The entrepreneur’s personality and skills then become significant characteristics of the firm. In such cases, the firm is a reflection of its founder or chief executive. This individual takes commercialization initiatives, selects innovative distribution channels, decides on advertising, etc.

The innovation commercialization survey asks direct questions on entrepreneurs’ personal characteristics as well as their commercialization training and skills.

References

Rosa, Julio M. and Antoine Rose. 2007. "Report on Interviews on the Commercialization of Innovation". SIEID Working Papers, Catalogue no. 88F0006XIE, no 4. Statistics Canada.

Statistics Canada. 2007. Survey on the Commercialisation of Innovation, 2007. Science, Innovation and Electronic Information Division.

About the authors

Julio M. Rosa, Antoine Rose and Paul Holness are with the Science, Innovation and Electronic Information Division (SIEID) at Statistics Canada. For more information about this article, please contact sieidinfo@statcan.gc.ca.