Disruptive Innovation to create a market where you are the standard to follow

Xing : How to turn your customers into your worst enemies

You have undoubtedly fallen victim to this kind of misfortune… You sign up to a premium account and, all of a sudden, you become a prisoner. You decide that you want to cancel your premium subscription because you no longer use the service, but it transpires that the cancellation process is more of an uphill struggle than a simple procedure…

And that’s when things get serious…

Money is automatically debited from your account… Have you signed a direct debit or standing order with your bank ? Of course not…

The minute you notice the debit, you ask to cancel your subscription. You demand that the debited sum be paid back and you receive the following answer : « We regret that… you are not interested in renewing your Membership… Unfortunately, we are unable to cancel your last invoice, as we did not receive a cancellation from you within the cancellation period… This automatic extension is part of a Premium Membership and was a condition you accepted when you agreed to the contracts terms and conditions section 6.2… etc… »

Does English, American, or French consumer law protect consumers in the case of internet subscriptions to foreign companies ? Do you have the time to look up the answer to that question ? Of course not…

I fell victim to this misfortune with Xing, a German professional social network service. To add insult to injury, Xing asks that I post them a formal written letter, as if e-mails had no legal standing, which is ridiculous coming from an internet company ! Perhaps they would prefer carrier pigeons or pneumatic post? This requirement is also a nuisance for customers who, for the most part, have gone fully digital.

3 fundamental, common sense principles for your customer service :

• Hiding inside a pseudo-legal  shell to force your customers to pay for a service that they don’t want is the worst of strategies…
• An annoyed customer is a source of bad reputation which can spread very quickly. An irked customer will tell ten friends about his experiences, whereas a satisfied customer will only tell one friend. Dissatisfied customers spread their opinions far faster and far more emphatically… 
• On the other hand, when you deal with an annoyed customer’s requests positively, you turn the situation around and transform him into a loyal ambassador. The customer feels understood and appreciated. He will be grateful and will make this known to those around him. Conclusion : customer complaints must always be taken seriously, and thought of as an opportunity to gain ambassadors for your brand.

Disruptive innovations : Free’s example…

There will now be a ‘before’ and an ‘after’ Free mobile in the French mobile phone market. Free Mobile’s strategy is not only about discounts; it is a prime example of disruptive innovation which makes the strategies of Free’s competitors obsolete.

Free is effectively undertaking a disruptive innovation according to the 4 principles which I usually advocate:

1. Question the prevailing mental schema in your sector

Before Free Mobile, mobile phone contracts attempted to attract customers with:
- Hi-tech mobile phones with ever-increasing specs,
- A multitude of offers and contract types
This strategy has an important downside: the cost of securing a new customer increases. For instance, in 2010, it amounted to 12.5% of SFR’s (Vodafone) turnover.

2. Identify the unfulfilled latent needs of your customers

Free got rid of long-term commitments. It responded to the needs of those customers who felt trapped by the long-term commitments that mobile network operators typically force upon them. Free makes choice easy for those customers who are bewildered by wide ranges of offers. In trying to make their offers more attractive and innovating, Free’s competitors have made them confusing and difficult to comprehend.
See also: 7 pieces of advice for creating a competitive advantage through disruptive innovation (2/4)

3. Communicating via a community of enthusiasts

Free relied heavily on buzz, which basically consisted in free publicity from the media and from social networks. 10 days after Free first advertised its offers, 3/5 French people knew the offers’ details. This represented a shift from top-down communication managed by businesses to viral communication, where internet users take over.

Xavier Niel set in motion a radical change which was the logical consequence of the fact that consumers are more ready to listen to their friends’ advice than to commercials. Web-based collectives managed by volunteer enthusiasts have as a matter of fact existed for several years: The ‘Journal de Freenaute’ and ‘Univers Freebox’ for example. Free revolutionalised business-customer relations.
See also: Creating and preserving your competitive advantage in the face of much stronger competition (3/4)

4. Optimise your cost structures

Free reduced its range of contracts and simplified its offers : no commitments, no free mobile phones, only a simple contract. Such offers are not only more attractive to customers. They also create smaller cost structures for Free. They reduce the costs linked to communicating with consumers, to gaining new customers, to logistics and software infrastructures, etc.

How can your competitors respond ?

A disruptive innovation strategy puts competitors in a very tricky situation. The current strategy of Free’s competitors creates cost structures that are greater than those of Free. Imitating Free means decreasing profit margins in far too great a manner. Yet sticking to the prevailing strategy deprives Free’s competitors of those customers that lean towards Free. The best solution for Free’s competitors is to find another disruptive innovation which will allow them to redefine the market. Only then can they escape from the intractable equation imposed upon them by Free.

Questions that you can ask yourself :

• Is it possible to question the prevailing mental schema in my sector?
• Have I identified those needs that are poorly satisfied by what my competitors have to offer ?
• Can I optimize my cost structure further ?
• Have I improved my customer relations ?

Benoit Sarazin

Innovating and creating value in a recession

The quarterly information review "XXI", founded in 2008, broke its own record by selling 50,000 copies this year. At a time when the printed press is going through an unprecedented crisis (-6% sales figures per issue in 2010), XXI’s success gives us the keys to innovation in economic crises.

A differentiated strategy

• It offers high-quality in-depth reports that are much longer than those of its competitors.
• The revue is illustrated with drawings and cartoons. Sold in bookstores, it is likely to seduce a wider public: that of cartoon enthusiasts.
• Issues of "XXI" are sold at 15€ a piece, at a time when the number of free newspapers and magazines is increasing. The review is appreciated by a choosy public who is willing to pay the price.

The "XXI" review has successfully applied 3 principles of innovation that I usually recommend:

3 principles of sustainable and profitable innovations:

1. Interpret your customers’ needs correctly and leave behind your defective mental schemas
   This is the first step when innovating in a recession. Customers do not always know how to clearly express their needs. Nor is it always easy to decipher these needs. The example of the printed press is enlightening in this regard. Taking note of the disaffection of their readers, who were won over by the internet, the printed press wrongly assumed that immediate information and short articles were the key factors for success. The "XXI" review understood that readers would in fact appreciate in-depth articles.
   You can also read: Disruptive innovation, the Mama Shelter case
2. Respond to a need that is both universal and growing
   Among the unsatisfied needs that you will have detected, you must choose the one with the most important business potential: the one that is universal and growing. This is the best way to innovate through the development of a new market. The "XXI" review provides a solution for an unsatisfied need, that of understanding our increasingly complex world.
   See also: Disruptive innovation, the take off of Facebook explained...
3. Differentiate yourself from your competitors
   Innovating while keeping your margins means avoiding hyper-competition. This is what the "XXI" review has done by choosing to be sold in bookstores and by shunning newspaper kiosks, newsdealers and newspaper publishers. In doing so it reaches another market, the cartoon market.
   See also: Innovating in the face of more powerful competition

In a world where making everything free is threatening to destroy whole sectors of the economy, XXI’s success shows that it is possible to create value. In order to do this, you must think beyond the prevailing mental schemas in your sector and decipher the fundamental needs of the market.

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Disruptive innovations, the solution to stagnation
Disruptive innovation is actually a low-risk strategy !

Benoit Sarazin